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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: 03/31/05
--------
Item 1. Reports to Stockholders.
AIM HIGH INCOME MUNICIPAL FUND
Annual Report to Shareholders o March 31, 2005
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
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 in this report is as of March 31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES OTHER INFORMATION The Fund provides a complete list of its
holdings four times in each fiscal year,
o Effective September 30, 2003, Class B o Some organizations choose not to have at the quarter-ends. For the second and
shares are not available as an their bonds rated. Often the issuer of fourth quarters, the lists appear in the
investment for retirement plans an unrated bond is a small entity or Fund's semiannual and annual reports to
maintained pursuant to Section 401 of municipality that does not have extra shareholders. For the first and third
the Internal Revenue Code, including money to pay for a rating. quarters, the Fund files the lists with
401(k) plans, money purchase pension the Securities and Exchange Commission
plans and profit sharing plans. Plans o The average credit quality of the (SEC) on Form N-Q. Shareholders can look
that have existing accounts invested in Fund's holdings as of the close of the up the Fund's Forms N-Q on the SEC's
Class B shares will continue to be reporting period represents the weighted Web site at sec.gov. Copies of the
allowed to make additional purchases. average quality rating of the securities Fund's Forms N-Q may be reviewed and
in the portfolio as assigned by copied at the SEC's Public Reference
PRINCIPAL RISKS OF INVESTING IN THE FUND Nationally Recognized Statistical Rating Room at 450 Fifth Street, N.W.,
Organizations based on assessment of the Washington, D.C. 20549-0102. You can
o Investing in higher-yielding, credit quality of the individual obtain information on the operation of
lower-rated municipal bonds, commonly securities. For non-rated securities in the Public Reference Room, including
known as junk bonds, has a greater risk the portfolio, the credit quality rating information about duplicating fee
of price fluctuation and loss of is assigned by A I M Advisors, Inc. charges, by calling 1-202-942-8090 or by
principal and income than investing in using similar criteria. electronic request at the following
higher-rated general obligation E-mail address: publicinfo@sec.gov. The
municipal bonds and U.S. government o Effective duration is a measure, as SEC file numbers for the Fund are
securities (such as U.S. Treasury bills, estimated by a fund's portfolio 811-7890 and 33-66242. The Fund's most
notes and bonds), for which the managers, of a bond fund's price recent portfolio holdings, as filed on
government guarantees repayment of sensitivity to changes in interest Form N-Q, are also available at
principal and interest if held to rates. AIMinvestments.com.
maturity.
o Weighted average effective maturity is A description of the policies and
ABOUT INDEXES USED IN THIS REPORT a measure, as estimated by a fund's procedures that the Fund uses to
portfolio managers, of the length of determine how to vote proxies relating
o The unmanaged Lehman Municipal Bond time until the average security in a to portfolio securities is available
Index, which represents the performance bond fund will mature or be redeemed by without charge, upon request, from our
of investment-grade municipal bonds, is its issuer. Both measures take into Client Services department at
compiled by Lehman Brothers, a global account mortgage prepayments, puts, 800-959-4246 or on the AIM Web site,
investment bank. adjustable coupons and potential call AIMinvestments.com. On the home page,
dates. scroll down and click on AIM Funds Proxy
o The unmanaged Lipper High Yield Policy. The information is also
Municipal Debt Fund Index represents an o The returns shown in management's available on the SEC Web site, sec.gov.
average of the 10 largest high yield discussion of Fund performance are based
municipal-bond funds tracked by Lipper, on net asset values calculated for Information regarding how the Fund voted
Inc., an independent mutual fund shareholder transactions. Generally proxies related to its portfolio
performance monitor. accepted accounting principles require securities during the 12 months ended
adjustments to be made to the net assets June 30, 2004, is available at our Web
o The Fund is not managed to track the of the Fund at period end for financial site. Go to AIMinvestments.com, access
performance of any particular index, reporting purposes, and as such, the net the About Us tab, click on Required
including the indexes defined here, and asset values for shareholder Notices and then click on Proxy Voting
consequently, the performance of the transactions and the returns based on Activity. Next, select the Fund from the
Fund may deviate significantly from the those net asset values may differ from drop-down menu. The information is also
performance of the indexes. the net asset values and returns available on the SEC Web site, sec.gov.
reported in the Financial Highlights.
o A direct investment cannot be made in
an index. Unless otherwise indicated,
index results include reinvested
dividends, and they do not reflect sales
charges. Performance of an index of
funds reflects fund expenses;
performance of a market index does not.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
</Table>
AIM HIGH INCOME MUNICIPAL FUND
DEAR FELLOW SHAREHOLDERS:
The fiscal year covered by this report saw both equities and
bonds* produce positive total returns, but it wasn't a very
smooth ride. Markets were at their best during the second
[GRAHAM half of 2004--bonds during the third quarter of that year
PHOTO] and equities during the fourth. Returns turned negative for
both asset classes during the first quarter of 2005.
The huge run-up in the price of oil over the course of the
fiscal year goes a long way toward explaining the markets'
ROBERT H. GRAHAM loss of confidence early in 2005. The Consumer Price Index
rose more in March 2005 than one month earlier. Energy costs
advanced 4.0% in March; the petroleum-based subset of energy
increased 7.8%.
Another negative factor has been Federal Reserve policy.
With a view to warding off potential inflation, the Federal
[WILLIAMSON Reserve (the Fed) raised short-term interest rates in March,
PHOTO] the seventh such move since mid-year 2004. The Fed noted
that inflationary pressures have picked up recently and that
businesses' ability to raise prices appeared stronger than
in the recent past. There is a virtually universal
expectation that the Fed will continue to increase
MARK H. WILLIAMSON short-term interest rates during 2005, which could
ultimately dampen economic performance. (In early May, after
the close of the reporting period, the Fed raised rates once
again.)
Nevertheless, there was also much good news for
investors as of March 31, 2005:
o The Institute for Supply Management's manufacturing
and non-manufacturing indexes--based on surveys of
purchasing managers in industries that cover more than
80% of the U.S. economy--both indicated continued
healthy growth during March and April and remained in
very strong territory. April was the 42nd month in a
row these surveys showed the economy as a whole
expanding.
o Job growth during March was weaker than in the recent
past, though the unemployment rate declined over the
course of the fiscal year. In fact, less than robust
job growth during March was good news for bond
investors--there is still enough slack in the job
market to keep wage inflation from becoming an issue.
o Bond yields haven't risen as much as might be expected
given seven increases in short-term rates over the
fiscal year. Evidently, the bond market is not
anticipating a long-term inflationary pattern.
So once again we are seeing a good news/bad news
combination--a situation that is far from unusual. Over the
short term, financial markets are unpredictable. It is over
the long term that they have been rewarding to investors,
and we remain confident in their long-term outlook. Given
the inability to make accurate short-term forecasts, as
always, we urge our shareholders to:
o keep a long-term investment perspective,
o make sure their portfolios are suitably diversified,
and
o contact their financial advisors when they have
questions or concerns about their investments or the
markets.
YOUR FUND
The following pages present a discussion of your Fund's
approach to investing, an explanation of its performance
over the fiscal year, and a summary of its portfolio as that
year closed. Further information about your Fund and The AIM
Family of Funds--Registered Trademark--, as well as general
information concerning investing, is always available on our
widely praised Web site, AIMinvestments.com. We invite you
to visit frequently.
As always, we at AIM are dedicated to building solutions
to help you meet your investment goals. We thank you for
your continued participation in AIM Investments--Registered
Trademark--. If you have any questions, please contact our
award-winning Client Service representatives at
800-959-4246. We are pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Trustee, President & Vice Chair, Chairman & President,
AIM Funds A I M Advisors, Inc.
May 20, 2005
*Equities represented by the S&P 500 Index, an index of
common stocks often used as a general measure of U.S. stock
market performance; bonds by the Lehman U.S. Aggregate Bond
Index, an index compiled by Lehman Brothers, the global
investment bank, that represents the U.S. investment-grade
fixed-rate bond market.
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
AIM HIGH INCOME MUNICIPAL FUND
<Table>
MANAGEMENT'S DISCUSSION project, such as an airport, a toll
OF FUND PERFORMANCE road, water and sewer works, hospitals
or housing. The proceeds from the
AIM High Income Municipal Fund had quite Fund, but also investment-grade project--such as user fees, tolls or
a successful year, as demand remained instruments. High yield bonds rents--are used to pay interest and
strong for the limited supply of the considerably outperformed principal on the bonds. For this reason
types of bonds in which the Fund investment-grade issues during this we consider the cash flow structure of
invests. State and local governments fiscal year. revenue bonds more predictable than that
showed continued restraint on new of general obligation bonds, which are
projects, causing the supply of new The Fund's returns were also higher paid from the issuing authority's
revenue bonds--bonds backed by dedicated than the average of its peers, as general tax income rather than a
revenue from specific projects--to be represented by the Lipper High Yield dedicated income stream.
tight. Strong demand kept prices stable, Municipal Debt Fund Index. Our strong
providing additional total return focus on below-investment-grade bonds In selecting securities, we focus on
potential. enabled us to outperform many peer projects that make good business sense
funds, some of which hold lower-yielding and have experienced managers. We review
======================================= investment-grade bonds. industry and project financial
FUND VS. INDEXES statements, perform site visits to
Total returns, 3/31/04-3/31/05, HOW WE INVEST discuss the project with management, and
EXCLUDING APPLICABLE SALES CHARGES. IF review independent appraisals of the
SALES CHARGES WERE INCLUDED, RETURNS AIM High Income Municipal Fund seeks project. We also review environmental
WOULD BE LOWER. high income exempt from federal taxes by and feasibility studies on the project
investing in a portfolio of and conduct our own in-house cash flow
Class A Shares 6.51% below-investment-grade municipal bonds. analysis.
We manage the Fund for income rather
Class B Shares 5.73 than total return, and we try to limit The decision to purchase includes
the fluctuation of principal value. negotiating key terms with the issuer,
Class C Shares 5.73 such as calls and loan covenants, the
To provide higher yields, we credit basis and fair price (coupon) for
Lehman Municipal Bond Index maintain a relatively long duration--a the bond issue. After purchase, we
(Broad Market and Style- measure of a bond fund's price maintain contacts with facility
specific Index) 2.67 sensitivity to changes in interest management by phone and site visits, and
rates--and weighted average maturity, as review monthly or quarterly financial
Lipper High Yield Municipal high yield bonds typically are less statements.
Debt Fund Index (Peer Group sensitive to interest rate changes than
Index) 5.15 investment-grade bonds are. (High yield We generally take a buy-and-hold
bonds are more affected by credit approach, but we may decide to sell a
SOURCE: LIPPER,INC. quality.) holding if credit quality declines or
======================================= the outlook for the project undergoes a
The Fund invests primarily in negative change. We may also decide to
The Fund outperformed its revenue bonds that finance essential sell a holding to shorten or lengthen
broad-market index by a wide margin, services such as hospitals, nursing the Fund's duration or to limit exposure
with total returns more than double the homes and educational facilities. to a sector or issuer.
return of the Lehman Municipal Bond Revenue bonds are typically issued to
Index. This occurred in large measure fund the building or renovation of a
because this index includes not only specific
high yield, lower-rated bonds comparable
to those held by AIM High Income
Municipal
======================================= ==============================================================================
PORTFOLIO COMPOSITION TOP FIVE FIXED-INCOME HOLDINGS
By type of bond, as of 3/31/05 % OF NET
COUPON MATURITY ASSETS
1. Amarillo (City of) Health Facilities Corp. 2.42% 5/31/25 2.5%
2. Onondaga (County of) Industrial Development
[PIE CHART] Agency 7.00 11/1/30 1.0
Revenue Bonds 72.2% 3. New Jersey (State of) Health Care Facilities
Industrial Development and Financing Authority 7.25 7/1/27 0.9
Other Bonds 13.7%
General Obligation Bonds 13.9% 4. Beaver (County of) Industrial Development
Other Assets Less Liabilities 0.2% Authority 7.63 5/1/25 0.8
5. Overland Park (City of) Development Corp. 7.38 1/1/32 0.8
==============================================================================
==============================================================================
TOTAL NET ASSETS $212.5 MILLION
The Fund's holdings are subject to TOTAL NUMBER OF HOLDINGS 298
change, and there is no assurance that AVERAGE CREDIT QUALITY RATING BB
the Fund will continue to hold any WEIGHTED AVERAGE MATURITY 20.51 YEARS
particular security. AVERAGE DURATION 6.63 YEARS
======================================= ==============================================================================
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2
<Table>
MARKET CONDITIONS AND YOUR FUND We continued to increase the Fund's The views and opinions expressed in
exposure to charter schools. We consider management's discussion of Fund
U.S. economic growth continued, with these an attractive opportunity, as some performance are those of A I M Advisors,
gross domestic product--a broad measure schools are developing positive Inc. These views and opinions are
of economic activity--increasing in all operating histories, which we believe subject to change at any time based on
four quarters of the fiscal year. To the market will recognize and reward. factors such as market and economic
forestall the inflation that often conditions. These views and opinions may
accompanies economic growth, the Federal IN CLOSING not be relied upon as investment advice
Reserve raised its target federal funds or recommendations, or as an offer for a
rate--the interest rate on overnight At the close of the fiscal year, the particular security. The information is
loans between banks--seven times during Fund was positioned to benefit from not a complete analysis of every aspect
the Fund's fiscal year. Short-term economic growth and rising interest of any market, country, industry,
interest rates rose as expected, but rates. We believe the market considers security or the Fund. Statements of fact
long-term rates unexpectedly declined. economic growth likely to continue, are from sources considered reliable,
This decline in interest rates for newly though at a more moderate pace. We think but A I M Advisors, Inc. makes no
issued bonds tended to boost the values short-term interest rates will continue representation or warranty as to their
of existing bonds bearing higher to rise, and long-term interest rates completeness or accuracy. Although
coupons, so this trend benefited the will likely rise more slowly. historical performance is no guarantee
Fund, which holds primarily long-term of future results, these insights may
bonds. In a rising interest rate help you understand our investment
environment, shortening a fund's management philosophy.
Hospital bonds remained positive duration can help reduce interest rate
performers for the Fund, which holds risk, and we may reduce the portfolio's See important Fund and index
primarily local, non-profit hospitals. duration if we believe it will moderate disclosures inside front cover.
Their profitability is generally the downside risk of rising interest
increasing due to better expense rates on the Fund's longer-term bonds. FRANKLIN RUBEN, Senior
controls and a somewhat more favorable Portfolio Manager, is lead
reimbursement environment. We found We believe the Fund is positioned to [RUBEN manager of AIM High Income
opportunities among relatively small, take advantage of potential capital PHOTO] Municipal Fund. He began his
lightly followed municipal revenue bond appreciation opportunities. Many of the investment career in 1985 and
issues. We believe some of these bonds Fund's revenue bond holdings are tied to joined AIM in 1997. He holds
may be priced attractively, in that the local and national economies. During a both a B.S. in accounting and an M.S. in
yield on the bonds may be greater than stable economy, cash flows for such finance from The University of Texas at Dallas,
is justified by their risk factors, projects generally improve, and this can and completed the Cash Management Executive
thereby providing relatively high income strengthen their credit quality and Education Program at Duke University.
at relatively low cost and risk. increase the value of their securities.
We plan to continue monitoring economic RICHARD A. BERRY,
We largely avoided volatile sectors and market conditions closely and to Chartered Financial Analyst,
such as tobacco and airline bonds. While respond accordingly. [BERRY Senior Portfolio Manager, is
price performance in these sectors has PHOTO] portfolio manager of AIM High
been attractive from a total return Thank you for your continued Income Municipal Fund. He
perspective, we believe the business investment in AIM High Income Municipal has been in the investment
risks outweigh the potential price Fund. industry since 1968 and joined AIM in 1987. He
appreciation. received both a B.B.A. and an M.B.A. in finance
from Texas Christian University.
================================================================================
FUND PROVIDES CURRENT INCOME SHARON A. COPPER,
Portfolio Manager, is portfolio
30-Day Taxable [COPPER manager of AIM High Income
Distribution Equivalent 30-Day 30-Day Taxable Equivalent PHOTO] Municipal Fund. She began
Rate Distribution Rate Yield 30-Day Yield her career in the investment
Class A 5.54% 8.52% 4.98% 7.66% industry in 1985 and joined
Class B 5.09 7.83 4.47 6.88 AIM in 1992. She received a B.B.A. in marketing
Class C 5.09 7.83 4.47 6.88 with a minor in finance from Southeastern
Louisiana University and an M.B.A. in finance
o The Fund's 30-day distribution rate reflects its most recent monthly dividend from the University of St. Thomas.
distribution multiplied by 12 and divided by the most recent month-end maximum
offering price. Assisted by the Municipal Bond Team
o The taxable-equivalent 30-day distribution rate is calculated in the same
manner as the 30-day distribution rate, adjusted for an assumed tax rate of 35%,
the highest federal income tax rate in effect on March 31, 2005.
o 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.
o The taxable-equivalent 30-day yield is calculated in the same manner as the
30-day yield, adjusted for an assumed tax rate of 35%, the highest federal
income tax rate in effect on March 31, 2005.
o Had the advisor not waived fees and/or reimbursed expenses, 30-day yields [RIGHT ARROW GRAPHIC]
would have been 4.48%, 3.94% and 3.94% for Class A, Class B and Class C shares,
respectively. Taxable equivalent 30-day yields would have been 6.89%, 6.06% and FOR A PRESENTATION OF YOUR FUND'S
6.06% for Class A, Class B and Class C shares, respectively. LONG-TERM PERFORMANCE RECORD, PLEASE
================================================================================ TURN TO PAGE 5.
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3
AIM HIGH INCOME MUNICIPAL FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, The hypothetical account values and
to estimate the expenses that you paid expenses may not be used to estimate the
As a shareholder of the Fund, you incur over the period. Simply divide your actual ending account balance or
two types of costs: (1) transaction account value by $1,000 (for example, an expenses you paid for the period. You
costs, which may include sales charges $8,600 account value divided by $1,000 = may use this information to compare the
(loads) on purchase payments; contingent 8.6), then multiply the result by the ongoing costs of investing in the Fund
deferred sales charges on redemptions; number in the table under the heading and other funds. To do so, compare this
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During 5% hypothetical example with the 5%
ongoing costs, including management Period" to estimate the expenses you hypothetical examples that appear in the
fees; distribution and/or service fees paid on your account during this period. shareholder reports of the other funds.
(12b-1); and other Fund expenses. This
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown
understand your ongoing costs (in PURPOSES in the table are meant to highlight your
dollars) of investing in the Fund and to ongoing costs only and do not reflect
compare these costs with ongoing costs The table below also provides any transactional costs, such as sales
of investing in other mutual funds. The information about hypothetical account charges (loads) on purchase payments,
example is based on an investment of values and hypothetical expenses based contingent deferred sales charges on
$1,000 invested at the beginning of the on the Fund's actual expense ratio and redemptions, and redemption fees, if
period and held for the entire period an assumed rate of return of 5% per year any. Therefore, the hypothetical
October 1, 2004, through March 31, 2005. before expenses, which is not the Fund's information is useful in comparing
actual return. The Fund's actual ongoing costs only, and will not help
ACTUAL EXPENSES cumulative total returns at net asset you determine the relative total costs
value after expenses for the six months of owning different funds.
The table below provides information ended March 31, 2005, appear in the
about actual account values and actual table "Cumulative Total Returns" on page
expenses. You may use the information in 5.
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/1/04) (3/31/05)(1) PERIOD(2) (3/31/05) PERIOD(2)
A $1,000.00 $1,040.50 $2.80 $1,022.19 $2.77
B 1,000.00 1,036.70 6.60 1,018.45 6.54
C 1,000.00 1,036.70 6.60 1,018.45 6.54
(1) The actual ending account value is based on the actual total return of the Fund for the period October 1, 2004, to March 31,
2005, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio
and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value after expenses
for the six months ended March 31, 2005, appear in the table "Cumulative Total Returns" on page 5.
(2) Expenses are equal to the Fund's annualized expense ratio, 0.55%, 1.30% and 1.30% for Class A, B and C shares, respectively,
multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
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4
AIM HIGH INCOME MUNICIPAL FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
Your Fund's total return includes ============================================================================
reinvested distributions, applicable RESULTS OF A $10,000 INVESTMENT
sales charges, Fund expenses and Fund data from 1/2/98 (index data from 12/31/97)
management fees. Results for Class B
shares are calculated as if a [MOUNTAIN CHART]
hypothetical shareholder had liquidated
his entire investment in the Fund at the AIM High AIM High AIM High
close of the reporting period and paid Income Income Income Lipper High
the applicable contingent deferred sales Municipal Municipal Municipal Yield
charges. Index results include Fund Fund Fund Municipal Lehman
reinvested dividends, but they do not Class A Class B Class C Debt Fund Municipal
reflect sales charges. Performance of an Date Shares Shares Shares Index Bond Index
index of funds reflects fund expenses 12/31/97 $ 9525 $10000 $10000 $10000 $10000
and management fees; performance of a 1/98 9557 10024 10022 10096 10103
market index does not. Performance shown 2/98 9591 10043 10051 10121 10106
in the chart and tables does not reflect 3/98 9623 10080 10078 10137 10115
deduction of taxes a shareholder would 4/98 9608 10047 10055 10116 10070
pay on Fund distributions or sale of 5/98 9747 10187 10184 10242 10229
Fund shares. Performance of the indexes 6/98 9819 10255 10252 10298 10269
does not reflect the effects of taxes. 7/98 9823 10263 10260 10315 10295
8/98 9985 10415 10412 10444 10454
This chart, which is a logarithmic 9/98 10087 10526 10523 10532 10584
chart, presents the fluctuations in the 10/98 10073 10495 10492 10506 10584
value of the Fund and its indexes. We 11/98 10109 10525 10522 10525 10621
believe that a logarithmic chart is more 12/98 10124 10535 10532 10556 10648
effective than other types of charts in 1/99 10189 10597 10594 10641 10775
illustrating changes in value during the 2/99 10145 10554 10552 10616 10728
early years shown in the chart. The 3/99 10201 10607 10604 10641 10742
vertical axis, the one that indicates 4/99 10259 10650 10647 10685 10769
the dollar value of an investment, is 5/99 10244 10639 10636 10640 10707
constructed with each segment 6/99 10117 10490 10487 10523 10553
representing a percent change in the 7/99 10113 10480 10477 10548 10591
value of the investment. In this chart, 8/99 9933 10286 10283 10422 10506
each segment represents a doubling, or 9/99 9836 10178 10175 10403 10511
100% change, in the value of the 10/99 9540 9864 9861 10239 10397
investment. In other words, the space 11/99 9536 9864 9861 10304 10507
between $10,000 and $20,000 is the same 12/99 9353 9657 9665 10171 10429
size as the space between $20,000 and 1/00 9179 9481 9479 10045 10384
$40,000, the space between $20,000 and 2/00 9261 9559 9556 10145 10504
$40,000 is the same as that between 3/00 9407 9703 9701 10298 10734
$40,000 and $80,000, and so on. 4/00 9349 9626 9634 10255 10670
5/00 9280 9559 9556 10198 10615
========================================== 6/00 9419 9694 9702 10341 10896
AVERAGE ANNUAL TOTAL RETURNS 7/00 9535 9808 9804 10446 11048
8/00 9532 9808 9804 10574 11218
As of 3/31/05, including applicable 9/00 9528 9797 9793 10548 11160
sales charges 10/00 9591 9855 9851 10580 11281
After 11/00 9598 9855 9851 10565 11367
Taxes on 12/00 9707 9947 9955 10651 11648
Distri- 1/01 9737 9982 9979 10723 11763
After butions 2/01 9801 10041 10038 10783 11800
Taxes on and Sale 3/01 9888 10135 10132 10859 11906
Before Distri- of Fund 4/01 9884 10112 10109 10794 11777
Taxes butions Shares 5/01 10008 10230 10227 10910 11904
CLASS A SHARES 6/01 10120 10338 10335 10990 11983
Inception 7/01 10254 10480 10477 11131 12161
(1/2/98) 3.52% 3.51% 3.80% 8/01 10435 10647 10644 11304 12361
5 Years 5.41 5.41 5.50 9/01 10346 10550 10547 11222 12320
1 Year 1.40 1.40 2.95 10/01 10459 10658 10655 11272 12467
11/01 10429 10620 10617 11206 12362
CLASS B SHARES 12/01 10375 10559 10556 11117 12245
Inception 1/02 10489 10669 10666 11214 12457
(1/2/98) 3.42% 3.42% 3.64% 2/02 10592 10766 10763 11290 12607
5 Years 5.31 5.31 5.33 3/02 10524 10690 10687 11184 12360
1 Year 0.73 0.73 2.34 4/02 10613 10775 10772 11320 12602
5/02 10679 10835 10832 11384 12678
CLASS C SHARES 6/02 10783 10933 10930 11477 12812
Inception 7/02 10886 11031 11028 11563 12977
(1/2/98) 3.42% 3.42% 3.64% 8/02 10978 11117 11114 11626 13133
5 Years 5.63 5.63 5.61 9/02 11070 11204 11201 11746 13421
1 Year 4.73 4.73 4.95 10/02 10948 11074 11071 11548 13198
========================================== 11/02 10978 11097 11094 11567 13143
12/02 11122 11237 11234 11752 13421
The performance data quoted represent 1/03 11139 11247 11244 11728 13387
past performance and cannot guarantee 2/03 11247 11348 11345 11856 13574
comparable future results; current 3/03 11239 11334 11330 11807 13582
performance may be lower or higher. 4/03 11335 11423 11420 11919 13672
Please visit AIMinvestments.com for the 5/03 11535 11618 11615 12178 13992
most recent month-end performance. 6/03 11540 11616 11613 12183 13932
Performance figures reflect reinvested 7/03 11334 11401 11385 11933 13445
distributions, changes in net asset 8/03 11417 11479 11476 11983 13545
value and the effect of the maximum 9/03 11595 11651 11648 12274 13943
sales charge unless otherwise stated. 10/03 11614 11661 11659 12309 13873
Investment return and principal value 11/03 11686 11727 11724 12438 14018
will fluctuate so that you may have a 12/03 11773 11805 11803 12553 14134
gain or loss when you sell shares. 1/04 11873 11899 11882 12672 14215
2/04 12041 12060 12043 12834 14429
Class A share performance reflects 3/04 12059 12071 12069 12816 14378
the maximum 4.75% sales charge, and 4/04 11899 11903 11901 12632 14038
Class B and Class C share performance 5/04 11918 11901 11898 12594 13987
reflects the applicable contingent 6/04 11993 11982 11979 12642 14038
deferred sales charge (CDSC) for the 7/04 12111 12091 12075 12771 14223
period involved. The CDSC on Class B 8/04 12270 12243 12227 12961 14508
shares declines from 5% beginning at the 9/04 12346 12312 12309 13051 14585
time of purchase to 0% at the beginning 10/04 12480 12438 12435 13157 14710
of the seventh year. The CDSC on Class C 11/04 12499 12449 12446 13167 14589
shares is 1% for the first year after 12/04 12662 12603 12600 13333 14767
purchase. 1/05 12796 12728 12711 13456 14905
2/05 12844 12767 12751 13489 14855
The performance of the Fund's share 3/05 $12848 $12763 $12761 $13476 $14762
classes will differ due to different
sales charge structures and class Source: Lipper, Inc.
expenses. =============================================================================
Had the advisor not waived fees
and/or reimbursed expenses, performance
would have been lower.
After-tax returns are calculated
using the historical highest individual
federal marginal income tax rate. They
do not reflect the effect of state and
local taxes. Actual after-tax returns
depend on the investor's tax situation
and may differ from those shown.
After-tax returns shown are not relevant
to investors who hold their shares in
tax-deferred accounts such as 401(k)s or
IRAs.
=======================================
CUMULATIVE TOTAL RETURNS
6 months ended 3/31/05
Excluding applicable sales charges
Class A Shares 4.05%
Class B Shares 3.67
Class C Shares 3.67
=======================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2005
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-99.79%
ARIZONA-1.58%
Pima (County of) Industrial Development
Authority (Desert Heights Charter School);
Educational Facilities Series 2003 IDR
7.25%, 08/01/19(a) $ 830 $ 834,067
- --------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Horizon Community Learning
Center); Refunding Series 2005 IDR 5.25%,
06/01/35(a) 1,500 1,475,355
- --------------------------------------------------------------------
Scottsdale (City of) Industrial Development
Authority (Scottsdale Healthcare); Hospital
Series 2001 IDR
5.80%, 12/01/31(a) 500 533,575
- --------------------------------------------------------------------
Tucson (City of) Industrial Development
Authority (Arizona AgriBusiness & Equine
Center Inc.); Educational Facilities Series
2004 A IDR
6.13%, 09/01/34(a) 500 503,335
====================================================================
3,346,332
====================================================================
CALIFORNIA-3.06%
California (State of) Educational Facilities
Authority (Fresno Pacific University);
Series 2000 A RB
6.75%, 03/01/19(a) 1,000 1,094,490
- --------------------------------------------------------------------
California (State of) Educational Facilities
Authority (Keck Graduate Institute); Series
2000 RB
6.75%, 06/01/30(a) 390 424,226
- --------------------------------------------------------------------
California (State of) Statewide Communities
Development Authority (Daughters of Charity
Health); Series 2005 A RB
5.25%, 07/01/30(a) 1,250 1,277,725
- --------------------------------------------------------------------
California (State of) Statewide Communities
Development Authority (Hospice of Napa
Valley Project); Series 2004 A RB
7.00%, 01/01/34(a) 900 914,499
- --------------------------------------------------------------------
California (State of) Statewide Communities
Development Authority (Notre Dame de Namur
University); Series 2003 RB
6.50%, 10/01/23(a) 1,000 1,021,910
- --------------------------------------------------------------------
Turlock (City of) Health Facilities Authority
(Emanuel Medical Center Inc.); Series 2004
COP
5.00%, 10/15/24(a) 980 967,956
- --------------------------------------------------------------------
5.38%, 10/15/34(a) 800 805,024
====================================================================
6,505,830
====================================================================
COLORADO-9.75%
Antelope Heights Metropolitan District;
Limited Tax Series 2003 GO
8.00%, 12/01/23(a) 500 500,410
- --------------------------------------------------------------------
Bradburn Metropolitan District No. 3; Limited
Tax Series 2003 GO
7.50%, 12/01/33(a) 500 511,815
- --------------------------------------------------------------------
</Table>
<Table>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
<Caption>
COLORADO-(CONTINUED)
Bromley Park Metropolitan District No. 2;
Limited Tax Series 2002 B GO
8.05%, 12/01/32(a) $ 500 $ 507,590
- --------------------------------------------------------------------
Bromley Park Metropolitan District No. 2;
Limited Tax Series 2003 GO
8.05%, 12/01/32(a) 750 761,385
- --------------------------------------------------------------------
Buckhorn Valley Metropolitan District No. 2;
Limited Tax Series 2003 GO
7.00%, 12/01/23(a) 500 500,415
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Academy Charter
School Project); Series 2000 RB
7.13%, 12/15/30(a) 1,195 1,279,953
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Denver
Arts School Project); Series 2003 RB
8.00%, 05/01/34(a) 500 517,060
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Excel
Academy Project); Series 2003 RB
7.30%, 12/01/23(a) 570 598,432
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-Littleton Academy Building Project);
Series 2002 RB
6.00%, 01/15/22(a) 500 500,770
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Peak
to Peak Project); Refunding & Improvement
Series 2004 RB
5.25%, 08/15/24(a)(b) 500 535,070
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Peak
to Peak Project); Series 2001 RB
7.63%, 08/15/11(a)(c)(d) 500 616,675
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-Pioneer Charter Project); Series
2003 RB
7.75%, 10/15/33(a) 750 773,527
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Platte
Academy Project); Series 2002 A RB
7.25%, 03/01/10(a)(c)(d) 500 575,185
- --------------------------------------------------------------------
7.25%, 03/01/10(a)(c)(d) 500 586,775
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-University Lab School Project);
Series 2001 RB
6.13%, 06/01/11(a)(c)(d) 150 171,716
- --------------------------------------------------------------------
6.25%, 06/01/11(a)(c)(d) 500 575,820
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Denver Academy Inc.
Project); Refunding Series 2003 A RB
7.00%, 11/01/23(a) 500 501,010
- --------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
COLORADO-(CONTINUED)
Colorado (State of) Educational & Cultural
Facilities Authority (Denver Science &
Technology); Series 2004 RB
5.00%, 12/01/13(a) $ 750 $ 773,482
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Heritage Christian
School); Series 2004 A RB
7.50%, 06/01/34(a) 1,000 1,029,180
- --------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (Portercare Adventist Health);
Hospital Series 2001 RB
6.50%, 11/15/31(a) 500 549,200
- --------------------------------------------------------------------
Conservatory Metropolitan District (Arapahoe
County); Limited Tax Series 2003 GO
7.50%, 12/01/27(a) 750 795,990
- --------------------------------------------------------------------
Conservatory Metropolitan District (Arapahoe
County); Limited Tax Series 2005 GO
6.75%, 12/01/34(a) 810 806,298
- --------------------------------------------------------------------
Denver (City of) Health & Hospital Authority;
Refunding Health Care Series 2004 A RB
6.25%, 12/01/33(a) 500 529,295
- --------------------------------------------------------------------
Montrose (County of) (Homestead at Montrose
Inc.); Health Care Facilities Series 2003 A
RB
5.75%, 02/01/15(a) 250 251,920
- --------------------------------------------------------------------
6.75%, 02/01/22(a) 200 202,506
- --------------------------------------------------------------------
7.00%, 02/01/25(a) 800 809,792
- --------------------------------------------------------------------
Neu Towne Metropolitan District; Limited Tax
Series 2004 GO
7.25%, 12/01/34(a) 775 768,815
- --------------------------------------------------------------------
Saddle Rock (City of) South Metropolitan
District No. 2 (Mill Levy Obligation);
Limited Tax Series 2000 GO
7.20%, 12/01/19(a) 535 561,263
- --------------------------------------------------------------------
Serenity Ridge Metropolitan District No. 2;
Limited Tax Series 2004 GO
7.50%, 12/01/34(a) 750 746,790
- --------------------------------------------------------------------
Southlands Metropolitan District No. 1;
Unlimited Tax Series 2004 GO
6.75%, 12/01/16(a) 500 547,310
- --------------------------------------------------------------------
7.13%, 12/01/34(a) 500 545,965
- --------------------------------------------------------------------
Table Rock Metropolitan District; Limited Tax
Series 2003 GO
7.00%, 12/01/33(a) 750 755,460
- --------------------------------------------------------------------
University of Northern Colorado (Auxiliary
Facilities System); Refunding & Improvement
Series 2001 RB
5.00%, 06/01/23(a)(b) 1,000 1,033,080
====================================================================
20,719,954
====================================================================
DISTRICT OF COLUMBIA-0.45%
District of Columbia Tobacco Settlement
Financing Corp.; Asset-Backed Series 2001
RB
6.50%, 05/15/33(a) 920 956,441
====================================================================
</Table>
<Table>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
<Caption>
FLORIDA-7.08%
Concorde Estates Community Development
District; Capital Improvement Series 2004 B
RB
5.00%, 05/01/11(a) $ 500 $ 500,110
- --------------------------------------------------------------------
Cory Lakes Community Development District;
Special Assessment Series 2001 A GO
8.38%, 05/01/17(a) 455 509,568
- --------------------------------------------------------------------
Cory Lakes Community Development District;
Special Assessment Series 2001 B GO
8.38%, 05/01/17(a) 290 307,652
- --------------------------------------------------------------------
Cypress Lakes Community Development District;
Special Assessment Series 2004 A RB
6.00%, 05/01/34(a) 645 647,625
- --------------------------------------------------------------------
Fishhawk Community Development District;
Special Assessment Series 1996 GO
7.63%, 05/01/06(a)(c)(d) 780 830,778
- --------------------------------------------------------------------
Fishhawk Community Development District II;
Special Assessment Series 2003 B RB
5.00%, 11/01/07(a) 500 506,695
- --------------------------------------------------------------------
Islands at Doral Southwest Community
Development District; Special Assessment
Series 2003 GO
6.38%, 05/01/35(a) 500 522,345
- --------------------------------------------------------------------
Lee (County of) Industrial Development
Authority (Cypress Cove at HealthPark);
Health Care Facilities Series 2002 A IDR
6.75%, 10/01/32(a) 1,250 1,273,587
- --------------------------------------------------------------------
Miami Beach (City of) Health Facilities
Authority (Mount Sinai Medical Center);
Hospital Series 2001 A RB
6.70%, 11/15/19(a) 1,000 1,069,420
- --------------------------------------------------------------------
Miami Beach (City of) Health Facilities
Authority (Mount Sinai Medical Center);
Refunding Hospital Series 2004 RB
6.75%, 11/15/29 (Acquired 04/26/04; Cost
$482,320)(a)(e) 500 536,630
- --------------------------------------------------------------------
Midtown Miami Community Development District;
Special Assessment Series 2004 A GO
6.00%, 05/01/24(a) 1,000 1,030,630
- --------------------------------------------------------------------
6.25%, 05/01/37(a) 1,000 1,033,580
- --------------------------------------------------------------------
Mount Dora (City of) Health Facilities
Authority (Waterman Village Project);
Refunding Series 2004 A RB
5.75%, 08/15/18(a) 750 738,817
- --------------------------------------------------------------------
Orange (County of) Health Facilities
Authority (Adventist Health System);
Hospital Series 2002 RB
5.63%, 11/15/32(a) 750 791,790
- --------------------------------------------------------------------
Orlando (City of) Urban Community Development
District; Capital Improvement Special
Assessment Series 2001 A GO
6.95%, 05/01/33(a) 1,000 1,063,920
- --------------------------------------------------------------------
Orlando (City of) Urban Community Development
District; Capital Improvement Special
Assessment Series 2004 GO
6.25%, 05/01/34(a) 1,000 1,027,400
- --------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
FLORIDA-(CONTINUED)
Poinciana Community Development District;
Special Assessment Series 2000 A GO
7.13%, 05/01/31(a) $1,000 $ 1,053,740
- --------------------------------------------------------------------
Reunion East Community Development District;
Special Assessment Series 2002 A GO
7.38%, 05/01/33(a) 1,000 1,097,940
- --------------------------------------------------------------------
Seven Oaks Community Development District II;
Special Assessment Series 2003 B RB
5.30%, 11/01/08(a) 510 511,790
====================================================================
15,054,017
====================================================================
GEORGIA-2.19%
Atlanta (City of) (Atlantic Station Project);
Tax Allocation Series 2001 GO
7.75%, 12/01/14(a) 750 819,090
- --------------------------------------------------------------------
7.90%, 12/01/24(a) 750 814,470
- --------------------------------------------------------------------
Fulton (County of) Residential Care
Facilities Authority (Canterbury Court
Project); Series 2004 A RB
6.13%, 02/15/26(a) 500 502,005
- --------------------------------------------------------------------
6.13%, 02/15/34(a) 200 197,158
- --------------------------------------------------------------------
Rockdale (County of) Development Authority
(Visy Paper, Inc. Project); Solid Waste
Disposal Series 1993 IDR 7.50%,
01/01/26(a)(f) 1,500 1,550,550
- --------------------------------------------------------------------
Savannah (City of) Economic Development
Authority (Marshes of Skidaway); First
Mortgage Series 2003 A RB
7.40%, 01/01/24(a) 750 778,597
====================================================================
4,661,870
====================================================================
ILLINOIS-3.85%
Chicago (City of) (Chatham Ridge
Redevelopment Project); Tax Allocation
Series 2002 GO
5.95%, 12/15/12(a) 275 279,898
- --------------------------------------------------------------------
6.05%, 12/15/13(a) 475 482,652
- --------------------------------------------------------------------
Chicago (City of) (Lake Shore East Project);
Special Assessment Series 2003 GO
6.63%, 12/01/22(a) 500 517,060
- --------------------------------------------------------------------
6.75%, 12/01/32(a) 500 516,230
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Bethesda Home & Retirement);
Series 1999 A RB
6.25%, 09/01/14(a) 500 515,855
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Lutheran Senior Ministries
Obligation Group); Series 2001 A RB
7.38%, 08/15/31(a) 1,000 1,061,200
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Swedish American Hospital);
Series 2000 RB
6.88%, 05/15/10(a)(c)(d) 690 802,801
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Villa of St. Benedict); Series
2003 A-1 RB
6.90%, 11/15/33(a) 500 509,795
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority; Series 2003 A RB
7.00%, 11/15/32(a) 800 807,112
- --------------------------------------------------------------------
</Table>
<Table>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
<Caption>
ILLINOIS-(CONTINUED)
Lincolnshire (City of) Special Service Area
No. 1 (Sedgebrook Project); Special Tax
Series 2004 GO
5.00%, 03/01/11(a) $ 520 $ 535,943
- --------------------------------------------------------------------
6.25%, 03/01/34(a) 750 790,350
- --------------------------------------------------------------------
Metropolitan Pier & Exposition Authority
(McCormick Place Expansion); Dedicated
State Tax Series 2002 A RB
5.00%, 12/15/28(a)(b) 1,250 1,283,737
- --------------------------------------------------------------------
St. Charles (City of) (Tri-City Center
Associates Ltd. Project); Series 1993 IDR
(LOC-Old Kent Bank)
7.50%, 11/01/13(a)(g) 80 79,853
====================================================================
8,182,486
====================================================================
INDIANA-0.49%
Petersburg (City of) (Indiana Power & Light
Co.); Refunding Series 1991 PCR
5.75%, 08/01/21(a) 1,000 1,045,340
====================================================================
IOWA-2.42%
Des Moines (City of) (Luther Park Apartments
Inc. Project); Sr. Housing Series 2004 RB
6.00%, 12/01/23(a) 500 493,655
- --------------------------------------------------------------------
Iowa (State of) Finance Authority (Friendship
Haven Project); Retirement Community Series
2004 A RB
6.13%, 11/15/32(a) 500 483,685
- --------------------------------------------------------------------
Polk (County of) (Luther Park Health Center
Inc. Project); Health Care Facilities
Series 2003 RB
6.50%, 10/01/20(a) 750 763,140
- --------------------------------------------------------------------
Polk (County of) (Luther Park Health Center
Inc. Project); Health Care Facilities
Series 2004 RB
6.00%, 10/01/24(a) 290 287,634
- --------------------------------------------------------------------
6.15%, 10/01/36(a) 600 584,778
- --------------------------------------------------------------------
Scott (County of) (Ridgecrest Village
Project); Refunding Series 2004 RB
4.75%, 11/15/12(a) 750 730,455
- --------------------------------------------------------------------
5.63%, 11/15/18(a) 1,000 1,014,850
- --------------------------------------------------------------------
Scott (County of) (Ridgecrest Village
Project); Series 2000 A RB
7.25%, 11/15/26(a) 750 787,642
====================================================================
5,145,839
====================================================================
KANSAS-2.53%
Hutchinson (City of) (Wesley Towers Inc.);
Refunding & Improvement Health Care
Facilities Series 1999 A RB
6.25%, 11/15/19(a) 750 760,845
- --------------------------------------------------------------------
Lawrence (City of) (Holiday Inn); Refunding
Commercial Development Sr. Series 1997 A
IDR
8.00%, 07/01/16(a) 35 32,971
- --------------------------------------------------------------------
Olathe (City of) (Aberdeen Village Inc.);
Refunding Senior Living Facilities Series
2005 A RB
5.60%, 05/15/28(a) 1,500 1,479,615
- --------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
KANSAS-(CONTINUED)
Olathe (City of) (Aberdeen Village Inc.);
Senior Living Facilities Series 2000 A RB
7.00%, 05/15/20(a) $ 200 $ 205,140
- --------------------------------------------------------------------
7.50%, 05/15/24(a) 330 338,692
- --------------------------------------------------------------------
Overland Park (City of) Development Corp.
(First Tier-Overland Park Project); Series
2001 A RB
7.38%, 01/01/32(a) 1,500 1,636,920
- --------------------------------------------------------------------
Roeland Park (City of) (Roeland Park
Redevelopment); Special Obligation Tax
Allocation Series 2005 RB
5.75%, 08/01/24(a) 920 915,142
====================================================================
5,369,325
====================================================================
KENTUCKY-0.15%
Jefferson (County of) (Beverly Enterprises
Inc. Project); Refunding Health Facilities
Series 1999 RB
5.88%, 08/01/07(a) 315 315,422
====================================================================
MAINE-0.24%
Maine (State of) Turnpike Authority; Turnpike
Series 2003 RB
5.00%, 07/01/33(a)(b) 500 515,630
====================================================================
MARYLAND-2.71%
Annapolis (City of) (Park Place Project);
Special Obligations Series 2005 A RB
5.35%, 07/01/34(a) 1,000 992,020
- --------------------------------------------------------------------
Anne Arundel (County of) (Parole Town Center
Project); Tax Allocation Financing Series
2002 GO
5.00%, 07/01/12(a) 400 402,752
- --------------------------------------------------------------------
Baltimore (City of) (Strathdale Manor
Project); Special Obligations Series 2003
RB
7.00%, 07/01/33(a) 968 988,512
- --------------------------------------------------------------------
Howard (County of); Retirement Community
Series 2000 A RB
7.88%, 05/15/10(a)(c)(d) 780 958,823
- --------------------------------------------------------------------
Maryland (State of) Health & Higher
Educational Facilities Authority (Medstar
Health); Refunding Series 2004 RB
5.50%, 08/15/33(a) 1,250 1,295,237
- --------------------------------------------------------------------
Maryland (State of) Health & Higher
Educational Facilities Authority
(University of Maryland Medical System);
Series 2000 RB
6.75%, 07/01/30(a) 1,000 1,128,770
====================================================================
5,766,114
====================================================================
MASSACHUSETTS-0.52%
Massachusetts (State of) Development Finance
Agency (Briarwood); Series 2001 B RB
7.50%, 12/01/10(a)(c)(d) 500 600,580
- --------------------------------------------------------------------
Massachusetts (State of) Health & Educational
Facilities Authority (Christopher House);
Refunding Series 1999 A RB
6.88%, 01/01/29(a) 500 498,475
====================================================================
1,099,055
====================================================================
</Table>
<Table>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
<Caption>
MICHIGAN-2.76%
Gaylord (City of) Hospital Finance Authority
(Otsego Memorial Hospital Association);
Refunding Limited Obligation Series 2004 RB
6.50%, 01/01/31(a) $ 700 $ 682,843
- --------------------------------------------------------------------
Gogebic (County of) Hospital Finance
Authority (Grand View Health System Inc.);
Refunding Series 1999 RB
5.88%, 10/01/16(a) 920 934,269
- --------------------------------------------------------------------
Kent (City of) Hospital Finance Authority
(Metropolitan Hospital Project); Series
2005 A RB
5.75%, 07/01/25(a) 500 524,410
- --------------------------------------------------------------------
Mecosta (County of) General Hospital;
Refunding Unlimited Tax Series 1999 GO
6.00%, 05/15/18(a) 500 489,880
- --------------------------------------------------------------------
Michigan (State of) Municipal Bond Authority
(Public School-YMCA Service Learning
Academy); Series 2001 RB
7.63%, 10/01/21(a) 700 748,006
- --------------------------------------------------------------------
7.75%, 10/01/31(a) 500 534,680
- --------------------------------------------------------------------
Michigan (State of) Strategic Fund (Detroit
Edison Pollution Control); Refunding
Limited Obligation Series 2001 C PCR
5.45%, 09/01/29(a) 500 519,950
- --------------------------------------------------------------------
Wenonah Park Properties Inc. (Bay City
Hotel); Series 2002 RB
7.50%, 04/01/33(a) 1,000 940,220
- --------------------------------------------------------------------
7.88%, 04/01/22(a) 500 500,000
====================================================================
5,874,258
====================================================================
MINNESOTA-8.43%
Buhl (City of) Nursing Home (Forest Health
Services Project); Series 2003 A RB
6.40%, 08/01/23(a) 575 578,007
- --------------------------------------------------------------------
6.75%, 08/01/27(a) 500 509,880
- --------------------------------------------------------------------
Cold Spring (City of) (Assumption Home Inc.);
Nursing Home & Senior Housing Series 2005
RB
5.50%, 03/01/25(a) 425 422,182
- --------------------------------------------------------------------
5.75%, 03/01/35(a) 600 591,954
- --------------------------------------------------------------------
Duluth (City of) Economic Development
Authority (Benedictine Health System-St.
Mary's); Health Care Facilities Series 2004
RB
5.25%, 02/15/33(a) 1,500 1,528,635
- --------------------------------------------------------------------
Edina (City of) (Volunteers of America Care
Centers Project); Health Care Facilities
Series 2002 A RB
6.63%, 12/01/22(a) 250 263,005
- --------------------------------------------------------------------
6.63%, 12/01/30(a) 250 258,625
- --------------------------------------------------------------------
Fairmont (City of) (The Homestead-GEAC LLC
Project); Housing Facilities Series 2002
A-1 RB
7.25%, 04/01/22(a) 915 920,966
- --------------------------------------------------------------------
Glencoe (City of) (Glencoe Regional Health
Services Project); Health Care Facilities
Series 2001 RB
7.40%, 04/01/21(a) 250 270,535
- --------------------------------------------------------------------
7.50%, 04/01/31(a) 500 534,695
- --------------------------------------------------------------------
</Table>
F-4
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
MINNESOTA-(CONTINUED)
Minneapolis (City of) (Shelter Care
Foundation); Health Care Facility Series
1999 A RB
6.00%, 04/01/10(a) $ 670 $ 660,928
- --------------------------------------------------------------------
Minneapolis (City of) (St. Anthony Falls
Project); Refunding Tax Allocation Series
2004 GO
5.75%, 02/01/27(a) 605 600,118
- --------------------------------------------------------------------
Moorhead (City of) Economic Development
Authority (Housing Development-Eventide
Project); Refunding Multifamily Housing
Series 1998 A RB
6.00%, 06/01/18(a) 500 500,365
- --------------------------------------------------------------------
Oakdale (City of) (Oak Meadows Project);
Refunding Senior Housing Series 2004 RB
6.00%, 04/01/24(a) 1,000 1,028,900
- --------------------------------------------------------------------
Ramsey (City of) (Pact Charter School
Project); Lease Series 2004 A RB
6.50%, 12/01/22(a) 925 934,028
- --------------------------------------------------------------------
6.75%, 12/01/33(a) 150 151,444
- --------------------------------------------------------------------
Rochester (City of) (Samaritan Bethany Inc.
Project); Health Care & Housing Series 2003
A RB
5.38%, 08/01/12(a) 165 167,736
- --------------------------------------------------------------------
5.50%, 08/01/13(a) 195 196,246
- --------------------------------------------------------------------
6.25%, 08/01/19(a) 1,100 1,127,467
- --------------------------------------------------------------------
Shakopee (City of) Health Care Facilities
(St. Francis Regional Medical Center);
Series 2004 RB
5.25%, 09/01/34(a) 500 505,150
- --------------------------------------------------------------------
St. Cloud (City of) Housing & Redevelopment
Authority (Sterling Heights Apartments
Project); Multifamily Housing Series 2002
RB
7.00%, 10/01/23(a)(f) 495 483,239
- --------------------------------------------------------------------
7.45%, 10/01/32(a)(f) 155 150,855
- --------------------------------------------------------------------
St. Paul (City of) Housing & Redevelopment
Authority (Community of Peace Academy
Project); Lease Series 2001 A RB
7.38%, 12/01/19(a) 900 947,907
- --------------------------------------------------------------------
St. Paul (City of) Housing & Redevelopment
Authority (Gillette Children's Specialty);
Health Care Series 2005 RB
5.00%, 02/01/15(a) 200 201,378
- --------------------------------------------------------------------
St. Paul (City of) Housing & Redevelopment
Authority (New Spirit Charter School);
Lease Series 2002 A RB
7.50%, 12/01/31(a) 890 901,748
- --------------------------------------------------------------------
St. Paul (City of) Port Authority (Radisson
Kellogg Project); Hotel Facility Series
1999 2 RB
7.38%, 08/01/29(a) 1,225 1,279,451
- --------------------------------------------------------------------
Vadnais Heights (City of) (Agriculture & Food
Sciences); Lease Series 2004 A RB
6.38%, 12/01/24(a) 900 889,965
- --------------------------------------------------------------------
6.60%, 12/01/34(a) 275 270,572
- --------------------------------------------------------------------
</Table>
<Table>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
<Caption>
MINNESOTA-(CONTINUED)
Woodbury (City of) (Math Science Academy
Project); Refunding Lease Series 2002 A RB
7.38%, 12/01/24(a) $ 250 $ 258,865
- --------------------------------------------------------------------
7.50%, 12/01/31(a) 750 775,117
====================================================================
17,909,963
====================================================================
MISSOURI-3.56%
Des Peres (City of) (West County Center
Project); Refunding Tax Allocation Series
2002 A GO
5.75%, 04/15/20(a) 1,000 1,025,830
- --------------------------------------------------------------------
Fenton (City of) (Gravois Bluffs Project);
Refunding & Improvement Tax Increment
Series 2001 RB
7.00%, 10/01/21(a) 1,050 1,130,755
- --------------------------------------------------------------------
Hazelwood Transportation Development District
(370 Missouri Bottom Road/Taussig Road);
Series 2002 RB
7.00%, 05/01/22(a) 750 798,667
- --------------------------------------------------------------------
Hazelwood Transportation Development District
(370 Missouri Bottom Road/Taussig Road);
Tax Increment Series 2002 RB
7.20%, 05/01/33(a) 500 533,830
- --------------------------------------------------------------------
Kansas City (City of) Industrial Development
Authority (Bishop Spencer Place Inc.);
First Mortgage Health Facilities Series
2004 A IDR
6.25%, 01/01/24(a) 500 506,860
- --------------------------------------------------------------------
Maplewood (City of) (Maplewood South
Redevelopment Area); Refunding Tax
Increment Series 2005 RB
5.20%, 11/01/22(a) 500 491,555
- --------------------------------------------------------------------
5.75%, 11/01/26(a) 1,350 1,331,060
- --------------------------------------------------------------------
St. Joseph (City of) Industrial Development
Authority (Shoppes at North Village
Project); Tax Allocation Series 2005 A IDR
5.25%, 11/01/13(a) 500 514,415
- --------------------------------------------------------------------
5.38%, 11/01/24(a) 500 492,065
- --------------------------------------------------------------------
5.50%, 11/01/27(a) 750 738,338
====================================================================
7,563,375
====================================================================
MONTANA-0.49%
Montana (State of) Facility Finance Authority
(Marias Medical Center); Master Loan
Program Health Care Facilities Series 2005
A RB
5.00%, 01/01/28(a) 750 740,910
- --------------------------------------------------------------------
Montana (State of) Facility Finance Authority
(Montana Children's Home); Master Loan
Program Heath Care Facilities Series 2005 B
RB
4.75%, 01/01/24(a) 310 306,565
====================================================================
1,047,475
====================================================================
NEVADA-1.48%
Boulder City (City of) (Boulder City Hospital
Inc. Project); Refunding Hospital Series
1998 RB
5.85%, 01/01/22(a) 1,000 870,590
- --------------------------------------------------------------------
</Table>
F-5
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
NEVADA-(CONTINUED)
Clark (County of) (Nevada Power Co. Project);
Refunding Series 1992 C IDR
7.20%, 10/01/22(a) $ 550 $ 558,250
- --------------------------------------------------------------------
Las Vegas Valley Water District; Refunding &
Water Improvement Limited Tax Series 2003 A
GO
5.00%, 06/01/32(a)(b) 1,150 1,178,589
- --------------------------------------------------------------------
University of Nevada (Community College
System); University Series 2002 A RB
5.40%, 07/01/31(a)(b) 500 528,380
====================================================================
3,135,809
====================================================================
NEW HAMPSHIRE-1.22%
New Hampshire (State of) Business Finance
Authority (Alice Peck Day Health System);
Series 1999 A RB
6.88%, 10/01/19(a) 1,050 1,056,815
- --------------------------------------------------------------------
New Hampshire (State of) Health & Educational
Facilities Authority (Huntington at
Nashua); Series 2003 A RB
6.88%, 05/01/23(a) 750 775,830
- --------------------------------------------------------------------
6.88%, 05/01/33(a) 750 767,505
====================================================================
2,600,150
====================================================================
NEW JERSEY-3.26%
New Jersey (State of) Economic Development
Authority (Cedar Crest Village Inc.
Facility); Retirement Community Services
Series 2001 A RB
7.25%, 11/15/21(a) 500 527,735
- --------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Continental Airlines, Inc.
Project); Special Facilities Series 2000 RB
7.00%, 11/15/30(a)(f) 500 432,310
- --------------------------------------------------------------------
7.20%, 11/15/30(a)(f) 425 376,440
- --------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Continental Airlines, Inc.
Project); Special Facilities Series 2003 RB
9.00%, 06/01/33(a)(f) 500 512,115
- --------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Seashore Gardens Project); First
Mortgage Series 2001 RB
8.00%, 04/01/23(a) 800 817,480
- --------------------------------------------------------------------
8.00%, 04/01/31(a) 500 507,945
- --------------------------------------------------------------------
New Jersey (State of) Health Care Facilities
Financing Authority (Pascack Valley
Hospital Association); Series 2003 RB
6.50%, 07/01/23(a) 500 492,645
- --------------------------------------------------------------------
New Jersey (State of) Health Care Facilities
Financing Authority (Raritan Bay Medical
Center); Series 1994 RB
7.25%, 07/01/14(a) 50 52,748
- --------------------------------------------------------------------
7.25%, 07/01/27(a) 1,750 1,822,450
- --------------------------------------------------------------------
</Table>
<Table>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
<Caption>
NEW JERSEY-(CONTINUED)
New Jersey (State of) Transportation Trust
Fund Authority; Transportation System
Series 2005 B RB
5.25%, 12/15/22(a)(b) $ 500 $ 554,450
- --------------------------------------------------------------------
5.25%, 12/15/23(a)(b) 750 824,558
====================================================================
6,920,876
====================================================================
NEW YORK-3.54%
Albany (County of) Industrial Development
Agency (Albany College of Pharmacy); Series
2004 A IDR
5.38%, 12/01/24(a) 400 411,660
- --------------------------------------------------------------------
Monroe (County of) Industrial Development
Agency (Woodland Village Project); Civic
Facility Series 2000 IDR
8.55%, 11/15/32(a) 1,000 1,084,480
- --------------------------------------------------------------------
New York City (City of) Industrial
Development Agency (Liberty-7 World Trade
Center); Series 2005 A IDR
6.25%, 03/01/15(a) 1,000 1,014,200
- --------------------------------------------------------------------
Onondaga (County of) Industrial Development
Agency (Solvay Paperboard LLC Project);
Refunding Solid Waste Disposal Facility
Series 1998 IDR
7.00%, 11/01/30(a)(f) 2,000 2,089,340
- --------------------------------------------------------------------
Orange (County of) Industrial Development
Agency (Arden Hill Life Care Center
Newburgh); Civic Facility Series 2001 C IDR
7.00%, 08/01/31(a) 550 546,524
- --------------------------------------------------------------------
Suffolk (County of) Industrial Development
Agency (Spellman High Voltage Facility);
Series 1997 A IDR
6.38%, 12/01/17(a)(f) 350 313,740
- --------------------------------------------------------------------
Syracuse (City of) Industrial Development
Agency (Jewish Home); First Mortgage Series
2001 A IDR
7.38%, 03/01/21(a) 350 369,534
- --------------------------------------------------------------------
7.38%, 03/01/31(a) 500 524,500
- --------------------------------------------------------------------
Westchester (County of) Industrial
Development Agency (Hebrew Hospital Senior
Housing Inc.); Continuing Care Retirement
Series 2000 A IDR
7.00%, 07/01/21(a) 600 634,098
- --------------------------------------------------------------------
7.38%, 07/01/30(a) 500 528,775
====================================================================
7,516,851
====================================================================
NORTH CAROLINA-0.83%
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(a) 500 516,510
- --------------------------------------------------------------------
North Carolina (State of) Medical Care
Commission (Forest at Duke Project); First
Mortgage Retirement Facilities Series 2002
RB
6.38%, 09/01/32(a) 250 260,660
- --------------------------------------------------------------------
North Carolina (State of) Medical Care
Commission (United Church Homes); Refunding
First Mortgage Retirement Facilities Series
2005 A RB
5.25%, 09/01/21(a) 1,000 995,820
====================================================================
1,772,990
====================================================================
</Table>
F-6
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
NORTH DAKOTA-0.33%
Grand Forks (City of) (4000 Valley Square
Project); Special Term Senior Housing
Series 1997 RB
6.38%, 12/01/34(a) $ 725 $ 700,241
====================================================================
OHIO-3.15%
Cleveland-Cuyahoga (County of) Port
Authority; Special Assessment Tax Increment
Series 2001 RB
7.35%, 12/01/31(a) 1,000 1,076,920
- --------------------------------------------------------------------
Cuyahoga (County of) (Canton Inc. Project);
Hospital Facilities Series 2000 RB
7.50%, 01/01/30(a) 750 837,885
- --------------------------------------------------------------------
Franklin (County of) (Ohio Presbyterian
Services); Health Care Facilities
Improvement Series 2005 A RB
5.00%, 07/01/26(a) 350 343,683
- --------------------------------------------------------------------
5.13%, 07/01/35(a) 1,250 1,220,788
- --------------------------------------------------------------------
Franklin (County of) (Ohio Presbyterian);
Health Care Facilities Series 2001 A RB
7.13%, 07/01/29(a) 500 550,050
- --------------------------------------------------------------------
Lucas (County of) (Sunset Retirement
Communities); Refunding & Improvement
Health Care Facilities Series 2000 A RB
6.50%, 08/15/20(a) 500 523,760
- --------------------------------------------------------------------
6.55%, 08/15/24(a) 500 522,910
- --------------------------------------------------------------------
Madison (County of) (Madison County Hospital
Project); Refunding Hospital Improvement
Series 1998 RB
6.25%, 08/01/18(a) 670 637,384
- --------------------------------------------------------------------
Toledo (City of) & Lucas (County of) Port
Authority (St. Mary Woods Project); Series
2004 A RB
6.00%, 05/15/24(a) 500 497,370
- --------------------------------------------------------------------
6.00%, 05/15/34(a) 500 483,160
====================================================================
6,693,910
====================================================================
OKLAHOMA-0.32%
Oklahoma (State of) Development Finance
Authority (Comanche County Hospital
Project); Series 2002 B RB
6.60%, 07/01/31(a) 625 683,956
====================================================================
OREGON-1.11%
Oregon (State of) Health, Housing,
Educational & Cultural Facilities Authority
(Oregon Baptist Retirement Homes); Series
1996 RB
8.00%, 11/15/26(a) 745 776,186
- --------------------------------------------------------------------
Yamhill (County of) Hospital Authority
(Friendsview Retirement Community); Series
2003 RB
7.00%, 12/01/21(a) 1,555 1,573,940
====================================================================
2,350,126
====================================================================
PENNSYLVANIA-8.44%
Allegheny (County of) Hospital Development
Authority (Villa Saint Joseph of Baden);
Health Care Facilities Series 1998 RB
6.00%, 08/15/28(a) 500 461,120
- --------------------------------------------------------------------
</Table>
<Table>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
<Caption>
PENNSYLVANIA-(CONTINUED)
Allegheny (County of) Industrial Development
Authority (Propel Schools-Homestead
Project); Charter Schools Series 2004 A IDR
7.00%, 12/15/15(a) $ 780 $ 763,269
- --------------------------------------------------------------------
Allegheny (County of) Redevelopment Authority
(Pittsburgh Mills Project); Tax Allocation
Series 2004 GO
5.10%, 07/01/14(a) 500 521,885
- --------------------------------------------------------------------
5.60%, 07/01/23(a) 500 524,830
- --------------------------------------------------------------------
Beaver (County of) Industrial Development
Authority (Cleveland Electric Project);
Refunding Series 1995 PCR
7.63%, 05/01/25(a) 1,600 1,639,056
- --------------------------------------------------------------------
Blair (County of) Industrial Development
Authority (Village of Pennsylvania State
Project); Series 2002 A IDR
6.90%, 01/01/22(a) 500 528,825
- --------------------------------------------------------------------
7.00%, 01/01/34(a) 500 525,880
- --------------------------------------------------------------------
Chartiers Valley (City of) Industrial &
Commercial Development Authority (Asbury
Health Center); Refunding First Mortgage
Series 1999 IDR
6.38%, 12/01/19(a) 1,000 1,026,710
- --------------------------------------------------------------------
Clarion (County of) Industrial Development
Authority (Beverly Enterprises Inc.
Project); Refunding Series 2001 IDR
7.38%, 12/01/08(a) 420 425,090
- --------------------------------------------------------------------
Crawford (County of) Hospital Authority
(Wesbury United Methodist Community);
Senior Living Facilities Series 1999 RB
6.25%, 08/15/29(a) 750 767,303
- --------------------------------------------------------------------
Cumberland (County of) Industrial Development
Authority (Woods Cedar Run); Refunding
First Mortgage Series 1998 A IDR
6.50%, 11/01/18(a)(h)(i) 1,000 334,960
- --------------------------------------------------------------------
Cumberland (County of) Municipal Authority
(Wesley Affiliated Services, Inc.);
Retirement Community Series 2002 A RB
6.00%, 01/01/13(a) 800 816,128
- --------------------------------------------------------------------
7.13%, 01/01/25(a) 700 728,273
- --------------------------------------------------------------------
Lancaster (County of) Hospital Authority
(Saint Anne's Home); Health Center Series
1999 RB
6.63%, 04/01/28(a) 500 500,480
- --------------------------------------------------------------------
Lancaster (County of) Industrial Development
Authority (Garden Spot Village Project);
Series 2000 A IDR
7.60%, 05/01/22(a) 250 272,615
- --------------------------------------------------------------------
7.63%, 05/01/31(a) 500 541,275
- --------------------------------------------------------------------
Lawrence (County of) Industrial Development
Authority (Shenango Presbyterian Center);
Health & Housing Facilities Sr. Series 2001
B IDR
7.50%, 11/15/31(a) 1,000 1,000,690
- --------------------------------------------------------------------
</Table>
F-7
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
PENNSYLVANIA-(CONTINUED)
Lehigh (County of) General Purpose Authority
(Bible Fellowship Church Home Inc.); First
Mortgage Series 2001 RB
7.63%, 11/01/21(a) $ 250 $ 272,188
- --------------------------------------------------------------------
7.75%, 11/01/33(a) 750 809,183
- --------------------------------------------------------------------
Montgomery (County of) Higher Education &
Health Authority (Philadelphia Geriatric
Center); Series 1999 A RB
7.38%, 12/01/30(a) 1,340 1,407,683
- --------------------------------------------------------------------
Montgomery (County of) Higher Education &
Health Authority (Temple Continuing Care
Center); Series 1999 RB
6.63%, 07/01/19(a)(h)(i) 1,250 225,075
- --------------------------------------------------------------------
6.75%, 07/01/29(a)(h)(i) 460 82,791
- --------------------------------------------------------------------
Montgomery (County of) Industrial Development
Authority (Whitemarsh Continuing Care);
Mortgage Series 2005 IDR
6.25%, 02/01/35(a) 1,000 1,021,240
- --------------------------------------------------------------------
North Penn (Region of) Health, Hospital &
Education Authority (Maple Village
Project); Hospital Series 2000 A RB
8.00%, 10/01/32(a) 300 300,000
- --------------------------------------------------------------------
Pennsylvania (State of) Higher Educational
Facilities Authority (Student Association
Inc. Project); Student Housing Series 2000
A RB
6.75%, 09/01/20(a) 500 526,390
- --------------------------------------------------------------------
6.75%, 09/01/32(a) 320 334,739
- --------------------------------------------------------------------
Pennsylvania (State of) Higher Educational
Facilities Authority (Widener University);
Series 2005 RB
5.00%, 07/15/31(a) 1,055 1,059,125
- --------------------------------------------------------------------
Philadelphia (City of) Industrial Development
Authority (Cathedral Village Project);
Series 2003 A IDR
6.88%, 04/01/34(a) 500 528,410
====================================================================
17,945,213
====================================================================
RHODE ISLAND-0.11%
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 A RB
6.13%, 06/01/32(a) 240 240,871
====================================================================
SOUTH CAROLINA-3.18%
South Carolina (State of) Jobs-Economic
Development Authority (Palmetto Health
Alliance); Hospital Facilities Improvement
Series 2000 A RB
7.38%, 12/15/10(a)(c)(d) 800 966,776
- --------------------------------------------------------------------
South Carolina (State of) Jobs-Economic
Development Authority (Palmetto Health
Alliance); Refunding Hospital Facilities
Series 2003 A RB
6.13%, 08/01/23(a) 1,500 1,606,230
- --------------------------------------------------------------------
South Carolina (State of) Jobs-Economic
Development Authority (South Carolina
Episcopal Home at Still Hope Project);
Residential Care Facilities Series 2004 A
RB
6.25%, 05/15/25(a) 750 763,185
- --------------------------------------------------------------------
</Table>
<Table>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
<Caption>
SOUTH CAROLINA-(CONTINUED)
6.38%, 05/15/32(a) $1,250 $ 1,274,638
- --------------------------------------------------------------------
South Carolina (State of) Jobs-Economic
Development Authority (Westley Commons
Project); First Mortgage Health Facilities
Series 2000 RB
7.75%, 10/01/15(a) 700 761,292
- --------------------------------------------------------------------
8.00%, 10/01/31(a) 300 324,609
- --------------------------------------------------------------------
Tobacco Settlement Revenue Management
Authority; Tobacco Settlement Series 2001 B
RB
6.38%, 05/15/28(a) 1,050 1,067,588
====================================================================
6,764,318
====================================================================
SOUTH DAKOTA-0.72%
South Dakota (State of) Health & Educational
Facilities Authority (Sioux Valley
Hospitals & Health System); Series 2004 A
RB
5.25%, 11/01/27(a) 500 507,875
- --------------------------------------------------------------------
5.25%, 11/01/34(a) 500 507,875
- --------------------------------------------------------------------
South Dakota (State of) Health & Educational
Facilities Authority (Westhills Village
Retirement Community); Series 2003 RB
5.65%, 09/01/23(a) 500 521,705
====================================================================
1,537,455
====================================================================
TENNESSEE-1.36%
Davidson & Williamson (Counties of) (Harpeth
Valley Utilities District); Utilities
Improvement Series 2004 RB
5.00%, 09/01/34(a)(b) 1,000 1,031,760
- --------------------------------------------------------------------
Johnson City (City of) Health & Educational
Facilities Board (Appalachian Christian
Village Project); Retirement Facilities
Series 2004 A RB
6.00%, 02/15/24(a) 500 487,350
- --------------------------------------------------------------------
6.25%, 02/15/32(a) 350 345,482
- --------------------------------------------------------------------
Shelby (County of) Health, Educational &
Housing Facilities Board (Germantown
Village); Residential Care Series 2003 A RB
7.00%, 12/01/23(a) 1,000 1,021,730
====================================================================
2,886,322
====================================================================
TEXAS-12.69%
Abilene (City of) Health Facilities
Development Corp. (Sears Methodist
Retirement); Retirement Facilities Series
2003 A RB
7.00%, 11/15/33(a) 1,000 1,047,630
- --------------------------------------------------------------------
Amarillo (City of) Health Facilities Corp.
(Panhandle Pooled Health Care); VRD Series
1985 RB
(LOC-BNP Paribas)
2.42%, 05/31/25(g)(j) 5,351 5,351,000
- --------------------------------------------------------------------
Atlanta (City of) Hospital Authority;
Hospital Facility Series 1999 RB
6.70%, 08/01/19(a) 500 486,060
- --------------------------------------------------------------------
Bexar (County of) Health Facilities
Development Corp. (Army Retirement
Residence Project); Series 2002 RB
6.30%, 07/01/32(a) 500 528,875
- --------------------------------------------------------------------
</Table>
F-8
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
TEXAS-(CONTINUED)
Bexar (County of) Housing Finance Corp.
(American Opportunity Housing); Multifamily
Housing Sr. Series 2002 A-1 RB
6.85%, 12/01/23(a) $ 750 $ 744,533
- --------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Villa Madrid/Cumberland Apartments);
Multifamily Housing Series 1998 A RB
7.25%, 05/01/16(a)(h)(i) 200 139,838
- --------------------------------------------------------------------
Decatur (City of) Hospital Authority (Wise
Regional Health System); Hospital Series
2004 A RB
5.63%, 09/01/13(a) 750 761,258
- --------------------------------------------------------------------
7.00%, 09/01/25(a) 825 884,252
- --------------------------------------------------------------------
7.13%, 09/01/34(a) 790 845,024
- --------------------------------------------------------------------
Grand Prairie (City of) Housing Finance Corp.
(Independent Senior Living Center); Series
2003 RB
7.63%, 01/01/20(a) 1,000 984,210
- --------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Memorial Hermann Health
Care); Hospital Series 2001 A RB
6.38%, 06/01/29(a) 500 549,720
- --------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Saint Luke's Episcopal
Hospital); Series 2001 A RB
5.63%, 02/15/18(a) 750 796,605
- --------------------------------------------------------------------
Harris (County of); Refunding Limited Tax
Series 2002 GO
5.13%, 08/15/12(a)(c)(d) 370 405,183
- --------------------------------------------------------------------
HFDC of Central Texas Inc. (Villa de San
Antonio Project); Series 2004 A RB
6.00%, 05/15/25(a) 1,000 995,290
- --------------------------------------------------------------------
Hidalgo (County of) Heath Services Corp.
(Mission Hospital Inc. Project); Series
2005 RB
5.00%, 08/15/15(a) 500 505,680
- --------------------------------------------------------------------
5.00%, 08/15/19(a) 350 348,558
- --------------------------------------------------------------------
Houston (City of) Airport System (Continental
Airlines, Inc. Project); Special Facilities
Series 2001 E RB
6.75%, 07/01/29(a)(f) 500 414,030
- --------------------------------------------------------------------
Houston (City of) Health Facilities
Development Corp. (Buckingham Senior Living
Community); Retirement Facilities Series
2004 A RB
7.00%, 02/15/23(a) 300 322,797
- --------------------------------------------------------------------
7.00%, 02/15/26(a) 750 801,645
- --------------------------------------------------------------------
7.13%, 02/15/34(a) 450 481,608
- --------------------------------------------------------------------
Meadow Parc Development Inc. (Meadow Parc
Apartments Project); Multifamily Housing
Series 1998 RB
6.50%, 12/01/30(a) 1,200 1,096,308
- --------------------------------------------------------------------
Midlothian (City of) Development Authority;
Tax Allocation Contract Series 1999 GO
6.70%, 11/15/23(a) 800 825,008
- --------------------------------------------------------------------
Midlothian (City of) Development Authority;
Tax Allocation Contract Series 2001 GO
7.88%, 11/15/26(a) 1,000 1,105,190
- --------------------------------------------------------------------
</Table>
<Table>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
<Caption>
TEXAS-(CONTINUED)
Midlothian (City of) Development Authority;
Tax Allocation Contract Series 2004 GO
6.20%, 11/15/29(a) $1,000 $ 1,001,560
- --------------------------------------------------------------------
Texas (State of) Gulf Coast Waste Disposal
Authority (Valero Energy Corp. Project);
Series 2001 RB
6.65%, 04/01/32(a)(f) 900 972,072
- --------------------------------------------------------------------
Texas (State of) Public Finance Authority
(School Excellence Education Project);
Charter School Finance Corp. Series 2004 A
RB
7.00%, 12/01/34(a) 1,000 990,000
- --------------------------------------------------------------------
University of Texas Financing System; Series
2001 C RB
5.00%, 08/15/20(a) 1,000 1,045,910
- --------------------------------------------------------------------
University of Texas Financing System; Series
2003 B RB
5.00%, 08/15/33(a) 1,500 1,533,855
- --------------------------------------------------------------------
Woodhill Public Facility Corp. (Woodhill
Apartments Project); Multifamily Housing
Series 1999 RB
7.50%, 12/01/29(a) 1,000 999,290
====================================================================
26,962,989
====================================================================
VERMONT-0.33%
Vermont (State of) Educational & Health
Buildings Financing Agency (Copley Manor
Project); Health Care Facilities Series
1999 RB
6.25%, 04/01/29(a)(i) 1,000 701,280
====================================================================
VIRGIN ISLANDS-0.07%
Virgin Islands (Commonwealth of) Public
Finance Authority; Sr. Lien Matching Fund
Loan Notes Series 2004 A RB
5.25%, 10/01/24(a) 150 157,377
====================================================================
VIRGINIA-1.82%
Hampton (City of) Redevelopment & Housing
Authority (Olde Hampton Hotel Association);
Refunding First Mortgage Series 1998 A RB
6.50%, 07/01/16(a) 500 448,855
- --------------------------------------------------------------------
Henrico (County of) Economic Development
Authority (Virginia United Methodist Homes
Inc.); Refunding Residential Care
Facilities Series 2002 A RB
6.50%, 06/01/22(a) 750 787,568
- --------------------------------------------------------------------
Lynchburg (City of) Industrial Development
Authority (The Summit); Residential Care
Facilities Mortgage Series 2002 A IDR
6.25%, 01/01/28(a) 500 494,855
- --------------------------------------------------------------------
Norfolk (City of) Redevelopment & Housing
Authority; First Mortgage Retirement
Community Series 2004 A RB
6.00%, 01/01/25(a) 500 499,370
- --------------------------------------------------------------------
6.13%, 01/01/35(a) 1,100 1,091,827
- --------------------------------------------------------------------
Peninsula Ports Authority (Virginia Baptist
Homes); Residential Care Facilities Series
2003 A RB
7.38%, 12/01/23(a) 500 535,310
====================================================================
3,857,785
====================================================================
</Table>
F-9
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
WISCONSIN-3.33%
Wisconsin (State of) Health & Educational
Facilities Authority (Beaver Dam Community
Hospitals Inc.); Series 2004 A RB
6.50%, 08/15/26(a) $ 250 $ 254,075
- --------------------------------------------------------------------
6.75%, 08/15/34(a) 750 770,715
- --------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Community Memorial
Hospital Inc. Project); Series 2003 RB
7.13%, 01/15/22(a) 1,155 1,203,464
- --------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Community
Rehabilitation Providers Facilities
Program); Series 1998 RB
6.88%, 12/01/23(a) 200 210,204
- --------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Eastcastle Place Inc.
Project); Series 2004 RB
6.00%, 12/01/24(a) 500 498,010
- --------------------------------------------------------------------
6.13%, 12/01/34(a) 500 486,045
- --------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (FH Healthcare
Development Inc. Project); Series 1999 RB
6.25%, 11/15/20(a) 1,250 1,337,300
- --------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (New Castle Place Inc.
Project); Series 2001 A RB
7.00%, 12/01/31(a) 250 253,020
- --------------------------------------------------------------------
</Table>
<Table>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
<Caption>
WISCONSIN-(CONTINUED)
Wisconsin (State of) Health & Educational
Facilities Authority (Oakwood Village
Project); Series 2000 A RB
7.63%, 08/15/30(a) $1,000 $ 1,033,430
- --------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Tomah Memorial
Hospital Inc. Project); Series 2003 RB
6.00%, 07/01/15(a) 100 102,272
- --------------------------------------------------------------------
6.13%, 07/01/16(a) 150 153,717
- --------------------------------------------------------------------
6.63%, 07/01/28(a) 750 765,060
====================================================================
7,067,312
====================================================================
WYOMING-0.24%
Teton (County of) Hospital District (Saint
John's Medical Center); Hospital Series
2002 RB
6.75%, 12/01/22(a) 500 511,130
====================================================================
TOTAL INVESTMENTS-99.79% (Cost $207,490,949) 212,085,687
====================================================================
OTHER ASSETS LESS LIABILITIES-0.21% 453,522
====================================================================
NET ASSETS-100.00% $212,539,209
____________________________________________________________________
====================================================================
</Table>
Investment Abbreviations:
<Table>
COP - Certification of Participation
GO - General Obligation Bonds
IDR - Industrial 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) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at March 31,
2005 was $206,734,687, which represented 97.48% of the Fund's Total
Investments. See Note 1A.
(b) Principal and/or 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.,
or XL Capital Assurance Inc.
(c) Advance refunded; secured by an escrow fund of U.S. Treasury obligations.
(d) Security has an irrevocable call by the issuer or mandatory put by the
holder. Maturity date reflects such call or put.
(e) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The market value of this security at March 31, 2005 represented 0.25% of the
Fund's Net Assets. Unless otherwise indicated, this security is not
considered to be illiquid.
(f) Security subject to the alternative minimum tax.
(g) Principal and interest payments are fully enhanced by a letter of credit
from the bank listed or a predecessor bank, branch or subsidiary.
(h) Defaulted security. Currently, the issuer is in default with respect to
interest payments. The aggregate market value of these securities at March
31, 2005 was $782,664, which represented 0.37% of the Fund's Total
Investments.
(i) Security considered to be illiquid; the portfolio is limited to investing
15% of net assets in illiquid securities. The aggregate market value of
these securities considered illiquid at March 31, 2005 was $1,483,944, which
represented 0.70% of the Fund's Net Assets.
(j) Demand security; payable upon demand by the Fund at specified time intervals
no greater than thirteen months. Interest rate is redetermined annually.
Rate shown is the rate in effect on March 31, 2005.
See accompanying notes which are an integral part of the financial statements.
F-10
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2005
<Table>
ASSETS:
Investments, at market value (cost
$207,490,949) $212,085,687
===========================================================
Receivables for:
Investments sold 40,000
- -----------------------------------------------------------
Fund shares sold 1,681,621
- -----------------------------------------------------------
Interest 3,950,427
- -----------------------------------------------------------
Amount due from advisor 86,091
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 30,443
- -----------------------------------------------------------
Other assets 43,902
===========================================================
Total assets 217,918,171
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 4,040,229
- -----------------------------------------------------------
Fund shares reacquired 668,687
- -----------------------------------------------------------
Dividends 481,401
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 35,691
- -----------------------------------------------------------
Accrued distribution fees 92,624
- -----------------------------------------------------------
Accrued trustees' fees 3,538
- -----------------------------------------------------------
Accrued transfer agent fees 10,598
- -----------------------------------------------------------
Accrued operating expenses 46,194
===========================================================
Total liabilities 5,378,962
===========================================================
Net assets applicable to shares outstanding $212,539,209
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $220,578,491
- -----------------------------------------------------------
Undistributed net investment income (12,415)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (12,621,605)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 4,594,738
===========================================================
$212,539,209
___________________________________________________________
===========================================================
NET ASSETS:
Class A $132,995,705
___________________________________________________________
===========================================================
Class B $ 46,429,071
___________________________________________________________
===========================================================
Class C $ 33,114,433
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 15,178,697
___________________________________________________________
===========================================================
Class B 5,293,370
___________________________________________________________
===========================================================
Class C 3,777,561
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 8.76
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $8.76 divided
by 95.25%) $ 9.20
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 8.77
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 8.77
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-11
STATEMENT OF OPERATIONS
For the year ended March 31, 2005
<Table>
INVESTMENT INCOME:
Interest $10,934,428
=========================================================================
EXPENSES:
Advisory fees 1,028,269
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 9,201
- -------------------------------------------------------------------------
Distribution fees:
Class A 260,106
- -------------------------------------------------------------------------
Class B 452,130
- -------------------------------------------------------------------------
Class C 221,227
- -------------------------------------------------------------------------
Transfer agent fees 101,635
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 17,087
- -------------------------------------------------------------------------
Other 219,515
=========================================================================
Total expenses 2,359,170
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (908,687)
=========================================================================
Net expenses 1,450,483
=========================================================================
Net investment income 9,483,945
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (2,738,157)
=========================================================================
Change in net unrealized appreciation of investment
securities 3,618,908
=========================================================================
Net gain from investment securities 880,751
=========================================================================
Net increase in net assets resulting from operations $10,364,696
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-12
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 9,483,945 $ 8,183,531
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (2,738,157) (811,834)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 3,618,908 2,348,504
==========================================================================================
Net increase in net assets resulting from operations 10,364,696 9,720,201
==========================================================================================
Distributions to shareholders from net investment income:
Class A (6,195,517) (5,191,768)
- ------------------------------------------------------------------------------------------
Class B (2,361,558) (2,322,122)
- ------------------------------------------------------------------------------------------
Class C (1,151,589) (817,780)
==========================================================================================
Decrease in net assets resulting from distributions (9,708,664) (8,331,670)
==========================================================================================
Share transactions-net:
Class A 37,926,121 15,806,626
- ------------------------------------------------------------------------------------------
Class B 1,224,371 1,926,983
- ------------------------------------------------------------------------------------------
Class C 14,710,348 4,707,289
==========================================================================================
Net increase in net assets resulting from share
transactions 53,860,840 22,440,898
==========================================================================================
Net increase in net assets 54,516,872 23,829,429
==========================================================================================
NET ASSETS:
Beginning of year 158,022,337 134,192,908
==========================================================================================
End of year (including undistributed net investment income
of $(12,415) and $196,999, respectively) $212,539,209 $158,022,337
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-13
NOTES TO FINANCIAL STATEMENTS
March 31, 2005
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. The assets, liabilities and operations of each
portfolio or class 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. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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 -- Securities, including restricted securities, are
valued according to the following policy.
Securities are fair valued using an evaluated quote provided by an
independent pricing service approved by the Board of Trustees. Evaluated
quotes 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. Short-term obligations with maturities of 60 days or
less and commercial paper are valued at amortized cost which approximates
market value. Securities with a demand feature exercisable within one to
seven days are valued at par.
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 Fund's valuation committee following procedures approved 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 unreliable are valued at fair value as determined in good faith by
or under the supervision of the Trust's officers following procedures
approved 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.
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.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
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.
F-14
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.
F. LOWER-RATED SECURITIES -- The Fund may invest 100% of its assets in
lower-quality debt securities, i.e., "junk bonds". Investments in lower-
rated securities or unrated securities of comparable quality tend to be
more sensitive to economic conditions than higher rated securities. Junk
bonds involve a greater risk of default by the issuer because such
securities are generally unsecured and are often subordinated to other
creditors claims.
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>
AIM has voluntarily agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B and Class C shares to 0.55%,
1.30% and 1.30% of average daily net assets, 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 limits stated above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items (these
are expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the only expense offset arrangements from which the Fund may
benefit 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.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended March 31, 2005, AIM waived fees of $884,991.
For the year ended March 31, 2005, at the request of the Trustees of the
Trust, AMVESCAP agreed to reimburse $20,721 of expenses incurred by the Fund in
connection with market timing matters in the AIM Funds, including legal, audit,
shareholder reporting, communications and trustee expenses. These expenses along
with the related expense reimbursement, are included in the Statement of
Operations.
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. Pursuant to such agreement, for the year ended
March 31, 2005, AIM was paid $50,000.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the year ended March 31, 2005, the Fund
paid AISI $101,635.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("ADI") 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 ADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares and 1.00% of the average daily net assets of Class B and Class
C shares. Of these amounts, 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, 2005,
the Class A, Class B and Class C shares paid $260,106, $452,130 and $221,227,
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, 2005, ADI advised the Fund that it retained $95,100 in front-end
sales commissions from the sale of Class A shares and $23,758, $12,325 and
$4,771 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 ADI.
F-15
NOTE 3--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended March 31, 2005, the
Fund received credits from this arrangement which resulted in the reduction of
the Fund's total expenses of $2,975.
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. Those Trustees who defer compensation have
the option to select various AIM 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, 2005, the Fund paid legal fees of $4,057 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 (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. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. 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, 2005, 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 Bank of New York, 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 at 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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ -- $ 8,023
- --------------------------------------------------------------------------------------
Ordinary income -- tax exempt 9,708,664 8,323,647
======================================================================================
$9,708,664 $8,331,670
______________________________________________________________________________________
======================================================================================
</Table>
F-16
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 110,774
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 4,593,706
- ----------------------------------------------------------------------------
Temporary book/tax differences (124,218)
- ----------------------------------------------------------------------------
Capital loss carryforward (12,466,077)
- ----------------------------------------------------------------------------
Post-October capital loss deferral (153,467)
- ----------------------------------------------------------------------------
Shares of beneficial interest 220,578,491
============================================================================
Total net assets $212,539,209
____________________________________________________________________________
============================================================================
</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 (depreciation) difference is attributable primarily to the deferral
of losses on wash sales, the treatment of defaulted bonds, and the treatment of
amortization of market discounts.
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 interest income on defaulted bonds,
trustee deferral of compensation and retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. The Fund has a capital loss carryforward as of March 31, 2005
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
- -----------------------------------------------------------------------------
March 31, 2013 2,599,981
=============================================================================
Total capital loss carryforward $12,466,077
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
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, 2005 was $73,443,881 and $20,556,886, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 7,804,438
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,210,732)
===============================================================================
Net unrealized appreciation of investment securities $ 4,593,706
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $207,491,981.
</Table>
F-17
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of defaulted bond
adjustments and amortization of market discounts, on March 31, 2005,
undistributed net investment income was increased by $15,305 and undistributed
net realized gain (loss) was decreased by $15,305. 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
certain 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(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------
2005 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,312,242 $ 63,728,286 5,559,971 $ 48,198,718
- ----------------------------------------------------------------------------------------------------------------------
Class B 979,400 8,502,043 1,369,885 11,908,459
- ----------------------------------------------------------------------------------------------------------------------
Class C 2,141,353 18,712,926 1,435,960 12,470,550
======================================================================================================================
Issued as reinvestment of dividends:
Class A 349,115 3,033,614 264,540 2,292,514
- ----------------------------------------------------------------------------------------------------------------------
Class B 109,354 949,368 114,284 991,423
- ----------------------------------------------------------------------------------------------------------------------
Class C 80,868 702,804 57,564 499,279
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 147,549 1,283,329 110,157 951,710
- ----------------------------------------------------------------------------------------------------------------------
Class B (147,389) (1,283,329) (110,109) (951,710)
======================================================================================================================
Reacquired:
Class A (3,473,425) (30,119,108) (4,117,232) (35,636,316)
- ----------------------------------------------------------------------------------------------------------------------
Class B (800,836) (6,943,711) (1,156,985) (10,021,189)
- ----------------------------------------------------------------------------------------------------------------------
Class C (544,009) (4,705,382) (954,494) (8,262,540)
======================================================================================================================
6,154,222 $ 53,860,840 2,573,541 $ 22,440,898
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 12% of
the outstanding shares of the Fund. AIM Distributors has an agreement
with these entities to sell Fund shares. The Fund, AIM, and/or AIM
affiliates may make payments to these entities, which are considered to
be related to the Fund, for providing services to the Fund, AIM and/or
AIM affiliates including but not limited to services such as, securities
brokerage, distribution, third party record keeping and account
servicing. There is also one individual that is a record owner of more
than 5% of the outstanding shares of the Fund. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these shareholders are also owned beneficially.
F-18
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,
-------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.73 $ 8.64 $ 8.59 $ 8.59 $ 8.72
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.51 0.51 0.54 0.55(a) 0.54
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.04 0.10 0.03 (0.01) (0.11)
=====================================================================================================================
Total from investment operations 0.55 0.61 0.57 0.54 0.43
=====================================================================================================================
Less dividends from net investment income (0.52) (0.52) (0.52) (0.54) (0.56)
=====================================================================================================================
Net asset value, end of period $ 8.76 $ 8.73 $ 8.64 $ 8.59 $ 8.59
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(b) 6.51% 7.30% 6.81% 6.41% 5.12%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $132,996 $94,657 $77,998 $70,873 $62,820
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.55%(c) 0.55% 0.55% 0.55% 0.55%
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.08%(c) 1.07% 1.05% 1.07% 1.17%
=====================================================================================================================
Ratio of net investment income to average net assets 5.83%(c) 5.91% 6.22% 6.26%(a) 6.23%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 12% 12% 14% 30% 15%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $104,042,375.
F-19
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.74 $ 8.65 $ 8.60 $ 8.61 $ 8.72
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.44 0.45 0.47 0.48(a) 0.47
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.05 0.10 0.04 (0.02) (0.10)
===========================================================================================================================
Total from investment operations 0.49 0.55 0.51 0.46 0.37
===========================================================================================================================
Less dividends from net investment income (0.46) (0.46) (0.46) (0.47) (0.48)
===========================================================================================================================
Net asset value, end of period $ 8.77 $ 8.74 $ 8.65 $ 8.60 $ 8.61
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 5.73% 6.51% 6.02% 5.47% 4.44%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,429 $45,026 $42,699 $35,811 $25,730
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.30%(c) 1.30% 1.30% 1.31% 1.30%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.83%(c) 1.82% 1.80% 1.83% 1.92%
===========================================================================================================================
Ratio of net investment income to average net assets 5.08%(c) 5.16% 5.47% 5.50%(a) 5.48%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 12% 12% 14% 30% 15%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $45,213,045.
F-20
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.74 $ 8.65 $ 8.60 $ 8.61 $ 8.72
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.44 0.45 0.47 0.48(a) 0.47
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.05 0.10 0.04 (0.02) (0.10)
==========================================================================================================================
Total from investment operations 0.49 0.55 0.51 0.46 0.37
==========================================================================================================================
Less dividends from net investment income (0.46) (0.46) (0.46) (0.47) (0.48)
==========================================================================================================================
Net asset value, end of period $ 8.77 $ 8.74 $ 8.65 $ 8.60 $ 8.61
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 5.73% 6.51% 6.02% 5.47% 4.43%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $33,114 $18,339 $13,496 $11,292 $6,797
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.30%(c) 1.30% 1.30% 1.31% 1.30%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.83%(c) 1.82% 1.80% 1.83% 1.92%
==========================================================================================================================
Ratio of net investment income to average net assets 5.08%(c) 5.16% 5.47% 5.50%(a) 5.48%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 12% 12% 14% 30% 15%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $22,122,675.
NOTE 11--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On March 23, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the
independent registered public accounting firm of the Fund for the fiscal year
ending March 31, 2006. For the prior reporting period, Ernst & Young ("E&Y") was
the Fund's independent registered public accounting firm. The change in the
Fund's independent auditors was part of an effort by the Audit Committee to
increase operational efficiencies by reducing the number of different audit
firms engaged by the Audit Committee to audit AIM Funds with March 31 fiscal
year ends. The Fund is in the process of obtaining a formal resignation from E&Y
as the independent registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused it to make reference to that matter in connection with its report.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to
F-21
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
market timing activity and related issues in the AIM Funds. The SEC also alleged
that ADI violated various Federal securities laws. The SEC also has settled
related market timing enforcement actions brought against certain former
officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid and the remaining half will be paid on or before December 31,
2005. AIM and ADI agreed to pay a total of $50 million, of which $30 million is
civil penalties, all of which has been paid. The entire $325 million IFG
settlement fund will be made available for distribution to the shareholders of
those AIM Funds that IFG formerly advised that were harmed by market timing
activity, and the entire $50 million settlement fund by AIM and ADI will be made
available for distribution to the shareholders of those AIM Funds advised by AIM
that were harmed by market timing activity, all as to be determined by an
independent distribution consultant. The IFG and AIM settlement funds may
increase as a result of contributions from third parties who reach final
settlements with the SEC or other regulators to resolve allegations of market
timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by the independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. Under the settlements with the
NYAG and COAG, AIM has agreed to reduce management fees on certain equity and
balanced AIM Funds by $15 million per year for the next five years, based upon
effective fee rates and assets under management as of July 1, 2004, not to
increase certain management fees and to provide more information to investors
regarding fees.
Under the terms of the settlements, AIM is undertaking certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties include monitoring
compliance and managing the process by which proposed management fees to be
charged the AIM Funds are negotiated. Also, commencing in 2008 and not less than
every fifth calendar year thereafter, the AIM Funds will hold shareholder
meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
such Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a former
member of the board of directors of the AIM Funds formerly advised by IFG),
Timothy J. Miller (the former chief investment officer and a former portfolio
manager for IFG), Thomas A. Kolbe (the former national sales manager of IFG) and
Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office
F-22
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
for the Southern District of New York, some of which concern one or more of the
AIM Funds formerly advised by IFG. IFG is providing full cooperation with
respect to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Pending Regulatory Civil Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking injunctive relief; civil monetary penalties; a
writ of quo warranto against the defendants; pre-judgment and post-judgment
interest; costs and expenses, including counsel fees; and other relief.
If AIM is unsuccessful in its defense of the WVAG proceedings, it could be
barred from serving as an investment adviser for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Such results could affect the ability of AIM or any other
investment advisor directly or indirectly owned by AMVESCAP, from serving as an
investment advisor to any registered investment company, including your Fund.
Your Fund has been informed by AIM that, if these results occur, AIM will seek
exemptive relief from the SEC to permit it to continue to serve as your Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
Private Civil 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 AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. 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 ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in two of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM 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) common
law 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.
Based on a recent court decision, the state court action has been removed to
Federal court.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or 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-23
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
These lawsuits have been filed in Federal 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division and subsequently consolidated for pre-trial purposes into one lawsuit.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. 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 (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees. These actions have been consolidated for pre-trial
purposes.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM 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.
F-24
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, 2005, 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 five 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.
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. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of March 31, 2005 by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. 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, 2005, 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 five
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
May 18, 2005
F-25
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of March 31, 2005
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 114
portfolios in the AIM 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President company); Director and 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director, Chairman and President, A I M
Advisors, Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc., Fund
Management Company and INVESCO
Distributors, Inc. (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.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company); Annuity and Life Re
(Holdings), Ltd. (insurance company);
and CompuDyne Corporation (provider of
products and services to the public
security market)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 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 Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) (owner) Dos Angelos Ranch, L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
TRUSTEES AND OFFICERS (continued)
As of March 31, 2005
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 114
portfolios in the AIM 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk(5) -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC; and Vice President,
A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2004 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior 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 N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson(6) -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.;
and Managing Partner, Beutel, Goodman
Capital Management
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
(5) Mr. Burk was elected Senior Vice President of the Trust effective February
15, 2005.
(6) Mr. Ferguson was elected Vice President of the Trust effective February 24,
2005.
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 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney, Suite
Houston, TX 77046-1173 Suite 100 1200
Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment The Bank of New York
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. 2 Hanson Place
1735 Market Street & Frankel LLP P.O. Box 4739 Brooklyn, NY 11217-1431
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739
Americas
New York, NY 10036-2714
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
AIM High Income Municipal Fund Class A, Class B and Class C paid ordinary
dividends in the amount of $0.519, $0.4554 and $0.4554 per share, respectively,
during its tax year ended March 31, 2005. Of this amount, 100% qualified as
tax-exempt interest dividends for federal income tax purposes.
<Table>
DOMESTIC EQUITY SECTOR EQUITY (1) The following name changes became
effective October 15, 2004: INVESCO
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund(1) Advantage Health Sciences Fund to AIM
AIM Basic Balanced Fund* AIM Energy Fund(1) Advantage Health Sciences Fund, INVESCO
AIM Basic Value Fund AIM Financial Services Fund(1) Dynamics Fund to AIM Dynamics Fund,
AIM Blue Chip Fund AIM Global Health Care Fund INVESCO Energy Fund to AIM Energy Fund,
AIM Capital Development Fund AIM Global Real Estate Fund INVESCO Financial Services Fund to AIM
AIM Charter Fund AIM Gold & Precious Metals Fund(1) Financial Services Fund, INVESCO Gold &
AIM Constellation Fund AIM Leisure Fund(1) Precious Metals Fund to AIM Gold &
AIM Diversified Dividend Fund AIM Multi-Sector Fund(1) Precious Metals Fund, INVESCO
AIM Dynamics Fund(1) AIM Real Estate Fund(7) International Core Equity Fund to AIM
AIM Large Cap Basic Value Fund AIM Technology Fund(1) International Core Equity Fund, INVESCO
AIM Large Cap Growth Fund AIM Utilities Fund(1) Leisure Fund to AIM Leisure Fund,
AIM Mid Cap Basic Value Fund INVESCO Mid-Cap Growth Fund to AIM Mid
AIM Mid Cap Core Equity Fund(2) FIXED INCOME Cap Stock Fund, INVESCO Multi-Sector
AIM Mid Cap Growth Fund Fund to AIM Multi-Sector Fund, INVESCO
AIM Opportunities I Fund TAXABLE S&P 500 Index Fund to AIM S&P 500 Index
AIM Opportunities II Fund Fund, INVESCO Small Company Growth Fund
AIM Opportunities III Fund AIM Floating Rate Fund to AIM Small Company Growth Fund,
AIM Premier Equity Fund AIM High Yield Fund INVESCO Technology Fund to AIM
AIM S&P 500 Index Fund(1) AIM Income Fund Technology Fund, INVESCO U.S. Government
AIM Select Equity Fund AIM Intermediate Government Fund Money Fund to Premier U.S. Government
AIM Small Cap Equity Fund(3) AIM Limited Maturity Treasury Fund Money Portfolio, INVESCO Utilities Fund
AIM Small Cap Growth Fund(4) AIM Money Market Fund to AIM Utilities Fund. (2) As of end of
AIM Small Company Growth Fund(1) AIM Short Term Bond Fund business on February 27, 2004, AIM Mid
AIM Trimark Endeavor Fund AIM Total Return Bond Fund Cap Core Equity Fund has limited public
AIM Trimark Small Companies Fund Premier Portfolio sales of its shares to certain
AIM Weingarten Fund Premier U.S. Government Money Portfolio(1) investors. For more information on who
may continue to invest in the Fund,
*AIM Domestic Equity and Income Fund please contact your financial advisor.
(3) Effective December 13, 2004, AIM
INTERNATIONAL/GLOBAL EQUITY TAX-FREE Small Cap Equity Fund is open to all
investors. (4) As of end of business on
AIM Asia Pacific Growth Fund AIM High Income Municipal Fund March 18, 2002, AIM Small Cap Growth
AIM Developing Markets Fund AIM Municipal Bond Fund Fund has limited public sales of its
AIM European Growth Fund AIM Tax-Exempt Cash Fund shares to certain investors. For more
AIM European Small Company Fund(5) AIM Tax-Free Intermediate Fund information on who may continue to
AIM Global Aggressive Growth Fund Premier Tax-Exempt Portfolio invest in the Fund, please contact your
AIM Global Equity Fund financial advisor. (5) As of end of
AIM Global Growth Fund AIM ALLOCATION SOLUTIONS business on March 28, 2005, AIM European
AIM Global Value Fund Small Company Fund has limited public
AIM International Core Equity Fund(1) AIM Conservative Allocation Fund sales of its shares to certain
AIM International Growth Fund AIM Growth Allocation Fund(8) investors. For more information on who
AIM International Small Company Fund(6) AIM Moderate Allocation Fund may continue to invest in the Fund,
AIM Trimark Fund AIM Moderate Growth Allocation Fund please contact your financial advisor.
AIM Moderately Conservative Allocation Fund (6) Effective December 30, 2004, AIM
International Emerging Growth Fund was
renamed AIM International Small Company
Fund. As of end of business on March 14,
2005, the Fund has limited public sales
of its shares to certain investors. For
more information on who may continue to
invest in the Fund, please contact your
financial advisor. (7) As of end of
business on April 29, 2005, AIM Real
Estate Fund has limited public sales of
its shares to certain investors. For
more information on who may continue to
invest in the Fund, please contact your
financial advisor. (8) Effective April
29, 2005, AIM Aggressive Allocation Fund
was renamed AIM Growth Allocation Fund.
If used after July 20, 2005, 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 $131
billion in assets. AIM is a subsidiary
of AMVESCAP PLC, one of the world's
largest independent financial services
companies with $375 billion in assets
under management. Data as of March 31,
2005.
CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES
CAREFULLY. FOR THIS AND OTHER
INFORMATION ABOUT AIM FUNDS, OBTAIN A
PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AND READ IT CAREFULLY BEFORE INVESTING.
AIMinvestments.com HIM-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
--Registered Trademark--
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark--
</Table>
AIM TAX-EXEMPT CASH FUND
Annual Report to Shareholders o March 31, 2005
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
AIM TAX-EXEMPT CASH FUND SEEKS TO EARN THE HIGHEST LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAXES THAT IS CONSISTENT WITH
THE PRESERVATION OF CAPITAL AND LIQUIDITY.
o Unless otherwise stated, information presented in this report is as of March 31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES ======================================= The Fund provides a complete list of its
7-DAY TAXABLE holdings four times in each fiscal year,
o Investor Class shares are closed to YIELD EQUIVALENT at the quarter-ends. For the second and
most investors. For more information on 7-DAY YIELD* fourth quarters, the lists appear in the
who may continue to invest in the Fund's semiannual and annual reports to
Investor Class shares, please see the Class A Shares 1.29% 1.98% shareholders. For the first and third
prospectus. quarters, the Fund files the lists with
Investor Class the Securities and Exchange Commission
ABOUT INDEXES USED IN THIS REPORT Shares 1.39% 2.14% (SEC) on Form N-Q. Shareholders can look
up the Fund's Forms N-Q on the SEC's Web
o The unmanaged Standard & Poor's *Based on the highest personal income site at sec.gov. Copies of the Fund's
Composite Index of 500 Stocks (the S&P tax rate in effect on March 31, 2005 Forms N-Q may be reviewed and copied at
500--Registered Trademark-- Index) is an (35%). the SEC's Public Reference Room at 450
index of common stocks frequently used ======================================= Fifth Street, N.W., Washington, D.C.
as a general measure of U.S. stock 20549-0102. You can obtain information
market performance. ======================================= on the operation of the Public Reference
PORTFOLIO COMPOSITION BY MATURITY Room, including information about
o The Fund is not managed to track the In days, as of 3/31/05 duplicating fee charges, by calling
performance of any particular index, 1-202-942-8090 or by electronic request
including the index defined in this 1-7 77.7% at the following e-mail address:
report, and consequently the performance publicinfo@sec.gov. The SEC file numbers
of the Fund many deviate significantly 8-30 2.8 for the Fund are 811-7890 and 33-66242.
from the performance of the index. The Fund's most recent portfolio
31-60 1.3 holdings, as filed on Form N-Q, are also
OTHER INFORMATION available at AIMinvestments.com.
61-90 3.8
Had the advisor and distributor not A description of the policies and
waived fees and/or reimbursed expenses 91-150 6.1 procedures that the Fund uses to
for Class A shares, performance would determine how to vote proxies relating
have been lower. 151-210 4.5 to portfolio securities is available
without charge, upon request, from our
211+ 3.8 Client Services department at
======================================= 800-659-1005 or on the AIM Web site,
AIMinvestments.com. On the home page,
The number of days to maturity of each scroll down and click on the AIM Funds
holding is determined in accordance with Proxy Policy. The information is also
the provisions of Rule 2a-7 under the available on the SEC Web site, sec.gov.
Investment Company Act of 1940.
Information regarding how the Fund voted
proxies related to its portfolio
securities during the 12 months ended
June 30, 2004, is available at our Web
site. Go to AIMinvestments.com, access
the About Us tab, click on Required
Notices and then click on Proxy Voting
Activity. Next, select the Fund from the
drop-down menu. The information is also
available on the SEC Web site, sec.gov.
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.
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THE FUND.
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
</Table>
AIM TAX-EXEMPT CASH FUND
DEAR FELLOW SHAREHOLDERS:
This is the annual report on the performance of AIM
Tax-Exempt Cash Fund for the fiscal year ended March 31,
2005. The table on the inside front cover shows the
seven-day yield for the fund's two share classes as of March
31, 2005. At the close of the fiscal year, the fund's
weighted average maturity stood at 33 days and its net
[GRAHAM assets totaled $64.1 million.
PHOTO]
YOUR FUND
Despite increases in the federal funds target rate, the rate
ROBERT H. GRAHAM (2.75% as of fiscal year-end) remained low by historical
standards, which in turn held down yields on money market
funds. (The federal funds target rate is a benchmark
interest rate used by banks for overnight loans to one
another.) Nevertheless, AIM Tax-Exempt Cash Fund continued
to offer risk-averse investors safety of principal.
Management made no changes to strategy as a result of
[WILLIAMSON federal funds target rate increases.
PHOTO]
Although the Fund is managed to generate income that is
exempt from federal income taxes, it may invest up to 20% of
its assets in taxable income securities. During the fiscal
year, the Fund invested in commercial paper, general market
MARK H. WILLIAMSON notes and demand notes. It did not hold alternative minimum
tax or non-tax-exempt securities.
In an effort to achieve the Fund's objectives, we
stressed the highest possible safety of principal while
offering investors the opportunity to invest in securities
that provide liquidity of assets. Additionally, we sought
the highest possible yield consistent with safety of
principal. Money market funds strive to preserve the value
of an investment by maintaining a $1.00 per share net asset
value. However, Fund shares are not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other
investment agency.
MARKET CONDITIONS
Economic activity continued to expand at a moderate pace
throughout the fiscal year ended March 31, 2005, according
to Beige Book economic commentaries published by the Federal
Reserve (the Fed) that cover the period.
o Gross domestic product (GDP), generally considered the
broadest measure of economic activity, grew at an
annualized rate of 4.4% during 2004 as a whole and
3.1% during the first quarter of 2005.
o The S&P 500 Index returned 6.69% during the fiscal
year.
o The Fed reported a moderate increase in consumer
spending, although auto sales were lackluster. Travel
and tourism and most service industries reported
improvements, and manufacturing activity also
expanded. Housing and residential construction was
robust, according to the March Beige Book.
In an effort to forestall the inflation that may
accompany robust economic growth, the Fed increased the
federal funds target rate seven times in 0.25% increments
during the fiscal year, bringing the rate to 2.75% on March
22, 2005. Despite the increases, the Fed said monetary
policy remained accommodative.
These rate increases helped boost yields on short-term
investments such as money market funds. The impact of
changes in the federal funds target rate is generally felt
in money market funds approximately two weeks after the
announcement of an increase or decrease, but the change in
yields may not be equivalent to the change in the federal
funds target rate.
IN CLOSING
Thank you for your continued participation in AIM Tax-Exempt
Cash Fund. We are pleased to be able to provide a stable
place for your investments in the midst of a volatile market
environment. If you have any questions, please consult your
financial advisor to help with your investment choices. As
always, our Client Services department is ready to serve
you. You may reach our representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Trustee, President & Vice Chair, Chairman & President,
AIM Funds AIM Advisors, Inc.
May 20, 2005
The views and opinions expressed in this letter are those of
A I M Advisors, Inc. These views and opinions are subject to
change at any time based on factors such as market and
economic conditions. These views and opinions may not be
relied upon as investment advice or recommendations, or as
an offer for a particular security. Statements of fact are
from sources considered reliable, but A I M Advisors, Inc.
makes no representation or warranty as to their completeness
or accuracy. Although historical performance is no guarantee
of future results, these insights may help you understand
our investment management philosophy.
AIM TAX-EXEMPT CASH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, not the Fund's actual return. The
to estimate the expenses that you paid hypothetical account values and expenses
As a shareholder of the Fund, you incur over the period. Simply divide your may not be used to estimate the actual
ongoing costs, including management account value by $1,000 (for example, an ending account balance or expenses you
fees; distribution and/or service fees $8,600 account value divided by $1,000 = paid for the period. You may use this
(12b-1); and other Fund expenses. This 8.6), then multiply the result by the information to compare the ongoing costs
example is intended to help you number in the table under the heading of investing in the Fund and other
understand your ongoing costs (in entitled "Actual Expenses Paid During funds. To do so, compare this 5%
dollars) of investing in the Fund and to Period" to estimate the expenses you hypothetical example with the 5%
compare these costs with ongoing costs paid on your account during this period. hypothetical examples that appear in the
of investing in other mutual funds. The shareholder reports of the other funds.
example is based on an investment of HYPOTHETICAL EXAMPLE FOR COMPARISON
$1,000 invested at the beginning of the PURPOSES Please note that the expenses shown
period and held for the entire period in the table are meant to highlight your
October 1, 2004, through March 31, 2005. The table below also provides ongoing costs only. Therefore, the
information about hypothetical account hypothetical information is useful in
ACTUAL EXPENSES values and hypothetical expenses based comparing ongoing costs only, and will
on the Fund's actual expense ratio and not help you determine the relative
The table below provides information an assumed rate of return of 5% per year total costs of owning different funds.
about actual account values and actual before expenses, which is
expenses. You may use the information in
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/01/04) (3/31/05)(1) PERIOD(2) (3/31/05) PERIOD(2)
A $1,000.00 $1,004.80 $4.35 $1,020.59 $4.38
Investor $1,000.00 $1,005.30 $3.85 $1,021.09 $3.88
(1) The actual ending account value is based on the actual total return of the Fund for the period October 1, 2004, to March 31,
2005, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio
and a hypothetical annual return of 5% before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio, 0.87% and 0.77% for Class A and Investor Class shares, respectively,
multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2005
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
MUNICIPAL SECURITIES-99.23%
ALABAMA-16.92%
Birmingham (City of) Public Parks &
Recreation Board (Children's Zoo Project);
VRD Series 2002 RB (LOC-AmSouth Bank)
2.40%, 05/01/07(b)(c) -- VMIG-1 $ 775 $ 775,000
- -----------------------------------------------------------------------------------
Tuscaloosa (City of) Educational Building
Authority (Stillman College Project);
Refunding Capital Improvement VRD Series
2002 A RB (LOC-AmSouth Bank)
2.40%, 10/01/23(b)(c) -- VMIG-1 10,078 10,078,000
===================================================================================
10,853,000
===================================================================================
ARIZONA-1.11%
Arizona (State of) Transportation Board
(Maricopa County Regional Area Road
Funding); Series 2002 RB
5.00%, 12/15/05 AA Aa2 500 509,173
- -----------------------------------------------------------------------------------
Phoenix (City of); Refunding Unlimited Tax
Series 1993 A GO
5.20%, 07/01/05 AA+ Aa1 200 201,608
===================================================================================
710,781
===================================================================================
COLORADO-2.00%
Arvada (City of); VRD Series 2001 RB
2.05%, 11/01/20(d)(e) A-1+ -- 800 800,000
- -----------------------------------------------------------------------------------
Moffat (County of) (Colorado-Ute Electric
Association); VRD Series 1984 PCR
2.32%, 07/01/10(b)(d) A-1+ VMIG-1 485 485,000
===================================================================================
1,285,000
===================================================================================
FLORIDA-2.38%
Florida (State of) Board of Regents
(University of Florida); Housing Revenue
Series 2000 RB
7.00%, 07/01/05(d) AAA Aaa 520 527,013
- -----------------------------------------------------------------------------------
Seminole (County of) Industrial Development
Authority (Florida Living Nursing); Health
Facilities Multi-Modal VRD Series 1991 IDR
(LOC-Bank of America, N.A.) 2.48%,
02/01/11(b)(c) -- VMIG-1 1,000 1,000,000
===================================================================================
1,527,013
===================================================================================
IDAHO-0.42%
Idaho (State of) Board Bank Authority; Series
2004 A RB
2.50%, 09/01/05(d) -- Aaa 270 270,623
===================================================================================
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
<Caption>
ILLINOIS-1.97%
Chicago (City of) Metropolitan Water
Reclamation District-Greater Chicago;
Capital Improvement Unlimited Tax Series
1995 GO
6.30%, 12/01/05(f)(g) AAA Aaa 380 389,953
- -----------------------------------------------------------------------------------
ILLINOIS-(CONTINUED)
Kane Cook & Du Page (Counties of) School
District No. 46 (Elgin); Refunding
Unlimited Tax Series 2005 GO
3.00%, 01/01/06(d) -- Aaa $ 865 $ 870,125
===================================================================================
1,260,078
===================================================================================
IOWA-3.78%
Algona (City of) Industrial Development
Authority (George A. Hormel & Co. Project);
VRD Series 1985 IDR (LOC-U.S. Bank N.A.)
2.45%, 05/01/05(b)(c) -- P-1 200 200,000
- -----------------------------------------------------------------------------------
Iowa (State of) Finance Authority (YMCA
Project); Economic Development VRD Series
2000 RB
(LOC-Wells Fargo Bank N.A.) 2.38%,
06/01/10(b)(c)(h) -- -- 1,920 1,920,000
- -----------------------------------------------------------------------------------
Iowa (State of) School Corps.; School Cash
Anticipation Program Series 2005 B RB
3.50%, 01/27/06(d) -- MIG-1 300 302,950
===================================================================================
2,422,950
===================================================================================
KANSAS-0.79%
Leawood (City of); Unlimited Tax Temporary
Notes Series 2004-2 GO
3.00%, 10/01/05 -- MIG-1 500 503,266
===================================================================================
KENTUCKY-4.11%
Kentucky (State of) Area Developing Districts
Financing Trust (Weekly Acquisition-Ewing);
Lease Program VRD Series 2000 RB
(LOC-Wachovia Bank, N.A.) 2.39%,
06/01/33(b)(c) A-1 -- 2,635 2,635,000
===================================================================================
MARYLAND-6.30%
Baltimore (County of) (Blue Circle Inc.
Project); Economic Development VRD Series
1992 RB (LOC-Danske Bank A.S.)
2.40%, 12/01/17(b)(c) -- 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.) 2.10%,
05/01/11(c)(e) -- P-1 400 400,000
- -----------------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
MARYLAND-(CONTINUED)
Hyattsville (City of) Industrial Development
Authority (Safeway Inc. Projects);
Refunding VRD Series 1991 IDR (LOC-Deutsche
Bank A.G.) 2.15%, 06/01/05(c)(f)(i) A-1 -- 740 740,000
===================================================================================
4,040,000
===================================================================================
MICHIGAN-0.32%
Big Rapids (City of) Public School District;
Unlimited Tax Series 1995 GO
5.63%, 05/01/05(f)(g) AAA Aaa 200 202,702
===================================================================================
MISSISSIPPI-4.52%
Mississippi (State of) Business Finance Corp.
(Mississippi College Project); VRD Series
2003 RB (LOC-AmSouth Bank)
2.40%, 07/01/23 (Acquired 09/29/03; Cost
$2,900,000)(b)(c)(j) -- VMIG-1 $2,900 $ 2,900,000
===================================================================================
MONTANA-1.11%
Great Falls (City of) Industrial Development
Authority (Safeway Inc. Projects);
Refunding VRD Series 1991 IDR (LOC-Deutsche
Bank A.G.)
2.15%, 06/01/05(c)(f)(i) A-1+ -- 710 710,000
===================================================================================
NEW MEXICO-8.34%
New Mexico (State of) Hospital Equipment Loan
Council (Dialysis Clinic Inc. Project); VRD
Series 2000 RB (LOC-SunTrust Bank)
2.35%, 07/01/25(b)(c) -- VIMG-1 5,000 5,000,000
- -----------------------------------------------------------------------------------
Silver City (City of); VRD Series 1995 A RB
(LOC-ABN AMRO Bank N.V.)
2.35%, 11/15/10(b)(c) -- P-1 350 350,000
===================================================================================
5,350,000
===================================================================================
NEW YORK-0.39%
New York (State of) Dormitory Authority (St.
Francis Hospital); Series 1999 A RB
4.63%, 07/01/05(d) AAA Aaa 250 251,351
===================================================================================
NORTH CAROLINA-3.90%
Carteret (County of) Industrial Facilities &
Pollution Control Financing Authority
(TexasGulf Inc. Project); VRD Series 1985
PCR (LOC-BNP Paribas) 2.40%,
10/01/05(b)(c)(h) -- -- 2,100 2,100,000
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
NORTH CAROLINA-(CONTINUED)
Charlotte (City of); Tax-Exempt Commercial
Paper Series 2005 GO
BAN
2.02%, 06/15/05 A-1+ -- 400 400,000
===================================================================================
2,500,000
===================================================================================
NORTH DAKOTA-5.61%
Fargo (City of) (Cass Oil Co. Project);
Commercial Development VRD Series 1984 RB
(LOC-U.S. Bank N.A.)
2.45%, 12/01/14(b)(c) A-1+ -- 3,600 3,600,000
===================================================================================
OHIO-1.47%
Ohio (State of); Unlimited Tax Series 1995 GO
6.00%, 08/01/05(f)(g) -- AAA 550 567,966
- -----------------------------------------------------------------------------------
Youngstown (City of) Local School District
(Classroom Facilities & School
Improvement); Unlimited Tax Series 2005 GO
3.00%, 12/01/05(d) AAA Aaa 375 376,987
===================================================================================
944,953
===================================================================================
OKLAHOMA-5.61%
Muskogee (City of) Industrial Trust (Muskogee
Mall Ltd. Special Project); VRD Series 1985
IDR (LOC-Bank of America, N.A.)
2.50%, 12/01/15(b)(c) -- VMIG-1 $3,600 $ 3,600,000
===================================================================================
OREGON-2.10%
Beaverton (City of); Refunding Water Series
2004 B RB
3.00%, 06/01/05(d) AAA Aaa 535 536,266
- -----------------------------------------------------------------------------------
Oregon (State of); Series 2004 A TAN 3.00%,
06/30/05 SP-1+ MIG-1 710 712,138
- -----------------------------------------------------------------------------------
Salem (City of); Refunding Unlimited Tax
Series 2004 GO
2.00%, 05/01/05(d) AAA Aaa 100 100,035
===================================================================================
1,348,439
===================================================================================
PENNSYLVANIA-4.05%
Allegheny (County of) Industrial Development
Authority (Carnegie Museums of Pittsburgh);
VRD Series 2002 IDR (LOC-Royal Bank of
Scotland)
2.40%, 08/01/32(b)(c) -- VMIG-1 1,000 1,000,000
- -----------------------------------------------------------------------------------
Franklin (County of) Industrial Development
Authority (Chambersburg Hospital
Obligation); Health Care VRD Series 2000
IDR
2.38%, 12/01/24(b)(d) A-1 -- 1,600 1,600,000
===================================================================================
2,600,000
===================================================================================
</Table>
F-2
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
TENNESSEE-2.26%
Hawkins (County of) Industrial Development
Board (Leggett & Platt Inc.); Refunding VRD
Series 1998 B IDR (LOC-Wachovia Bank, N.A.)
2.44%, 10/01/27(b)(c)(h) -- -- 1,450 1,450,000
===================================================================================
TEXAS-9.46%
Amarillo (City of) Health Facilities Corp.
(Panhandle Pooled Health Care); VRD Series
1985 RB (LOC-BNP Paribas)
2.42%, 05/31/25(b)(c) -- VMIG-1 3,894 3,894,000
- -----------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Authority (Texas Children's
Hospital Project); Hospital Series 1999 A
RB
4.50%, 10/01/05 AA Aa2 400 404,540
- -----------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Authority (Texas Children's
Hospital Project); Refunding Hospital
Series 1995 RB
6.00%, 10/01/05(g)(k) AAA Aaa 500 509,530
- -----------------------------------------------------------------------------------
Odessa (City of); Refunding Water & Sewer
Revenue Series 2001 RB
5.00%, 04/01/05(d) AAA Aaa 200 200,000
- -----------------------------------------------------------------------------------
Socorro (City of) Independent School
District; Unlimited Tax Series 2004 GO
(CEP-Texas Permanent School Fund)
3.00%, 08/15/05 AAA -- 385 386,914
- -----------------------------------------------------------------------------------
Texas (State of); Series 2004 TRAN 3.00%,
08/31/05 SP-1+ MIG-1 670 673,842
===================================================================================
6,068,826
===================================================================================
VERMONT-2.74%
Vermont (State of) Industrial Development
Authority (Central Vermont Public Service
Corp.); Hydroelectric VRD Series 1984 IDR
(LOC-Royal Bank of Scotland)
2.05%, 12/01/13(c)(e) A-1+ -- $1,755 $ 1,755,000
===================================================================================
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
<Caption>
VIRGINIA-1.72%
Staunton (City of) Industrial Development
Authority; Tax-Exempt Commercial Paper
Series 2005 A (LOC-Bank of America, N.A.)
1.98%, 04/04/05(c) -- VMIG-1 1,100 1,100,000
===================================================================================
WASHINGTON-3.43%
Seattle (Port of) Industrial Development
Corp. (Sysco Food Services Project);
Refunding VRD Series 1994 IDR
2.32%, 11/01/25(b) A-1+ VMIG-1 972 972,000
- -----------------------------------------------------------------------------------
Washington (State of) Public Power Supply
System (Nuclear Project No. 2); Refunding
Series 1993 B RB
5.40%, 07/01/05 AA- Aaa 365 367,988
- -----------------------------------------------------------------------------------
Washington (State of) Public Power Supply
System (Nuclear Project No. 3); Refunding
Series 1993 C RB
5.00%, 07/01/05(d) AAA Aaa 850 856,223
===================================================================================
2,196,211
===================================================================================
WISCONSIN-2.42%
Monona Grove School District; Refunding
Unlimited Tax Series 2005 GO
3.00%, 05/01/05(d) -- Aaa $ 555 $ 555,499
- -----------------------------------------------------------------------------------
Racine (City of) Unified School District;
Promissory Notes Unlimited Tax Series 2004
GO
2.50%, 04/01/05(d) -- Aaa 490 490,000
- -----------------------------------------------------------------------------------
Wisconsin (State of) School Districts Cash
Flow Management Program; Tax 2004 A-3 COP
3.00%, 09/20/05(h) -- -- 500 503,057
===================================================================================
1,548,556
===================================================================================
TOTAL INVESTMENTS-99.23% (Cost $63,633,749)(l) 63,633,749
===================================================================================
OTHER ASSETS LESS LIABILITIES-0.77% 495,106
===================================================================================
NET ASSETS-100.00% $64,128,855
___________________________________________________________________________________
===================================================================================
</Table>
F-3
Investment Abbreviations:
<Table>
BAN - Bond Anticipation Notes
CEP - Credit Enhancement Provider
COP - Certificate of Participation
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
TAN - Tax Anticipation Notes
TRAN - Tax and Revenue Anticipation Notes
VRD - Variable Rate Demand
</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. Ratings are not covered by the Report of Independent Registered
Public Accounting Firm.
(b) 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 March 31, 2005.
(c) Principal and interest payments are fully enhanced by a letter of credit
from the bank listed or a predecessor bank, branch or subsidiary.
(d) 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.
(e) 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 March 31, 2005.
(f) Security has an irrevocable call by the issuer or mandatory put by the
holder. Maturity date reflects such call or put.
(g) Advance refunded; secured by an escrow fund of U.S. Treasury
obligations.
(h) Unrated security; determined by the investment advisor to be of
comparable quality to the rated securities in which the Fund may invest
pursuant to guidelines for the determination of quality adopted by the
Board of Trustees and followed by the investment advisor.
(i) 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 March 31, 2005.
(j) 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
March 31, 2005 represented 4.52% of the Fund's Net Assets. This security
is not considered to be illiquid.
(k) Secured by an escrow fund of U.S. Treasury obligations.
(l) Also represents cost for federal income tax purposes.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2005
<Table>
ASSETS:
Investments, at market value (cost
$63,633,749) $63,633,749
- -----------------------------------------------------------
Receivables for:
Fund shares sold 301,921
- -----------------------------------------------------------
Interest 258,631
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 53,480
- -----------------------------------------------------------
Other assets 28,331
===========================================================
Total assets 64,276,112
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 33,333
- -----------------------------------------------------------
Dividends 7,970
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 58,799
- -----------------------------------------------------------
Accrued distribution fees 4,185
- -----------------------------------------------------------
Accrued trustees' fees 2,720
- -----------------------------------------------------------
Accrued transfer agent fees 6,535
- -----------------------------------------------------------
Accrued operating expenses 33,715
===========================================================
Total liabilities 147,257
===========================================================
Net assets applicable to shares outstanding $64,128,855
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $64,107,323
- -----------------------------------------------------------
Undistributed net investment income 21,532
===========================================================
$64,128,855
___________________________________________________________
===========================================================
NET ASSETS:
Class A $46,913,581
___________________________________________________________
===========================================================
Investor Class $17,215,274
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 46,906,344
___________________________________________________________
===========================================================
Investor Class 17,240,135
___________________________________________________________
===========================================================
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-5
STATEMENT OF OPERATIONS
For the year ended March 31, 2005
<Table>
INVESTMENT INCOME:
Interest $1,137,673
========================================================================
EXPENSES:
Advisory fees 269,311
- ------------------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------------------
Custodian fees 4,436
- ------------------------------------------------------------------------
Distribution fees -- Class A 144,890
- ------------------------------------------------------------------------
Transfer agent fees 85,526
- ------------------------------------------------------------------------
Trustees' fees and retirement benefits 14,481
- ------------------------------------------------------------------------
Registration and filing fees 61,569
- ------------------------------------------------------------------------
Professional services fees 43,264
- ------------------------------------------------------------------------
Other 50,325
========================================================================
Total expenses 723,802
========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (125,667)
========================================================================
Net expenses 598,135
========================================================================
Net investment income 539,538
========================================================================
Net increase in net assets resulting from operations $ 539,538
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 539,538 $ 349,335
=========================================================================================
Net increase in net assets resulting from operations 539,538 349,335
=========================================================================================
Distributions to shareholders from net investment income:
Class A (387,706) (306,807)
- -----------------------------------------------------------------------------------------
Investor Class (151,832) (42,557)
=========================================================================================
Decrease in net assets resulting from distributions (539,538) (349,364)
=========================================================================================
Share transactions-net:
Class A (28,633,291) 9,205,234
- -----------------------------------------------------------------------------------------
Investor Class (2,953,498) 20,168,381
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (31,586,789) 29,373,615
=========================================================================================
Net increase (decrease) in net assets (31,586,789) 29,373,586
=========================================================================================
NET ASSETS:
Beginning of year 95,715,644 66,342,058
=========================================================================================
End of year (including undistributed net investment income
of $21,532 and $21,532, respectively) $ 64,128,855 $95,715,644
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
March 31, 2005
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 or class will be voted on exclusively by the shareholders of such
portfolio. The assets, liabilities and operations of each portfolio or class 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. Each company listed in the Schedule of Investments is
organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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 by Rule 2a-7
under 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.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized net gains (losses) on
securities per share in the Financial Highlights. Transaction costs are
included in the calculation of the Fund's net asset value and, accordingly,
they reduce the Fund's total returns. These transaction costs are not
considered operating expenses and are not reflected in net investment
income reported in the Statement of Operations and Statement of Changes in
Net Assets, or the net investment income per share and ratios of expenses
and net investment income reported in the Financial Highlights, nor are
they limited by any expense limitation arrangements between the Fund and
the advisor.
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.
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. AIM contractually agreed to waive advisory fees and/or
reimburse expenses to the extent necessary to limit total annual operating
expenses (excluding certain items discussed below) of Class A and Investor Class
shares to 0.77% and 0.67% of average daily net assets, respectively, through
November 2, 2004. 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 limits
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), or items designated as such 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, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the only
F-8
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.
For the year ended March 31, 2005, AIM waived fees of $21,780.
For the year ended March 31, 2005, at the request of the Trustees of the
Trust, AMVESCAP agreed to reimburse $15,963 of expenses incurred by the Fund in
connection with market timing matters in the AIM Funds, including legal, audit,
shareholder reporting, communications and trustee expenses. These expenses along
with the related expense reimbursement, are included in the Statement of
Operations.
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. Pursuant to such agreement, for the year ended
March 31, 2005, AIM was paid $50,000.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the year ended March 31, 2005, the Fund
paid AISI $85,526.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("ADI") 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 ADI
compensation up to a maximum annual rate of 0.25% of the Fund's average daily
net assets of Class A shares. Of these amounts, up to 0.25% of the average daily
net assets of the Class A 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. ADI 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, 2005, the Class A shares paid $57,956 after ADI waived Plan fees of
$86,934.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended March 31, 2005, the
Fund received credits from this arrangement which resulted in the reduction of
the Fund's total expenses of $990.
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. Those Trustees who defer compensation have
the option to select various AIM 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, 2005, the Fund paid legal fees of $3,787 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 (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. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. 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 did not borrow or
lend under the facility during the year ended March 31, 2005.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with The Bank of New York, 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 at an amount equal
to the Federal Funds rate plus 100 basis points.
F-9
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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary income -- tax exempt $539,538 $349,364
__________________________________________________________________________________
==================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -------------------------------------------------------------------------
Undistributed ordinary income -- tax exempt $ 68,441
- -------------------------------------------------------------------------
Temporary book/tax differences (46,909)
- -------------------------------------------------------------------------
Shares of beneficial interest 64,107,323
=========================================================================
Total net assets $64,128,855
_________________________________________________________________________
=========================================================================
</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 trustee deferral of compensation and
retirement plan expenses.
The Fund has no capital loss carryforward as of March 31, 2005.
NOTE 7--SHARE INFORMATION
The Fund currently offers two different classes of shares: Class A shares and
Investor Class shares. Class A shares and Investor Class shares are sold at net
asset value.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
2005 2004
--------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 59,160,740 $ 59,160,740 113,505,979 $ 113,505,979
- --------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 12,777,660 12,777,660 17,037,545 17,037,545
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 341,924 341,924 238,643 238,643
- --------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 146,193 146,193 40,055 40,055
==========================================================================================================================
Issued in connection with acquisitions:(c)
Investor Class -- -- 22,988,184 22,962,932
==========================================================================================================================
Reacquired:
Class A (88,135,955) (88,135,955) (104,539,388) (104,539,388)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class(b) (15,877,351) (15,877,351) (19,872,151) (19,872,151)
==========================================================================================================================
(31,586,789) $(31,586,789) 29,398,867 $ 29,373,615
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two individuals that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 17% of the
outstanding shares of the Fund. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by these shareholders are also
owned beneficially.
(b) Investor Class shares commenced sales on September 30, 2003.
(c) As of the opening of business on November 3, 2003, the Fund acquired all of
the net assets of INVESCO Tax-Free Money Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 11, 2003 and
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 on October 31, 2003. INVESCO Tax-Free Money Fund's
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.
F-10
NOTE 8--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,
------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.01 0.004 0.01 0.02 0.04
- --------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.01) (0.004) (0.01) (0.02) (0.04)
====================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(a) 0.72% 0.41% 0.77% 1.84% 3.76%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,914 $75,547 $66,342 $54,996 $63,480
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.80%(b) 0.76% 0.79% 0.79% 0.76%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.00%(b) 0.91% 0.94% 0.94% 0.91%
====================================================================================================================
Ratio of net investment income to average net assets 0.68%(b) 0.40% 0.76% 1.85% 3.68%
____________________________________________________________________________________________________________________
====================================================================================================================
</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 $57,955,960.
<Table>
<Caption>
INVESTOR CLASS
------------------------------
SEPTEMBER 30,
2003
(DATE SALES
YEAR ENDED COMMENCED) TO
MARCH 31, MARCH 31,
2005 2004
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------
Net investment income 0.01 0.002
- --------------------------------------------------------------------------------------------
Less dividends from net investment income (0.01) (0.002)
============================================================================================
Net asset value, end of period $ 1.00 $ 1.00
____________________________________________________________________________________________
============================================================================================
Total return(a) 0.82% 0.23%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,215 $20,169
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets 0.70%(b)(c) 0.67%(d)
____________________________________________________________________________________________
============================================================================================
Ratio of net investment income to average net assets 0.78%(b)(c) 0.49%(d)
____________________________________________________________________________________________
============================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $18,989,902.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or reimbursements was 0.75%.
(d) Annualized.
NOTE 9 -- CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On March 23, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the
independent registered public accounting firm of the Fund for the fiscal year
ending March 31, 2006. For the prior reporting period, Ernst & Young ("E&Y") was
the Fund's independent registered public accounting firm. The change in the
Fund's independent auditors was part of an effort by the Audit Committee to
increase operational efficiencies by reducing the number of different audit
firms engaged by the Audit Committee to audit AIM Funds with March 31 fiscal
year ends. The Fund is in the process of obtaining a formal resignation from E&Y
as the independent registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused it to make reference to the matter in connection with its report.
F-11
NOTE 10 -- LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid and the remaining half will be paid on or before December 31,
2005. AIM and ADI agreed to pay a total of $50 million, of which $30 million is
civil penalties, all of which has been paid. The entire $325 million IFG
settlement fund will be made available for distribution to the shareholders of
those AIM Funds that IFG formerly advised that were harmed by market timing
activity, and the entire $50 million settlement fund by AIM and ADI will be made
available for distribution to the shareholders of those AIM Funds advised by AIM
that were harmed by market timing activity, all as to be determined by an
independent distribution consultant. The IFG and AIM settlement funds may
increase as a result of contributions from third parties who reach final
settlements with the SEC or other regulators to resolve allegations of market
timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by the independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. Under the settlements with the
NYAG and COAG, AIM has agreed to reduce management fees on certain equity and
balanced AIM Funds by $15 million per year for the next five years, based upon
effective fee rates and assets under management as of July 1, 2004, not to
increase certain management fees and to provide more information to investors
regarding fees.
Under the terms of the settlements, AIM is undertaking certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties include monitoring
compliance and managing the process by which proposed management fees to be
charged the AIM Funds are negotiated. Also, commencing in 2008 and not less than
every fifth calendar year thereafter, the AIM Funds will hold shareholder
meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
such Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a former
member of the board of directors of the AIM Funds formerly advised by IFG),
Timothy J. Miller (the former chief investment officer and a former portfolio
manager for IFG), Thomas A. Kolbe (the former national sales manager of IFG) and
Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
F-12
NOTE 10 -- LEGAL PROCEEDINGS (CONTINUED)
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Pending Regulatory Civil Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking injunctive relief; civil monetary penalties; a
writ of quo warranto against the defendants; pre-judgment and post-judgment
interest; costs and expenses, including counsel fees; and other relief.
If AIM is unsuccessful in its defense of the WVAG proceedings, it could be
barred from serving as an investment adviser for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Such results could affect the ability of AIM or any other
investment advisor directly or indirectly owned by AMVESCAP, from serving as an
investment advisor to any registered investment company, including your Fund.
Your Fund has been informed by AIM that, if these results occur, AIM will seek
exemptive relief from the SEC to permit it to continue to serve as your Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
Private Civil 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 AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. 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 ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee
F-13
NOTE 10 -- LEGAL PROCEEDINGS (CONTINUED)
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan. The plaintiffs in two of the underlying
lawsuits continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM 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) common
law 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.
Based on a recent court decision, the state court action has been removed to
Federal court.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or 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 Federal 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division and subsequently consolidated for pre-trial purposes into one lawsuit.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. 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 (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees. These actions have been consolidated for pre-trial
purposes.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM 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.
F-14
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, 2005, 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 five 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.
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. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of March 31, 2005 by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. 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, 2005, 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 five years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
May 18, 2005
F-15
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of March 31, 2005
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 114
portfolios in the AIM 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President company); Director and 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director, Chairman and President, A I M
Advisors, Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc., Fund
Management Company and INVESCO
Distributors, Inc. (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.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company); Annuity and Life Re
(Holdings), Ltd. (insurance company);
and CompuDyne Corporation (provider of
products and services to the public
security market)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 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 Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) (owner) Dos Angelos Ranch, L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
TRUSTEES AND OFFICERS (continued)
As of March 31, 2005
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 114
portfolios in the AIM 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) Other Directorship(s)
Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk(5) -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC; and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2004 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior 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 N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson(6) -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.;
and Managing Partner, Beutel, Goodman
Capital Management
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
(5) Mr. Burk was elected Senior Vice President of the Trust effective February
15, 2005.
(6) Mr. Ferguson was elected Vice President of the Trust effective February 24,
2005.
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 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney, Suite
Houston, TX 77046-1173 Suite 100 1200
Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment The Bank of New York
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. 2 Hanson Place
1735 Market Street & Frankel LLP P.O. Box 4739 Brooklyn, NY 11217-1431
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739
Americas
New York, NY 10036-2714
</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, 2005.
AIM Tax-Exempt Cash Fund paid ordinary dividends in the amount of $0.0072 per
Class A share and $0.0082 per Investor Class share during its tax year ended
March 31, 2005. 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>
DOMESTIC EQUITY SECTOR EQUITY (1) The following name changes became
effective October 15, 2004: INVESCO
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund(1) Advantage Health Sciences Fund to AIM
AIM Basic Balanced Fund* AIM Energy Fund(1) Advantage Health Sciences Fund, INVESCO
AIM Basic Value Fund AIM Financial Services Fund(1) Dynamics Fund to AIM Dynamics Fund,
AIM Blue Chip Fund AIM Global Health Care Fund INVESCO Energy Fund to AIM Energy Fund,
AIM Capital Development Fund AIM Global Real Estate Fund INVESCO Financial Services Fund to AIM
AIM Charter Fund AIM Gold & Precious Metals Fund(1) Financial Services Fund, INVESCO Gold &
AIM Constellation Fund AIM Leisure Fund(1) Precious Metals Fund to AIM Gold &
AIM Diversified Dividend Fund AIM Multi-Sector Fund(1) Precious Metals Fund, INVESCO
AIM Dynamics Fund(1) AIM Real Estate Fund(7) International Core Equity Fund to AIM
AIM Large Cap Basic Value Fund AIM Technology Fund(1) International Core Equity Fund, INVESCO
AIM Large Cap Growth Fund AIM Utilities Fund(1) Leisure Fund to AIM Leisure Fund,
AIM Mid Cap Basic Value Fund INVESCO Mid-Cap Growth Fund to AIM Mid
AIM Mid Cap Core Equity Fund(2) Cap Stock Fund, INVESCO Multi-Sector
AIM Mid Cap Growth Fund FIXED INCOME Fund to AIM Multi-Sector Fund, INVESCO
AIM Opportunities I Fund S&P 500 Index Fund to AIM S&P 500 Index
AIM Opportunities II Fund TAXABLE Fund, INVESCO Small Company Growth Fund
AIM Opportunities III Fund AIM Floating Rate Fund to AIM Small Company Growth Fund,
AIM Premier Equity Fund AIM High Yield Fund INVESCO Technology Fund to AIM
AIM S&P 500 Index Fund(1) AIM Income Fund Technology Fund, INVESCO U.S. Government
AIM Select Equity Fund AIM Intermediate Government Fund Money Fund to Premier U.S. Government
AIM Small Cap Equity Fund(3) AIM Limited Maturity Treasury Fund Money Portfolio, INVESCO Utilities Fund
AIM Small Cap Growth Fund(4) AIM Money Market Fund to AIM Utilities Fund. (2) As of end of
AIM Small Company Growth Fund(1) AIM Short Term Bond Fund business on February 27, 2004, AIM Mid
AIM Trimark Endeavor Fund AIM Total Return Bond Fund Cap Core Equity Fund has limited public
AIM Trimark Small Companies Fund Premier Portfolio sales of its shares to certain
AIM Weingarten Fund Premier U.S. Government Money Portfolio(1) investors. For more information on who
may continue to invest in the Fund,
*Domestic equity and income fund please contact your financial advisor.
(3) Effective December 13, 2004, AIM
INTERNATIONAL/GLOBAL EQUITY TAX-FREE Small Cap Equity Fund is open to all
AIM High Income Municipal Fund investors. (4) As of end of business on
AIM Asia Pacific Growth Fund AIM Municipal Bond Fund March 18, 2002, AIM Small Cap Growth
AIM Developing Markets Fund AIM Tax-Exempt Cash Fund Fund has limited public sales of its
AIM European Growth Fund AIM Tax-Free Intermediate Fund shares to certain investors. For more
AIM European Small Company Fund(5) Premier Tax-Exempt Portfolio information on who may continue to
AIM Global Aggressive Growth Fund invest in the Fund, please contact your
AIM Global Equity Fund AIM ALLOCATION SOLUTIONS financial advisor. (5) As of end of
AIM Global Growth Fund business on March 28, 2005, AIM European
AIM Global Value Fund AIM Conservative Allocation Fund Small Company Fund has limited public
AIM International Core Equity Fund(1) AIM Growth Allocation Fund(8) sales of its shares to certain
AIM International Growth Fund AIM Moderate Allocation Fund investors. For more information on who
AIM International Small Company Fund(6) AIM Moderate Growth Allocation Fund may continue to invest in the Fund,
AIM Trimark Fund AIM Moderately Conservative Allocation Fund please contact your financial advisor.
(6) Effective December 30, 2004, AIM
International Emerging Growth Fund was
renamed AIM International Small Company
Fund. As of end of business on March 14,
2005, the Fund has limited public sales
of its shares to certain investors. For
more information on who may continue to
invest in the Fund, please contact your
financial advisor. (7) As of end of
business on April 29, 2005, AIM Real
Estate Fund has limited public sales of
its shares to certain investors. For
more information on who may continue to
invest in the Fund, please contact your
financial advisor. (8) Effective April
29, 2005, AIM Aggressive Allocation Fund
was renamed AIM Growth Allocation Fund.
If used after July 20, 2005, 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 $131
billion in assets. AIM is a subsidiary
of AMVESCAP PLC, one of the world's
largest independent financial services
companies with $375 billion in assets
under management. Data as of March 31,
2005.
CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES
CAREFULLY. FOR THIS AND OTHER
INFORMATION ABOUT AIM FUNDS, OBTAIN A
PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AND READ IT CAREFULLY BEFORE INVESTING.
AIMinvestments.com TEC-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
--Registered Trademark--
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark--
</Table>
AIM TAX-FREE INTERMEDIATE FUND
Annual Report to Shareholders o March 31, 2005
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
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 in this report is as of March 31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES OTHER INFORMATION The Fund provides a complete list of its
holdings four times in each fiscal year,
o Class A shares were closed to new o The average credit quality of the at the quarter-ends. For the second and
investors October 30, 2002. Fund's holdings as of the close of the fourth quarters, the lists appear in the
reporting period represents the weighted Fund's semiannual and annual reports to
PRINCIPAL RISKS OF INVESTING IN THE FUND average quality rating of the securities shareholders. For the first and third
in the portfolio as assigned by quarters, the Fund files the lists with
o U.S. Treasury securities such as Nationally Recognized Statistical Rating the Securities and Exchange Commission
bills, notes and bonds offer a high Organizations based on assessment of the (SEC) on Form N-Q. Shareholders can look
degree of safety, and they guarantee the credit quality of the individual up the Fund's Forms N-Q on the SEC's
payment of principal and any applicable securities. Web site at sec.gov. Copies of the
interest if held to maturity. Fund Fund's Forms N-Q may be reviewed and
shares are not insured, and their value o Revenue bonds are issued to finance copied at the SEC's Public Reference
and yield will vary with market public-works projects and are supported Room at 450 Fifth Street, N.W.,
conditions. directly by the project's revenues. Washington, D.C. 20549-0102. You can
General obligation (GO) bonds are backed obtain information on the operation of
ABOUT INDEXES USED IN THIS REPORT by the full faith and credit (including the Public Reference Room, including
the taxing and further borrowing power) information about duplicating fee
o The unmanaged Lehman Municipal Bond of a state or municipality. Revenue charges, by calling 1-202-942-8090 or by
Index, which represents the performance bonds often are considered more electronic request at the following
of investment-grade municipal bonds, is attractive, since many public-works E-mail address: publicinfo@sec.gov. The
compiled by Lehman Brothers, a global projects (water and sewer improvements, SEC file numbers for the Fund are
investment bank. for example) are necessities, and demand 811-7890 and 33-66242. The Fund's most
for them remains constant regardless of recent portfolio holdings, as filed on
o The Merrill Lynch 3-7 Year Municipal economic conditions. Shareholders may Form N-Q, are also available at
Index is a domestic bond index that benefit from their consistent income in AIMinvestments.com.
holds investment-grade municipal bonds the event of an economic slowdown.
with maturities that range between 3 and Escrowed and pre-refunded bonds are A description of the policies and
7 years. bonds whose repayment is guaranteed by procedures that the Fund uses to
the funds from a second bond issue, determine how to vote proxies relating
o The unmanaged Lipper Intermediate which are usually invested in U.S. to portfolio securities is available
Muni-Debt Fund Index represents an Treasury bonds. without charge, upon request, from our
average of the 30 largest Client Services department at
intermediate-term municipal-bond funds o The returns shown in management's 800-959-4246 or on the AIM Web site,
tracked by Lipper, Inc., an independent discussion of Fund performance are based AIMinvestments.com. On the home page,
mutual fund performance monitor. on net asset values calculated for scroll down and click on AIM Funds Proxy
shareholder transactions. Generally Policy. The information is also
o The Fund is not managed to track the accepted accounting principles require available on the SEC Web site, sec.gov.
performance of any particular index, adjustments to be made to the net assets
including the indexes defined here, and of the Fund at period end for financial Information regarding how the Fund voted
consequently, the performance of the reporting purposes, and as such, the net proxies related to its portfolio
Fund may deviate significantly from the asset values for shareholder securities during the 12 months ended
performance of the indexes. transactions and the returns based on June 30, 2004, is available at our Web
those net asset values may differ from site. Go to AIMinvestments.com, access
o A direct investment cannot be made in the net asset values and returns the About Us tab, click on Required
an index. Unless otherwise indicated, reported in the Financial Highlights. Notices and then click on Proxy Voting
index results include reinvested Activity. Next, select the Fund from the
dividends, and they do not reflect sales drop-down menu. The information is also
charges. Performance of an index of available on the SEC Web site, sec.gov.
funds reflects fund expenses;
performance of a market index does not.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
</Table>
AIM TAX-FREE INTERMEDIATE FUND
DEAR FELLOW SHAREHOLDERS:
The fiscal year covered by this report saw both equities and
bonds* produce positive total returns, but it wasn't a very
[GRAHAM smooth ride. Markets were at their best during the second
PHOTO] half of 2004--bonds during the third quarter of that year
and equities during the fourth. Returns turned negative for
both asset classes during the first quarter of 2005.
The huge run-up in the price of oil over the course of
ROBERT H. GRAHAM the fiscal year goes a long way toward explaining the
markets' loss of confidence early in 2005. The Consumer
Price Index rose more in March 2005 than one month earlier.
Energy costs advanced 4.0% in March; the petroleum-based
subset of energy increased 7.8%.
Another negative factor has been Federal Reserve policy.
[WILLIAMSON With a view to warding off potential inflation, the Federal
PHOTO] Reserve (the Fed) raised short-term interest rates in March,
the seventh such move since mid-year 2004. The Fed noted
that inflationary pressures have picked up recently and that
businesses' ability to raise prices appeared stronger than
in the recent past. There is a virtually universal
MARK H. WILLIAMSON expectation that the Fed will continue to increase
short-term interest rates during 2005, which could
ultimately dampen economic performance. (In early May, after
the close of the reporting period, the Fed raised rates once
again.)
Nevertheless, there was also much good news for
investors as of March 31, 2005:
o The Institute for Supply Management's manufacturing
and non-manufacturing indexes--based on surveys of
purchasing managers in industries that cover more than
80% of the U.S. economy--both indicated continued
healthy growth during March and April and remained in
very strong territory. April was the 42nd month in a
row these surveys showed the economy as a whole
expanding.
o Job growth during March was weaker than in the recent
past, though the unemployment rate declined over the
course of the fiscal year. In fact, less than robust
job growth during March was good news for bond
investors--there is still enough slack in the job
market to keep wage inflation from becoming an issue.
o Bond yields haven't risen as much as might be expected
given seven increases in short-term rates over the
fiscal year. Evidently, the bond market is not
anticipating a long-term inflationary pattern.
So once again we are seeing a good news/bad news
combination--a situation that is far from unusual. Over the
short term, financial markets are unpredictable. It is over
the long term that they have been rewarding to investors,
and we remain confident in their long-term outlook. Given
the inability to make accurate short-term forecasts, as
always, we urge our shareholders to:
o keep a long-term investment perspective,
o make sure their portfolios are suitably diversified,
and
o contact their financial advisors when they have
questions or concerns about their investments or the
markets.
YOUR FUND
The following pages present a discussion of your Fund's
approach to investing, an explanation of its performance
over the fiscal year, and a summary of its portfolio as that
year closed. Further information about your Fund and The AIM
Family of Funds--Registered Trademark--, as well as general
information concerning investing, is always available on our
widely praised Web site, AIMinvestments.com. We invite you
to visit frequently.
As always, we at AIM are dedicated to building solutions
to help you meet your investment goals. We thank you for
your continued participation in AIM Investments--Registered
Trademark--. If you have any questions, please contact our
award-winning Client Service representatives at
800-959-4246. We are pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Trustee, President & Vice Chair, Chairman & President,
AIM Funds A I M Advisors, Inc.
May 20, 2005
*Equities represented by the S&P 500 Index, an index of
common stocks often used as a general measure of U.S. stock
market performance; bonds by the Lehman U.S. Aggregate Bond
Index, an index compiled by Lehman Brothers, the global
investment bank, that represents the U.S. investment-grade
fixed-rate bond market.
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
AIM TAX-FREE INTERMEDIATE FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND the prospectus requires these holdings
PERFORMANCE to have credit quality ratings of A or
higher.
AIM Tax-Free Intermediate Fund continued The Fund's total returns trailed
to provide competitive current income those of the Merrill Lynch 3-7 Year Each holding must have a maturity of
free of federal taxes during the fiscal Municipal Index and the Lipper 10.5 years or less, and the average
year ending March 31, 2005. The Fund's Intermediate Muni-Debt Fund Index, which maturity for the portfolio as a whole is
distribution rate was significantly are composed of municipal bonds or bond required to remain between three and
higher than that of its peer group as funds with maturities approximately seven-and-one-half years.
represented by the Lipper Intermediate comparable to those held by the Fund.
Muni-Debt Fund Index. This occurred primarily because the Fund The Fund's customarily short average
is restricted to holdings of very high duration--a measure of a fund's
However, the high-quality, short- to credit quality (rated no lower than A), sensitivity to interest rate
intermediate-term fixed-income while these indexes include many bonds changes--helps limit price volatility,
instruments in which the Fund invests of lower credit quality, which produced though some fluctuation is to be
faced price pressures in the market. As higher total returns during the period. expected. To further enhance the
a result, the net asset value component stability of the Fund's net asset value,
of total return constrained the Fund's The Fund also underperformed the we frequently purchase bonds trading
results, causing the first negative Lehman Municipal Bond Index, principally above their face value, which tend to
fiscal year in the Fund's 16-year because that index includes municipal hold their value better than bonds
history--a tiny loss of just one issues of lower credit quality, and trading below face value when interest
one-hundredth of one percent for Class A additionally because it includes rates are rising. Rates rose during the
shares. instruments of longer maturities than Fund's fiscal year as the Federal
the Fund is permitted to hold. On Reserve (the Fed) implemented a 175
======================================== average, longer-maturity municipal basis point increase in the federal
FUND VS. INDEXES bonds had better total returns than funds rate (the interest rate on
shorter-maturity municipals during the overnight loans between banks, which
TOTAL RETURNS, 3/31/04-3/31/05, period. influences other interest rates).
EXCLUDING APPLICABLE SALES CHARGES. IF
SALES CHARGES WERE INCLUDED, RETURNS HOW WE INVEST As additional protection against
WOULD BE LOWER. credit risk, we have typically invested
To meet the Fund's objective of a majority of the Fund's assets in
Class A Shares -0.01% generating as high a level of tax-exempt insured bonds, which generally offer
income as is consistent with competitive yields with less risk and
Class A3 Shares -0.37 preservation of capital, we invest the greater liquidity than similar uninsured
Fund's assets primarily in high-quality bonds.
Lehman Municipal Bond Index investment-grade municipal securities.
(Broad Market Index) 2.67 To help protect the Fund against credit While we typically hold bonds to
risk, maturity to avoid selling-related
Merrill Lynch 3-7 Year Municipal capital gains, we may sell a holding if
Index (Style-specific Index) 0.53 we see a degradation in the issuer's
credit quality, to limit or reduce
Lipper Intermediate Muni-Debt exposure to a particular sector or
Fund Index (Peer Group Index) 0.92 issuer, or to shorten or lengthen the
Fund's duration.
SOURCE: LIPPER,INC.
========================================
======================================== =======================================================================================
PORTFOLIO COMPOSITION TOP FIVE FIXED-INCOME HOLDINGS
By credit quality, as of 3/31/05 % OF NET
COUPON MATURITY ASSETS
1. District of Columbia 5.50% 6/1/2009 4.4%
[PIE CHART]
2. New Jersey (State of) Transportation
Trust Fund Authority 5.50 6/15/2010 2.3
AA 16.6%
A 6.3% 3. Chicago (City of) 6.50 12/1/2008 2.3
Not Rated/Other 0.2%
AAA 76.9% 4. Energy Northwest 5.50 7/1/2011 2.2
5. San Antonio (City of) 5.25 2/1/2010 1.6
=======================================================================================
=======================================================================================
SOURCES FOR CREDIT QUALITY RATINGS: TOTAL NET ASSETS $377.4 MILLION
FITCH RATINGS, MOODY'S INVESTORS SERVICE,
INC., AND STANDARD & POOR'S RATINGS NUMBER OF BOND HOLDINGS 201
SERVICES
AVERAGE QUALITY RATING AA+
The Fund's holdings are subject to
change, and there is no assurance that WEIGHTED AVERAGE MATURITY 4.23 YEARS
the Fund will continue to hold any
particular security. AVERAGE DURATION 3.46 YEARS
======================================== =======================================================================================
</Table>
2
<Table>
MARKET CONDITIONS AND YOUR FUND backed solely by payments from the The views and opinions expressed in
Master Settlement Agreement between most management's discussion of Fund
During the reporting period, as always, states and the large tobacco companies). performance are those of A I M Advisors,
we managed the Fund for current income, The Fund did not own any airline-backed Inc. These views and opinions are
not total return. We continued to hold bonds, but did own a small amount of subject to change at any time based on
the majority of the Fund's assets in tobacco bonds during the reporting factors such as market and economic
insured bonds for their profile of period. conditions. These views and opinions may
favorable yields with modest risk. not be relied upon as investment advice
At the conclusion of its fiscal or recommendations, or as an offer for a
The U.S. economy continued to year, the Fund remained positioned to particular security. The information is
improve during the fiscal year, with generate as high a level of tax-exempt not a complete analysis of every aspect
gross domestic product--usually current income as consistent with the of any market, country, industry,
considered the broadest measure of preservation of capital. Approximately security or the Fund. Statements of fact
economic activity--rising throughout the 75% of the Fund's assets were invested are from sources considered reliable,
year. To forestall the inflation that in AAA-rated securities--the highest but A I M Advisors, Inc. makes no
often accompanies economic growth, the rating--to keep credit risk low. representation or warranty as to their
Fed began raising its influential target completeness or accuracy. Although
federal funds rate at the end of June, To hold down market risk, we further historical performance is no guarantee
and raised it six more times before the shortened the Fund's weighted average of future results, these insights may
end of the Fund's fiscal year. maturity (WAM) and duration. A short help you understand our investment
duration typically helps a fund management philosophy.
The outcome surprised many outperform on a total return basis in a
observers. When the federal funds rate rising interest rate environment. On the See important Fund and index
rises, it is typical for other interest basis of the Fed's comment late in March disclosures inside front cover.
rates to rise as well, though not that pressures on inflation had picked
necessarily by an equivalent amount. up in recent months, we anticipated that
From the third quarter of 2004 through the Fed was likely to continue raising
the first quarter of 2005, short-term interest rates. RICHARD A. BERRY,
interest rates did rise, but long-term Chartered Financial
rates actually declined. The Fund's IN CLOSING [BERRY Analyst, is co-manager
holdings, being of intermediate PHOTO] of AIM Tax-Free
maturities, were only moderately While total returns for this fiscal year Intermediate Fund. He
affected on average, but price were not as attractive as we would like, joined AIM in 1987 and
deterioration in the shorter-maturity the Fund continued to pay good has been in the financial industry since
holdings caused a small negative distributions--higher than those of its 1968. Mr. Berry has been president and
performance in the portfolio as a whole. average peer. director of the Dallas Association of
Holdings with longer maturities tended Investment Analysts and chairman of the
to see greater returns than those with Thank you for your continued board of regents of the Financial
shorter maturities. investment in AIM Tax-Free Intermediate Analysts Seminar. He received both a
Fund. B.B.A. and an M.B.A. from Texas
Credit concerns during the period Christian University.
involved unsecured airline-backed bonds
and unenhanced 'tobacco' bonds STEPHEN D. TURMAN,
(municipal bonds Chartered Financial
[TURMAN Analyst, is co-manager
PHOTO] of AIM Tax-Free
Intermediate Fund. He
has been in the
investment industry since 1983 and
joined AIM in 1985. Mr. Turman received
a B.B.A. in finance from The University
of Texas at Arlington.
==================================================================================
FUND PROVIDES CURRENT INCOME Assisted by the Municipal Bond Team
30-Day Taxable
Distribution Equivalent 30-Day 30-Day Taxable Equivalent
Rate Distribution Rate SEC Yield 30-Day SEC Yield
Class A Shares 4.33% 6.66% 2.64% 4.06%
Class A3 Shares 4.01 6.17 2.31 3.55
o 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.
o 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.
o The 30-day SEC 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.
o The taxable-equivalent 30-day SEC yield is calculated in the same manner as
the 30-day SEC yield, with an adjustment for a stated, assumed tax rate. [RIGHT ARROW GRAPHIC]
o These taxable-equivalent calculations assume the highest federal income tax FOR A PRESENTATION OF YOUR FUND'S
rate in effect on March 31, 2005--35.0%. Income may be subject to some state and LONG-TERM PERFORMANCE RECORD,
local taxes. PLEASE TURN TO PAGE 5.
==================================================================================
</Table>
3
AIM TAX-FREE INTERMEDIATE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, The hypothetical account values and
to estimate the expenses that you paid expenses may not be used to estimate the
As a shareholder of the Fund, you incur over the period. Simply divide your actual ending account balance or
two types of costs: (1) transaction account value by $1,000 (for example, an expenses you paid for the period. You
costs, which may include sales charges $8,600 account value divided by $1,000 = may use this information to compare the
(loads) on purchase payments; contingent 8.6), then multiply the result by the ongoing costs of investing in the Fund
deferred sales charges on redemptions; number in the table under the heading and other funds. To do so, compare this
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During 5% hypothetical example with the 5%
ongoing costs, including management Period" to estimate the expenses you hypothetical examples that appear in the
fees; distribution and/or service fees paid on your account during this period. shareholder reports of the other funds.
(12b-1); and other Fund expenses. This
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown in
understand your ongoing costs (in PURPOSES the table are meant to highlight your
dollars) of investing in the Fund and to ongoing costs only and do not reflect
compare these costs with ongoing costs The table below also provides any transactional costs, such as sales
of investing in other mutual funds. The information about hypothetical account charges (loads) on purchase payments,
example is based on an investment of values and hypothetical expenses based contingent deferred sales charges on
$1,000 invested at the beginning of the on the Fund's actual expense ratio and redemptions, and redemption fees, if
period and held for the entire period an assumed rate of return of 5% per year any. Therefore, the hypothetical
October 1, 2004, through March 31, 2005. before expenses, which is not the Fund's information is useful in comparing
actual return. The Fund's actual ongoing costs only, and will not help
ACTUAL EXPENSES cumulative total returns at net asset you determine the relative total costs
value after expenses for the six months of owning different funds.
The table below provides information ended March 31, 2005, appear in the
about actual account values and actual table "Cumulative Total Returns" on page
expenses. You may use the information in 5.
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/1/04) (3/31/05)(1) PERIOD(2) (3/31/05) PERIOD(2)
A $1,000.00 $994.70 $2.23 $1,022.69 $2.26
A3 1,000.00 993.00 3.98 1,020.94 4.03
(1) The actual ending account value is based on the actual total return of the Fund for the period, October 1, 2004, to March 31,
2005, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio
and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value after expenses
for the six months ended March 31, 2005, appear in the table "Cumulative Total Returns" on page 5.
(2) Expenses are equal to the Fund's annualized expense ratio, 0.45% and 0.80% for Class A and A3 shares, respectively, multiplied
by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
AIM TAX-FREE INTERMEDIATE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
Your Fund's total return includes ============================================================================
reinvested distributions, applicable RESULTS OF A $10,000 INVESTMENT
sales charges, Fund expenses and Fund and index data from 3/31/95
management fees. Index results include
reinvested dividends, but they do not [MOUNTAIN CHART]
reflect sales charges. Performance of an
index of funds reflects fund expenses AIM Tax-Free Lipper Merrill Lynch
and management fees; performance of a Intermediate Intermediate Lehman 3-7 Year
market index does not. Performance shown Fund Class A Muni-Debt Municipal Municipal
in the chart and tables does not reflect Date Shares Fund Index Bond Index Index
deduction of taxes a shareholder may pay 3/31/95 $ 9900 $10000 $10000 $10000
on Fund distributions or sale of Fund 4/95 9947 10022 10012 10067
shares. Performance of the indexes does 5/95 10115 10257 10331 10295
not reflect the effects of taxes. 6/95 10096 10225 10241 10305
7/95 10183 10318 10338 10389
This chart, which is a logarithmic 8/95 10261 10418 10469 10483
chart, presents the fluctuations in the 9/95 10291 10470 10535 10481
value of the Fund and its indexes. We 10/95 10362 10570 10688 10531
believe that a logarithmic chart is more 11/95 10453 10682 10866 10677
effective than other types of charts in 12/95 10495 10751 10970 10701
illustrating changes in value during the 1/96 10568 10834 11053 10827
early years shown in the chart. The 2/96 10553 10801 10978 10807
vertical axis, the one that indicates 3/96 10499 10692 10838 10717
the dollar value of an investment, is 4/96 10494 10673 10807 10715
constructed with each segment 5/96 10509 10673 10803 10707
representing a percent change in the 6/96 10562 10740 10921 10751
value of the investment. In this chart, 7/96 10624 10834 11020 10853
each segment represents a doubling, or 8/96 10636 10838 11017 10870
100% change, in the value of the 9/96 10709 10937 11171 10943
investment. In other words, the space 10/96 10780 11044 11298 11043
between $10,000 and $20,000 is the same 11/96 10913 11208 11505 11171
size as the space between $20,000 and 12/96 10896 11178 11456 11158
$40,000, the space between $20,000 and 1/97 10938 11206 11478 11182
$40,000 is the same as that between 2/97 11001 11290 11583 11261
$40,000 and $80,000, and so on. 3/97 10953 11175 11429 11148
4/97 11007 11233 11524 11170
======================================= 5/97 11132 11366 11698 11303
AVERAGE ANNUAL TOTAL RETURNS 6/97 11217 11471 11822 11434
As of 3/31/05, including applicable 7/97 11415 11720 12150 11629
sales charges 8/97 11356 11629 12036 11555
9/97 11463 11752 12179 11675
CLASS A SHARES 10/97 11505 11808 12257 11719
10 Years 4.86% 11/97 11548 11854 12329 11764
5 Years 4.92 12/97 11685 12005 12509 11881
1 Year -1.03 1/98 11791 12107 12638 11972
2/98 11793 12113 12642 11989
CLASS A3 SHARES 3/98 11804 12120 12653 12007
10 Years 4.59% 4/98 11742 12064 12596 11958
5 Years 4.74 5/98 11883 12226 12795 12112
1 Year -0.37 6/98 11927 12268 12846 12144
======================================= 7/98 11960 12296 12878 12187
8/98 12113 12473 13077 12362
The inception date of Class A3 shares is 9/98 12234 12608 13240 12478
October 31, 2002. Returns since that 10/98 12258 12612 13240 12504
date are historical returns. All other 11/98 12292 12640 13286 12518
returns are the blended returns of the 12/98 12326 12680 13320 12587
historical performance of the Fund's 1/99 12471 12822 13478 12736
Class A3 shares since their inception 2/99 12417 12754 13419 12692
and the restated historical performance 3/99 12429 12751 13438 12701
of the Fund's Class A shares (for 4/99 12464 12786 13471 12744
periods prior to the inception of Class 5/99 12421 12710 13393 12694
A3 shares) at net asset value, adjusted 6/99 12275 12537 13201 12550
to reflect the higher Rule 12b-1 fees 7/99 12355 12596 13249 12654
applicable to Class A3 shares. 8/99 12310 12537 13142 12657
9/99 12357 12545 13148 12654
Class A share performance reflects 10/99 12289 12457 13005 12626
the maximum 1.00% sales charge. Class A3 11/99 12394 12563 13144 12705
shares do not have a front-end sales 12/99 12338 12506 13046 12671
charge or a CDSC; therefore, performance 1/00 12281 12451 12989 12648
quoted is at net asset value. The 2/00 12340 12547 13140 12700
performance of the Fund's share classes 3/00 12515 12726 13427 12821
will differ due to different sales 4/00 12458 12672 13348 12783
charge structures and class expenses. 5/00 12401 12620 13278 12780
6/00 12672 12880 13630 13037
The performance data quoted 7/00 12815 13026 13820 13189
represent past performance and cannot 8/00 12970 13188 14033 13329
guarantee comparable future results; 9/00 12948 13149 13960 13304
current performance may be lower or 10/00 13057 13259 14112 13400
higher. Please visit AIMinvestments.com 11/00 13107 13322 14219 13455
for the most recent month-end 12/00 13349 13590 14570 13715
performance. Performance figures reflect 1/01 13520 13747 14714 13956
reinvested distributions, changes in net 2/01 13558 13792 14761 13969
asset value and the effect of the 3/01 13657 13897 14893 14101
maximum applicable sales charge unless 4/01 13535 13772 14732 14010
otherwise stated. Investment return and 5/01 13671 13914 14891 14169
principal value will fluctuate so that 6/01 13745 14000 14990 14250
you may have a gain or loss when you 7/01 13892 14169 15212 14403
sell shares. 8/01 14076 14383 15463 14639
9/01 14100 14363 15411 14630
======================================= 10/01 14233 14501 15595 14758
CUMULATIVE TOTAL RETURNS 11/01 14078 14350 15463 14589
Excluding applicable sales charges 12/01 13947 14242 15317 14535
6 months ended 3/31/05 1/02 14202 14449 15583 14782
2/02 14381 14611 15770 14971
Class A Shares -0.53% 3/02 14066 14345 15461 14595
4/02 14399 14625 15763 14982
Class A3 Shares -0.70 5/02 14466 14704 15859 15084
======================================= 6/02 14648 14853 16027 15239
7/02 14812 15025 16233 15432
8/02 14976 15163 16428 15619
9/02 15231 15428 16788 15829
10/02 15047 15194 16510 15664
11/02 14979 15132 16441 15635
12/02 15289 15431 16788 16003
1/03 15275 15375 16745 15968
2/03 15457 15588 16980 16194
3/03 15455 15584 16990 16162
4/03 15547 15683 17102 16259
5/03 15851 16002 17502 16550
6/03 15797 15927 17428 16493
7/03 15357 15446 16818 16070
8/03 15463 15561 16944 16227
9/03 15852 15960 17442 16641
10/03 15757 15883 17354 16543
11/03 15838 16010 17535 16632
12/03 15933 16105 17680 16678
1/04 15987 16165 17781 16756
2/04 16177 16392 18049 16989
3/04 16080 16291 17986 16899
4/04 15791 15951 17560 16544
5/04 15748 15931 17496 16492
6/04 15775 15970 17560 16553
7/04 15899 16130 17791 16705
8/04 16136 16396 18148 17000
9/04 16164 16447 18244 17029
10/04 16233 16536 18401 17119
11/04 16119 16403 18249 16992
12/04 16232 16563 18472 17164
1/05 16249 16635 18645 17161
2/05 16179 16564 18583 17097
3/05 $16072 $16442 $18465 $16988
Source: Lipper, Inc.
============================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 3/31/05
AIM TAX-FREE INTERMEDIATE FUND
<Table>
INSTITUTIONAL CLASS SHARES ======================================== Please note that past performance is not
AVERAGE ANNUAL TOTAL RETURN indicative of future results. More
The following information has been For periods ended 3/31/05 recent returns may be more or less than
prepared to provide Institutional Class those shown. All returns assume
shareholders with a performance overview 10 Years 4.97 reinvestment of distributions at net
specific to their holdings. 5 Years 5.13 asset value. Investment return and
Institutional Class shares are offered 1 Year -0.02 principal value will fluctuate so your
exclusively to institutional investors, ======================================== shares, when redeemed, may be worth more
including defined contribution plans ======================================== or less than their original cost. See
that meet certain criteria. CUMULATIVE TOTAL RETURN* full report for information on
6 months ended 3/31/05 comparative benchmarks. Please consult
your fund prospectus for more
6 Months -0.52% information. For the most current
*Return has not been annualized. month-end performance, please call
======================================== 800-451-4246 or visit
AIMinvestments.com.
Institutional Class shares' inception
date is July 30, 2004. Returns since
that date are historical returns. All
other returns are blended returns of
historical Institutional Class share
performance and restated Class A share
performance (for periods prior to the
inception date of Institutional Class
shares) at net asset value.
Institutional Class shares have no sales
charge; therefore, performance is at net
asset value. Institutional Class shares
would have had different returns due to
differences in the expense structure of
the Institutional Class.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.]
--REGISTERED TRADEMARK--
[AIM INVESTMENTS LOGO]
--REGISTERED TRADEMARK--
AIMinvestments.com TFI-INS-1 Fund Management Company
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over months ended March 31, 2005, appears in
the period. Simply divide your account the table on the front of this
As a shareholder of the Fund, you incur value by $1,000 (for example, an $8,600 supplement. The hypothetical account
ongoing costs, including management account value divided by $1,000 = 8.6), values and expenses may not be used to
fees; and other Fund expenses. This then multiply the result by the number estimate the actual ending account
example is intended to help you in the table under the heading entitled balance or expenses you paid for the
understand your ongoing costs (in "Actual Expenses Paid During Period" to period. You may use this information to
dollars) of investing in the Fund and to estimate the expenses you paid on your compare the ongoing costs of investing
compare these costs with ongoing costs account during this period. in the Fund and other funds. To do so,
of investing in other mutual funds. The compare this 5% hypothetical example
example is based on an investment of HYPOTHETICAL EXAMPLE FOR COMPARISON with the 5% hypothetical examples that
$1,000 invested at the beginning of the PURPOSES appear in the shareholder reports of the
period and held for the entire period other funds.
October 1, 2004, through March 31, 2005. The table below also provides
information about hypothetical account Please note that the expenses shown in
ACTUAL EXPENSES values and hypothetical expenses based the table are meant to highlight your
on the Fund's actual expense ratio and ongoing costs only. Therefore, the
The table below provides information an assumed rate of return of 5% per year hypothetical information is useful in
about actual account values and actual before expenses, which is not the Fund's comparing ongoing costs only, and will
expenses. You may use the information in actual return. The Fund's actual not help you determine the relative
this table, together with the amount you cumulative total return after expenses total costs of owning different funds.
invested, to for the six
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/1/04) (3/31/05)(1) PERIOD(2) (3/31/05) PERIOD(2)
Institutional $1,000.00 $994.80 $2.09 $1,022.84 $2.12
(1)The actual ending account value is based on the actual total return of the Fund for the period October 1, 2004, to March 31,
2005, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio
and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total return after expenses for the six months
ended March 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio, 0.42% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 182/365 (to reflect the one-half year period).
====================================================================================================================================
</Table>
TFI-INS-1
AIMinvestments.com
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2005
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-97.69%
ALABAMA-2.25%
Alabama (State of) Special Care Facilities
Financing Authority (Birmingham Charity
Obligated Group); Hospital Series 1997 D RB
4.95%, 11/01/07(b)(c)(d) NRR Aaa $ 675 $ 698,699
- -----------------------------------------------------------------------------------
Birmingham (City of); Refunding Unlimited Tax
Series 2001 B GO Wts.
5.25%, 07/01/10(d)(e) AAA Aaa 1,950 2,120,703
- -----------------------------------------------------------------------------------
Jefferson (County of);
School Limited Tax Series 2000 GO Wts.
5.05%, 02/15/09(d)(e) AAA Aaa 1,000 1,067,030
- -----------------------------------------------------------------------------------
Unlimited Tax Series 2001 A GO Wts.
5.00%, 04/01/10(d)(e) AAA Aaa 2,925 3,136,682
- -----------------------------------------------------------------------------------
Lauderdale (County of) & Florence (City of)
Health Care Authority (Coffee Health Group
Project); Series 1999 A RB
5.00%, 07/01/07(d)(e) AAA Aaa 1,000 1,040,300
- -----------------------------------------------------------------------------------
Series 2000 A RB
5.50%, 07/01/08(d)(e) AAA Aaa 385 412,262
===================================================================================
8,475,676
===================================================================================
ALASKA-0.37%
Alaska (State of) Housing Finance Corp.;
Mortgage Series 1997 A-1 RB
4.90%, 12/01/07(d)(e) AAA Aaa 315 321,423
- -----------------------------------------------------------------------------------
Anchorage (City of); Correctional Facilities
Lease Series 2000 RB
5.13%, 02/01/09(d)(e) AAA Aaa 1,000 1,068,690
===================================================================================
1,390,113
===================================================================================
AMERICAN SAMOA-0.76%
American Samoa (Territory of); Refunding
Unlimited Tax Series 2000 GO
6.00%, 09/01/06(d)(e) A -- 1,585 1,635,292
- -----------------------------------------------------------------------------------
6.00%, 09/01/07(d)(e) A -- 1,150 1,216,010
===================================================================================
2,851,302
===================================================================================
ARIZONA-1.91%
Arizona (State of) Transportation Board;
Refunding Highway Sub. Series 1993 A RB
6.00%, 07/01/08(d) AA Aa2 800 872,472
- -----------------------------------------------------------------------------------
Maricopa (County of) Unified School District
#4 (Mesa Project of 1995); Unlimited Tax
Series 1998 E GO
5.00%, 07/01/08(b)(c)(d) AAA Aaa 1,900 2,016,375
- -----------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
<Caption>
ARIZONA-(CONTINUED)
Phoenix (City of) Civic Improvements Corp.;
Refunding Wastewater System Jr. Lien Series
2001 RB
5.25%, 07/01/11(d)(e) AAA Aaa $3,000 $ 3,297,090
- -----------------------------------------------------------------------------------
Yuma (City of) Industrial Development
Authority (Yuma Regional Medical Center
Project); Refunding Hospital Series 1997 RB
5.70%, 08/01/06(d)(e) AAA Aaa 1,000 1,037,340
===================================================================================
7,223,277
===================================================================================
ARKANSAS-1.26%
Arkansas (State of) Development Finance
Authority; Correction Facilities Series
1996 RB
6.25%, 10/01/06(d)(e) AAA Aaa 1,800 1,891,818
- -----------------------------------------------------------------------------------
Little Rock (City of) School District;
Limited Tax Series 2001 C GO
5.00%, 02/01/10(d)(e) -- Aaa 1,695 1,820,074
- -----------------------------------------------------------------------------------
Sebastian (County of) Community Jr. College
District; Refunding & Improvement Limited
Tax Series 1997 GO
5.20%, 04/01/07(b)(d) NRR Aaa 1,000 1,047,100
===================================================================================
4,758,992
===================================================================================
CALIFORNIA-0.13%
San Francisco (City & County of) Parking
Authority; Parking Meter Series 1994 RB
6.75%, 06/01/05(d)(e) AAA Aaa 500 503,485
===================================================================================
COLORADO-0.57%
Boulder (County of) Open Space Capital
Improvement Trust Fund; Series 1998 RB
5.25%, 12/15/09(d) AA- -- 1,000 1,064,860
- -----------------------------------------------------------------------------------
Northwest Parkway Public Highway Authority;
Sr. Series 2001 A RB
5.00%, 06/15/11(d)(e) AAA Aaa 1,000 1,081,680
===================================================================================
2,146,540
===================================================================================
CONNECTICUT-0.84%
Connecticut (State of) Resource Recovery
Authority (Bridgeport Resco Co. L.P.
Project); Refunding Series 1999 RB
5.13%, 01/01/09(d)(e) AAA Aaa 1,000 1,065,820
- -----------------------------------------------------------------------------------
New Haven (City of); Unlimited Tax Series
1997 GO
6.00%, 02/15/06(d)(e) AAA Aaa 2,050 2,110,311
===================================================================================
3,176,131
===================================================================================
</Table>
F-1
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
DISTRICT OF COLUMBIA-7.56%
District of Columbia (Gonzaga College High
School); Series 1999 RB
5.25%, 07/01/09(d)(e) AAA Aaa $ 510 $ 548,388
- -----------------------------------------------------------------------------------
District of Columbia
(Medlantic Healthcare Group); Refunding
Hospital Series 1993 A RB
5.50%, 08/15/06(b)(d) AAA Aaa 500 519,250
- -----------------------------------------------------------------------------------
Refunding Hospital Series 1996 A RB
6.00%, 08/15/06(b)(d) AAA Aaa 1,550 1,619,967
- -----------------------------------------------------------------------------------
Refunding Hospital Series 1997 A RB
6.00%, 08/15/07(b)(d) AAA Aaa 500 535,935
- -----------------------------------------------------------------------------------
District of Columbia;
Refunding Unlimited Tax Series 1993 B-1 GO
5.50%, 06/01/09(d)(e) AAA Aaa 1,250 1,357,438
- -----------------------------------------------------------------------------------
Refunding Unlimited Tax Series 1993 B-2 GO
5.50%, 06/01/07(d)(e) AAA Aaa 3,000 3,159,780
- -----------------------------------------------------------------------------------
Refunding Unlimited Tax Series 1999 B GO
5.50%, 06/01/10(d)(e) AAA Aaa 1,415 1,550,868
- -----------------------------------------------------------------------------------
Unlimited Tax Series 1999 B GO
5.50%, 06/01/09(b)(d) AAA Aaa 950 1,034,731
- -----------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1999 B GO
5.50%, 06/01/09(d)(e) AAA Aaa 15,275 16,587,886
- -----------------------------------------------------------------------------------
Washington Convention Center Authority; Sr.
Lien Dedicated Tax Series 1998 RB
5.25%, 10/01/09(d)(e) AAA Aaa 1,500 1,630,245
===================================================================================
28,544,488
===================================================================================
FLORIDA-2.70%
Broward (County of) (Wheelabrator South
Broward Inc.); Refunding Resource Recovery
Series 2001 A RB
5.00%, 12/01/07(d) AA A3 2,800 2,935,968
- -----------------------------------------------------------------------------------
5.50%, 12/01/08(d) AA A3 1,700 1,817,436
- -----------------------------------------------------------------------------------
Florida (State of) Board of Education;
Lottery Series 2000 B RB
5.75%, 07/01/10(d)(e) AAA Aaa 1,000 1,112,860
- -----------------------------------------------------------------------------------
Palm Beach (County of) Solid Waste Authority;
Refunding Series 1997 A RB
5.50%, 10/01/06(d)(e) AAA Aaa 3,000 3,116,850
- -----------------------------------------------------------------------------------
Village Center Community Development
District; Refunding Recreational Series
1998 A RB
5.50%, 11/01/10(d)(e) AAA Aaa 1,105 1,220,086
===================================================================================
10,203,200
===================================================================================
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
<Caption>
GEORGIA-1.02%
Dalton (City of); Utilities Series 1999 RB
5.75%, 01/01/10(d)(e) AAA Aaa $1,015 $ 1,124,153
- -----------------------------------------------------------------------------------
Georgia (State of); Unlimited Tax Series 1992
B GO
6.30%, 03/01/09(d) AAA Aaa 1,425 1,590,913
- -----------------------------------------------------------------------------------
6.30%, 03/01/10(d) AAA Aaa 1,000 1,136,270
===================================================================================
3,851,336
===================================================================================
HAWAII-0.29%
Hawaii (State of); Unlimited Tax Series 1993
CA GO
5.75%, 01/01/10(d)(e) AAA Aaa 1,000 1,105,690
===================================================================================
IDAHO-0.02%
Idaho (State of) Housing Agency; Single
Family Mortgage Sub. Series 1994 D-1 RB
(CEP-FHA, VA, FmHA)
5.90%, 07/01/06(d) -- Aa2 75 76,291
===================================================================================
ILLINOIS-6.75%
Chicago (City of) (Central Loop
Redevelopment); Tax Increment Allocation
Sub. Series 2000 A RB
6.50%, 12/01/08(d)(e) A -- 8,000 8,696,080
- -----------------------------------------------------------------------------------
Chicago (City of) Midway Airport; Series 1996
A RB
5.30%, 01/01/08(d)(e) AAA Aaa 1,000 1,048,660
- -----------------------------------------------------------------------------------
Chicago (City of) Park District; Refunding
Unlimited Tax Series 1995 GO
6.00%, 01/01/07(d)(e) AAA Aaa 2,000 2,106,740
- -----------------------------------------------------------------------------------
Hoffman Estates (Economic Development Project
Area); Refunding Tax Increment Series 1997
RB
5.00%, 11/15/06(d)(e) AAA Aaa 1,500 1,505,610
- -----------------------------------------------------------------------------------
Hoffman Estates (Park Place Apartments
Project); Refunding Multifamily Housing
Series 1996 RB
(CEP-Federal National Mortgage Association)
5.75%, 06/01/06(c)(d) AAA -- 1,000 999,490
- -----------------------------------------------------------------------------------
Illinois (State of) (Department of Central
Management Services); Series 1999 COP
4.90%, 07/01/08(d)(e) AAA Aaa 1,000 1,053,440
- -----------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Children's Memorial Hospital);
Series 1999 A RB
5.50%, 08/15/07(d)(e) AAA Aaa 1,580 1,668,954
- -----------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Edward Hospital Obligated
Group); Series 2001 A RB
5.00%, 02/15/09(d)(e) AAA Aaa 1,000 1,061,120
- -----------------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
ILLINOIS-(CONTINUED)
Illinois (State of) Health Facilities
Authority (Highland Park Hospital); Series
1991 B RB
5.55%, 10/01/06(b)(d) AAA Aaa $ 500 $ 521,405
- -----------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (The Carle Foundation); Series
1998 A RB
5.25%, 07/01/08(b)(c)(d) AAA Aaa 585 630,624
- -----------------------------------------------------------------------------------
Unrefunded Series 1998 A RB
5.25%, 07/01/09(d)(e) AAA Aaa 415 444,702
- -----------------------------------------------------------------------------------
Illinois (State of); Refunding First
Unlimited Tax Series 2001 GO
5.25%, 10/01/11(d)(e) AAA Aaa 1,790 1,958,475
- -----------------------------------------------------------------------------------
Madison & Saint Clair (Counties of) School
District #10 (Collinsville School
Building); Unlimited Tax Series 2001 GO
5.00%, 02/01/11(d)(e) AAA Aaa 1,150 1,236,963
- -----------------------------------------------------------------------------------
McHenry (County of) Crystal Lake Community
Consolidated School District #47; Unlimited
Tax Series 1999 GO
5.13%, 02/01/10(d)(e) -- Aaa 1,250 1,331,238
- -----------------------------------------------------------------------------------
Warrenville (City of); Tax Increment Series
2000 RB
5.25%, 05/01/07(d)(e) AAA Aaa 1,170 1,225,610
===================================================================================
25,489,111
===================================================================================
INDIANA-3.30%
Indiana (State of) Health Facility Financing
Authority (Community Hospitals Project);
VRD Hospital Series 2000 A RB
(LOC-Bank of America, N.A.) 2.30%,
07/01/28(f)(g) A-1+ -- 5,412 5,412,000
- -----------------------------------------------------------------------------------
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)(d) NRR Aaa 2,895 3,017,111
- -----------------------------------------------------------------------------------
Indiana (State of) Transportation Finance
Authority; Unrefunded Highway Series 1993 A
RB
5.50%, 06/01/07(d)(e) AAA Aaa 855 900,905
- -----------------------------------------------------------------------------------
Indianapolis (City of) Local Public
Improvement Bond Bank; Series 1999 D RB
5.10%, 01/01/09(d) AAA Aaa 425 453,067
- -----------------------------------------------------------------------------------
Richland-Bean Blossom School Building Corp.;
First Mortgage Series 2001 RB
5.00%, 07/15/10(b)(d) AAA Aaa 1,045 1,117,387
- -----------------------------------------------------------------------------------
Zionsville (City of) Community Schools
Building Corp.; First Mortgage Series 2002
RB
5.00%, 07/15/11(d)(e) AAA Aaa 1,420 1,532,393
===================================================================================
12,432,863
===================================================================================
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -----------------------------------------------------------------------------------
KANSAS-1.55%
Johnson (County of) Water District #1; Series
2001 RB
5.00%, 06/01/11(d) AAA Aaa $1,770 $ 1,920,910
- -----------------------------------------------------------------------------------
Wyandotte (County of) & Kansas City (City of)
Unified Government (Redevelopment
Project-Area B); Unrefunded Special
Obligation Series 2001 RB
5.00%, 12/01/09(d)(e) AAA Aaa 930 998,504
- -----------------------------------------------------------------------------------
5.00%, 12/01/10(d)(e) AAA Aaa 620 668,968
- -----------------------------------------------------------------------------------
Wyandotte (County of) & Kansas City (City of)
Unified Government (Redevelopment Project);
Special Obligation Series 2001 B RB
5.00%, 12/01/09(b)(d) AAA Aaa 150 161,250
- -----------------------------------------------------------------------------------
5.00%, 12/01/10(b)(d) AAA Aaa 130 140,544
- -----------------------------------------------------------------------------------
Wyandotte (County of) School District #500;
Unlimited Tax Series 2001 GO
5.50%, 09/01/11(d)(e) AAA Aaa 1,750 1,941,800
===================================================================================
5,831,976
===================================================================================
KENTUCKY-0.29%
Kentucky (State of) Turnpike Authority
(Revitalization Project); Refunding
Economic Development Road Series 2001 A RB
5.50%, 07/01/11(d)(e) AAA Aaa 1,000 1,108,210
===================================================================================
LOUISIANA-2.43%
Louisiana (State of) Energy & Power Authority
(Power Project); Refunding Series 2000 RB
5.75%, 01/01/11(d)(e) AAA Aaa 2,500 2,787,275
- -----------------------------------------------------------------------------------
Louisiana (State of); Unlimited Tax Series
1997 A GO
6.00%, 04/15/07(d)(e) AAA Aaa 5,000 5,304,050
- -----------------------------------------------------------------------------------
New Orleans (City of); Certificates of
Indebtedness Series 2000 RB
5.50%, 12/01/09(d)(e) AAA Aaa 1,000 1,089,670
===================================================================================
9,180,995
===================================================================================
MASSACHUSETTS-2.88%
Massachusetts (State of);
Consumer Lien Limited Tax Series 2000 A GO
5.75%, 02/01/09(d) AA Aa2 5,000 5,447,500
- -----------------------------------------------------------------------------------
Refunding Limited Tax Series 1997 A GO
5.75%, 08/01/08(d)(e) AAA Aaa 5,000 5,424,850
===================================================================================
10,872,350
===================================================================================
MICHIGAN-1.76%
Detroit (City of); Refunding Unlimited Tax
Series 1997 B GO
5.38%, 04/01/10(d)(e) AAA Aaa 1,630 1,750,913
- -----------------------------------------------------------------------------------
</Table>
F-3
<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 Fund)
5.50%, 05/01/11(d) AA Aa2 $1,000 $ 1,103,920
- -----------------------------------------------------------------------------------
Michigan (State of) Job Development Authority
(General Motors Corp.); Series 1984 PCR
5.55%, 04/01/09(d) BBB- Baa2 850 848,793
- -----------------------------------------------------------------------------------
Michigan (State of) Strategic Fund (Detroit
Edison Co.); Refunding Limited Obligation
Series 1995 CC RB
4.85%, 09/01/11(c)(d)(e) -- Aaa 1,000 1,047,000
- -----------------------------------------------------------------------------------
Taylor (City of); Series 2001 COP
5.00%, 02/01/11(d)(e) AAA Aaa 495 535,135
- -----------------------------------------------------------------------------------
Troy (City of) Downtown Development
Authority; Refunding & Development Tax
Allocation Series 2001 RB
5.00%, 11/01/10(d)(e) AAA Aaa 1,265 1,362,924
===================================================================================
6,648,685
===================================================================================
MINNESOTA-1.19%
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(d) -- Aa2 1,000 1,066,890
- -----------------------------------------------------------------------------------
Saint Cloud (City of) (Saint Cloud Hospital
Obligated Group); Health Care Series 2000 A
RB
5.50%, 05/01/06(d)(e) -- Aaa 600 616,404
- -----------------------------------------------------------------------------------
Western Minnesota Municipal Power Agency;
Refunding Series 2001 A RB
5.50%, 01/01/10(d)(e) -- Aaa 1,245 1,363,038
- -----------------------------------------------------------------------------------
5.50%, 01/01/11(d)(e) -- Aaa 1,300 1,435,473
===================================================================================
4,481,805
===================================================================================
MISSISSIPPI-0.47%
Rankin (County of) School District; Unlimited
Tax Series 2001 GO
5.00%, 10/01/11(d)(e) AAA Aaa 1,625 1,755,601
===================================================================================
MISSOURI-1.01%
Missouri (State of) Health & Educational
Facilities Authority (Freeman Health
Systems Project); Health Facilities Series
1998 RB
4.85%, 02/15/07(d)(e) A -- 1,000 1,024,800
- -----------------------------------------------------------------------------------
5.00%, 02/15/08(d)(e) A -- 515 534,127
- -----------------------------------------------------------------------------------
Missouri (State of) Health & Educational
Facilities Authority (Saint Luke's
Episcopal-Presbyterian Hospital); Health
Facilities Series 2001 RB
5.25%, 12/01/09(d)(e) AAA Aaa 1,000 1,080,330
- -----------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -----------------------------------------------------------------------------------
MISSOURI-(CONTINUED)
Missouri (State of) Health & Educational
Facilities Authority (Webster University);
Educational Facilities Series 2001 RB
5.00%, 04/01/11(d)(e) -- Aaa $1,075 $ 1,161,441
===================================================================================
3,800,698
===================================================================================
NEVADA-0.42%
Nevada (State of); Capital Improvement &
Cultural Affairs Limited Tax Series 1999 A
GO
5.00%, 02/01/10(d) AA Aa2 1,500 1,596,795
===================================================================================
NEW JERSEY-2.32%
New Jersey (State of) Transportation Trust
Fund Authority (Transportation System);
Series 1999 A RB
5.50%, 06/15/10(d) A+ A1 8,020 8,739,554
===================================================================================
NEW YORK-4.99%
Nassau (County of); General Improvements
Unlimited Tax Series 1997 V GO
5.15%, 03/01/07(d)(e) AAA Aaa 2,500 2,610,575
- -----------------------------------------------------------------------------------
New York (City of) Metropolitan
Transportation Authority (Triborough Bridge
& Tunnel);
Series 1999 A COP
5.00%, 01/01/08(d)(e) AAA Aaa 1,000 1,052,980
- -----------------------------------------------------------------------------------
New York (State of) Dormitory Authority
(Frances Schervier Obligated Group); Series
1997 RB
5.50%, 07/01/10(d)(e) AAA Aaa 1,205 1,319,379
- -----------------------------------------------------------------------------------
New York (State of) Dormitory Authority
(Mental Health Services); Series 1997 A RB
6.00%, 02/15/07(b)(c)(d) NRR NRR 5 5,392
- -----------------------------------------------------------------------------------
Unrefunded Series 1997 A RB
6.00%, 08/15/07(b)(d) NRR NRR 1,770 1,888,838
- -----------------------------------------------------------------------------------
New York (State of) Dormitory Authority (Pace
University); Series 1997 RB
6.00%, 07/01/07(d)(e) AAA Aaa 1,275 1,359,163
- -----------------------------------------------------------------------------------
New York (State of) Local Government
Assistance Corp.; Refunding Series 1996 A
RB
5.13%, 04/01/10(d)(e) AAA Aaa 5,000 5,252,750
- -----------------------------------------------------------------------------------
New York (State of) Thruway Authority; Series
1997 D RB
5.40%, 01/01/07(b)(c)(d) NRR NRR 5,000 5,323,050
===================================================================================
18,812,127
===================================================================================
NORTH CAROLINA-4.58%
Charlotte (City of); Refunding Unlimited Tax
Series 1998 GO
5.25%, 02/01/10(d) AAA Aaa 5,000 5,362,100
- -----------------------------------------------------------------------------------
</Table>
F-4
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
NORTH CAROLINA-(CONTINUED)
North Carolina (State of) Eastern Municipal
Power Agency; Refunding Power System Series
1993 B RB
7.00%, 01/01/08(d)(e) AAA Aaa $1,000 $ 1,101,860
- -----------------------------------------------------------------------------------
North Carolina (State of) Municipal Power
Agency #1 (Catawba); Electric Series 1999 A
RB
6.00%, 01/01/07(d)(e) AAA Aaa 4,330 4,547,496
- -----------------------------------------------------------------------------------
North Carolina (State of); Public
Improvements Unlimited Tax Series 1999 A GO
5.25%, 03/01/09(b)(c)(d) AAA NRR 5,000 5,405,000
- -----------------------------------------------------------------------------------
Winston-Salem (City of); Series 2001 C COP
4.75%, 06/01/11(d) AA+ Aa2 795 850,022
===================================================================================
17,266,478
===================================================================================
NORTH DAKOTA-0.48%
Burleigh (County of) (Medcenter One, Inc.);
Refunding Health Care Series 1999 RB
5.25%, 05/01/09(d)(e) AAA Aaa 1,695 1,818,599
===================================================================================
OHIO-0.29%
Greene (County of) Water System; Series 1996
A RB
5.45%, 12/01/06(b)(d) AAA Aaa 585 610,371
- -----------------------------------------------------------------------------------
Portage (County of) (Robinson Memorial
Hospital); Hospital Series 1999 RB
5.15%, 11/15/08(d)(e) AAA Aaa 465 495,839
===================================================================================
1,106,210
===================================================================================
OKLAHOMA-1.80%
Grady (County of) Industrial Authority;
Correctional Facilities Lease Series 1999
RB
5.38%, 11/01/09(d)(e) AAA Aaa 360 387,965
- -----------------------------------------------------------------------------------
Grand River Dam Authority; Refunding Series
1993 RB
5.50%, 06/01/09(d)(e) AAA Aaa 2,000 2,180,020
- -----------------------------------------------------------------------------------
Mustang (City of) Improvement Authority;
Utility Series 1999 RB
5.25%, 10/01/09(d)(e) -- Aaa 1,130 1,222,705
- -----------------------------------------------------------------------------------
Norman (City of) Regional Hospital Authority;
Refunding Hospital Series 1996 A RB
5.30%, 09/01/07(d)(e) AAA Aaa 1,090 1,148,075
- -----------------------------------------------------------------------------------
Oklahoma (State of) Development Finance
Authority (Oklahoma Hospital Association);
Pooled Health Facilities Series 2000 A RB
5.25%, 06/01/06(d)(e) AAA Aaa 575 591,416
- -----------------------------------------------------------------------------------
5.25%, 06/01/08(d)(e) AAA Aaa 640 680,243
- -----------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -----------------------------------------------------------------------------------
OKLAHOMA-(CONTINUED)
Okmulgee (County of) Governmental Building
Authority; First Mortgage Sales Tax Series
2000 RB
5.60%, 03/01/10(d)(e) -- Aaa $ 545 $ 591,254
===================================================================================
6,801,678
===================================================================================
OREGON-1.18%
Grand Ronde Community Confederated Tribes;
Governmental Facilities & Infrastructure
Unlimited Tax Series 1997 GO (Acquired
12/22/97; Cost $1,145,000) 5.00%,
12/01/07(d)(e)(h) AAA -- 1,145 1,203,887
- -----------------------------------------------------------------------------------
Multnomah (County of); Limited Tax Series
2000 A GO
5.00%, 04/01/10(d) -- Aa2 1,000 1,071,900
- -----------------------------------------------------------------------------------
Portland (City of) Community College
District; Unlimited Tax Series 2001 B GO
5.25%, 06/01/11(d) AA Aa2 2,000 2,187,240
===================================================================================
4,463,027
===================================================================================
PENNSYLVANIA-1.07%
Pennsylvania (State of); Unlimited First Tax
Series 2000 GO
5.50%, 01/15/08(d)(e) AAA Aaa 1,000 1,067,760
- -----------------------------------------------------------------------------------
Philadelphia (City of) School District;
Refunding Unlimited Tax Series 1999 D GO
5.50%, 03/01/08(d)(e) AAA Aaa 2,000 2,138,660
- -----------------------------------------------------------------------------------
State Public School Building Authority
(Chester Upland School District Project);
Series 2001 RB
4.80%, 11/15/10(d)(e) AAA Aaa 785 838,199
===================================================================================
4,044,619
===================================================================================
PUERTO RICO-0.14%
Children's Trust Fund; Tobacco Settlement
Series 2000 RB
5.00%, 07/01/08(b)(d) AAA NRR 500 529,830
===================================================================================
RHODE ISLAND-0.24%
Woonsocket (City of); Unlimited Tax Series
2000 GO
5.25%, 10/01/10(d)(e) -- Aaa 840 914,575
===================================================================================
SOUTH CAROLINA-2.55%
Berkeley (County of) School District
(Berkeley School Facilities Group Inc.);
Series 1995 COP
5.05%, 02/01/07(b)(d) AAA Aaa 1,835 1,888,472
- -----------------------------------------------------------------------------------
Piedmont (City of) Municipal Power Agency;
Refunding Electric Series 1996 B RB
5.25%, 01/01/08(d)(e) AAA Aaa 4,000 4,214,480
- -----------------------------------------------------------------------------------
South Carolina (State of) Public Service
Authority; Series 1999 A RB
5.50%, 01/01/10(d)(e) AAA Aaa 1,000 1,097,570
- -----------------------------------------------------------------------------------
</Table>
F-5
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
SOUTH CAROLINA-(CONTINUED)
South Carolina (State of) Transportation
Infrastructure Bank; Series 1999 A RB
5.50%, 10/01/09(d)(e) AAA Aaa $1,180 $ 1,291,604
- -----------------------------------------------------------------------------------
South Carolina (State of); Capital
Improvements Unlimited Tax Series 2001 B GO
5.50%, 04/01/11(d) AAA Aaa 1,000 1,111,780
===================================================================================
9,603,906
===================================================================================
SOUTH DAKOTA-0.82%
South Dakota (State of) Health & Educational
Facilities Authority (McKennan Hospital);
Refunding Series 1996 RB
5.40%, 07/01/06(d)(e) AAA Aaa 1,680 1,733,155
- -----------------------------------------------------------------------------------
South Dakota (State of) Health & Educational
Facilities Authority (Rapid City Regional
Hospital); Series 2001 RB
5.00%, 09/01/09(d)(e) AAA Aaa 1,290 1,375,385
===================================================================================
3,108,540
===================================================================================
TENNESSEE-0.97%
Knox (County of) Health Educational & Housing
Facilities Board (Volunteer Student Housing
LLC Project); Student Housing VRD Series
2002 RB
(LOC-Wachovia Bank, N.A.) 2.29%,
09/01/34(f)(g) -- VMIG-1 995 995,000
- -----------------------------------------------------------------------------------
Memphis (City of) Sanitation; Sewer System
Series 2000 RB
5.35%, 05/01/09(d) AA A2 525 560,931
- -----------------------------------------------------------------------------------
Tennergy Corp.; Gas Series 1999 RB
4.13%, 06/01/09(d)(e) AAA Aaa 1,000 1,032,930
- -----------------------------------------------------------------------------------
Tennessee (State of) School Bond Authority;
Higher Educational Facilities Second
Program Series 2002 A RB
5.00%, 05/01/11(d)(e) AAA Aaa 1,000 1,081,390
===================================================================================
3,670,251
===================================================================================
TEXAS-19.79%
Amarillo (City of) Health Facilities Corp.
(Baptist Saint Anthony's Hospital); Series
1998 RB
5.50%, 01/01/10(d)(e) -- Aaa 1,275 1,387,710
- -----------------------------------------------------------------------------------
Arlington (City of) Independent School
District; Unlimited Tax Series 2000 GO
(CEP-Texas Permanent School Fund)
5.25%, 02/15/08(d) -- Aaa 1,000 1,060,650
- -----------------------------------------------------------------------------------
Austin (City of); Limited Tax Certificates
Series 2001 GO
5.00%, 09/01/11(d) AA+ Aa2 1,900 2,041,892
- -----------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -----------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Brownsville (City of); Limited Tax
Certificates Series 2001 GO
5.25%, 02/15/10(d)(e) AAA Aaa $1,055 $ 1,141,732
- -----------------------------------------------------------------------------------
Canadian River Municipal Water Authority
(Conjunctive Use Groundwater Project);
Refunding Contract Series 1999 RB
5.00%, 02/15/10(d)(e) AAA Aaa 2,655 2,805,406
- -----------------------------------------------------------------------------------
Dallas (City of) Waterworks & Sewer System;
Refunding Series 1999 RB
5.50%, 10/01/09(d) AA+ Aa2 1,500 1,634,670
- -----------------------------------------------------------------------------------
Garland (City of); Limited Tax Certificates
Series 2001 GO
5.25%, 02/15/11(d)(e) AAA Aaa 2,435 2,650,863
- -----------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (CHRISTUS Health); Series
1999 A RB
5.38%, 07/01/08(d)(e) AAA Aaa 1,000 1,060,350
- -----------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Memorial Hermann
Hospital System Project); Hospital Series
1998 RB
5.50%, 06/01/09(d)(e) AAA Aaa 5,500 5,961,560
- -----------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Texas Children's
Hospital Project); Hospital Series 1999 A
RB
5.00%, 10/01/09(d) AA Aa2 1,920 2,025,600
- -----------------------------------------------------------------------------------
Harris (County of)-Houston Sports Authority;
Refunding Sr. Lien Series 2001 A RB
5.50%, 11/15/09(d)(e) AAA Aaa 1,670 1,824,408
- -----------------------------------------------------------------------------------
Houston (City of) Convention & Entertainment
Facilities Department; Hotel Occupancy Tax
& Special Revenue Series 2001 B RB
5.25%, 09/01/10(d)(e) AAA Aaa 2,865 3,115,773
- -----------------------------------------------------------------------------------
5.25%, 09/01/11(d)(e) AAA Aaa 2,360 2,580,920
- -----------------------------------------------------------------------------------
5.50%, 09/01/11(d)(e) AAA Aaa 2,460 2,725,163
- -----------------------------------------------------------------------------------
Refunding Hotel Occupancy Tax & Special
Revenue Series 2001 A RB
5.50%, 09/01/10(d)(e) AAA Aaa 3,000 3,299,280
- -----------------------------------------------------------------------------------
5.50%, 09/01/11(d)(e) AAA Aaa 4,000 4,431,160
- -----------------------------------------------------------------------------------
Houston (City of); Refunding Public
Improvements Limited Tax Series 2000 GO
5.50%, 03/01/09(d)(e) AAA Aaa 1,000 1,083,780
- -----------------------------------------------------------------------------------
Katy (City of) Independent School District;
Unlimited Tax Series 1999 A GO
(CEP-Texas Permanent School Fund)
5.20%, 02/15/10(d) AAA Aaa 1,285 1,370,375
- -----------------------------------------------------------------------------------
</Table>
F-6
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
TEXAS-(CONTINUED)
La Joya (City of) Independent School
District; Unlimited Tax Series 1998 GO
(CEP-Texas Permanent School Fund)
5.38%, 02/15/10(d) AAA Aaa $1,535 $ 1,625,089
- -----------------------------------------------------------------------------------
Lower Colorado River Authority; Refunding
Series 1999 B RB
6.00%, 05/15/10(d)(e) AAA Aaa 1,470 1,633,611
- -----------------------------------------------------------------------------------
Lubbock (City of) Health Facilities
Development Corp. (Methodist Hospital);
Hospital Series 1993 B RB
5.40%, 12/01/05(b)(d) AAA Aaa 500 509,845
- -----------------------------------------------------------------------------------
Lubbock (City of); Limited Tax Certificates
Series 1999 GO
5.00%, 02/15/10(d) AA- A1 680 717,264
- -----------------------------------------------------------------------------------
McKinney (City of);
Limited Tax Series 2000 GO
5.25%, 08/15/10(d)(e) AAA Aaa 500 537,175
- -----------------------------------------------------------------------------------
Waterworks & Sewer Series 2000 RB
5.25%, 03/15/09(d)(e) AAA Aaa 685 737,423
- -----------------------------------------------------------------------------------
5.25%, 03/15/10(d)(e) AAA Aaa 725 777,708
- -----------------------------------------------------------------------------------
North Texas Municipal Water District;
Regional Wastewater Series 2001 RB
5.00%, 06/01/12(d)(e) AAA Aaa 825 886,710
- -----------------------------------------------------------------------------------
Water System Series 2001 RB
5.00%, 09/01/11(d)(e) AAA Aaa 1,040 1,121,983
- -----------------------------------------------------------------------------------
Plano (City of); Limited Tax Series 2000 GO
5.13%, 09/01/07(d) AAA Aaa 535 561,814
- -----------------------------------------------------------------------------------
San Antonio (City of);
Electric & Gas Series 1998 A RB
5.25%, 02/01/09(b)(c)(d) AAA NRR 3,575 3,881,664
- -----------------------------------------------------------------------------------
Refunded Limited Tax Series 1998 A GO
5.00%, 02/01/09(b)(c)(d) NRR NRR 10 10,680
- -----------------------------------------------------------------------------------
5.00%, 02/01/11(d) AA+ Aa2 1,490 1,573,068
- -----------------------------------------------------------------------------------
Unrefunded Electric & Gas Series 1994 RB
5.00%, 02/01/12(b)(d) NRR NRR 2,375 2,561,010
- -----------------------------------------------------------------------------------
Unrefunded Electric & Gas Series 1998 A RB
5.25%, 02/01/10(d) AA Aa1 5,540 5,975,666
- -----------------------------------------------------------------------------------
Southlake (City of);
Limited Tax Increment Certificates Series
2000 E GO
5.00%, 02/15/11(d)(e) AAA Aaa 635 671,214
- -----------------------------------------------------------------------------------
Waterworks & Sewer Limited Tax Certificates
Series 2000 A GO
5.40%, 02/15/09(d)(e) AAA Aaa 250 269,818
- -----------------------------------------------------------------------------------
5.45%, 02/15/10(d)(e) AAA Aaa 235 253,166
- -----------------------------------------------------------------------------------
Tarrant (County of) Jr. College District;
Limited Tax Series 1994 GO
5.05%, 02/15/07(b)(c)(d) AAA Aaa 1,425 1,484,024
- -----------------------------------------------------------------------------------
Texas A&M University Financing System; Series
2001 B RB
5.38%, 05/15/09(d) AA+ Aa1 1,260 1,363,219
- -----------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
<Caption>
TEXAS-(CONTINUED)
Texas Tech University Financing System;
Refunding & Improvement Series 1999 6 RB
5.25%, 02/15/11(d)(e) AAA Aaa $5,000 $ 5,341,200
===================================================================================
74,694,643
===================================================================================
UTAH-1.79%
Salt Lake (County of)
(IHC Health Services Inc.); Hospital Series
2001 RB
5.50%, 05/15/08(d)(e) AAA Aaa 2,000 2,135,720
- -----------------------------------------------------------------------------------
5.50%, 05/15/09(d)(e) AAA Aaa 1,000 1,083,090
- -----------------------------------------------------------------------------------
Salt Lake City (City of); Unlimited Tax
Series 1999 GO
5.25%, 06/15/09(d) -- Aaa 900 973,305
- -----------------------------------------------------------------------------------
Spanish Fork (City of); Electric Series 2000
RB
5.00%, 08/15/09(d)(e) -- Aaa 630 673,936
- -----------------------------------------------------------------------------------
5.00%, 08/15/10(d)(e) -- Aaa 660 709,322
- -----------------------------------------------------------------------------------
Tooele (County of) School District; Unlimited
Tax Series 2001 GO
(CEP-Utah School Bond Guaranty) 4.50%,
06/01/11(d) AAA Aaa 1,075 1,130,373
- -----------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency;
Single Family Housing Mortgage Series 1999
E-1-I RB
(CEP-FHA, VA)
5.05%, 07/01/07(d) AAA Aaa 40 40,768
===================================================================================
6,746,514
===================================================================================
VIRGINIA-1.05%
Norfolk (City of) Redevelopment & Housing
Authority (Tidewater Community College
Campus); Educational Facilities Series 1995
RB
5.40%, 11/01/05(b)(d) NRR NRR 500 508,380
- -----------------------------------------------------------------------------------
Norton (City of) Industrial Development
Authority (Norton Community Hospital);
Refunding & Improvement Hospital Series
2001 RB
5.13%, 12/01/10(d)(e) A -- 1,315 1,369,546
- -----------------------------------------------------------------------------------
Peninsula Ports Authority (Riverside Health
System Project); Refunding Health System
Series 1998 RB
5.00%, 07/01/06(d) AA Aa3 1,000 1,020,790
- -----------------------------------------------------------------------------------
Virginia (State of) Public School Authority;
Refunding School Financing Series 1997 I RB
5.25%, 08/01/07(d) AA+ Aa1 1,000 1,053,060
===================================================================================
3,951,776
===================================================================================
WASHINGTON-9.50%
Energy Northwest (Project #3); Refunding
Electric Series 2001 A RB
5.50%, 07/01/10(d)(e) AAA Aaa 2,000 2,188,840
- -----------------------------------------------------------------------------------
5.50%, 07/01/11(d)(e) AAA Aaa 7,500 8,289,525
- -----------------------------------------------------------------------------------
</Table>
F-7
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -----------------------------------------------------------------------------------
WASHINGTON-(CONTINUED)
Mason (County of) School District #309
(Shelton); Unlimited Tax Series 2001 GO
5.00%, 12/01/09(d)(e) -- Aaa $ 675 $ 723,512
- -----------------------------------------------------------------------------------
Seattle (City of); Refunding Municipal Light
& Power Improvements Series 2001 RB
5.25%, 03/01/11(d)(e) AAA Aaa 3,000 3,277,800
- -----------------------------------------------------------------------------------
Snohomish (County of) School District #16
(Arlington); Unlimited Tax Series 2000 GO
5.40%, 12/01/08(d)(e) -- Aaa 915 985,848
- -----------------------------------------------------------------------------------
Snohomish (County of); Limited Tax Series
2001 GO
5.25%, 12/01/11(d) AA Aa3 2,685 2,926,757
- -----------------------------------------------------------------------------------
Spokane (City of); Unlimited Tax Series 1999
B GO
5.40%, 01/01/10(d) AA- A2 2,075 2,190,889
- -----------------------------------------------------------------------------------
Washington (State of) (Department of
Ecology); Refunding Series 2001 COP
4.75%, 04/01/11(d)(e) AAA Aaa 5,310 5,586,545
- -----------------------------------------------------------------------------------
Washington (State of) Public Power Supply
System (Nuclear Project #1); Refunding
Series 1996 C RB
6.00%, 07/01/09(d)(e) AAA Aaa 5,000 5,515,100
- -----------------------------------------------------------------------------------
Washington (State of) Public Power Supply
System (Nuclear Project #2); Refunding
Series 1997 A RB
6.00%, 07/01/07(b)(d) AAA Aaa 1,000 1,068,250
- -----------------------------------------------------------------------------------
Washington (State of); Refunding Unlimited
Tax Series 1999
R-2000A GO
5.50%, 01/01/08(d) AA Aa1 1,135 1,206,868
- -----------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -----------------------------------------------------------------------------------
WASHINGTON-(CONTINUED)
Washington (State of); Refunding Unlimited
Tax Series 2001 R-A GO
5.00%, 09/01/10(d) AA Aa1 $1,745 $ 1,874,619
===================================================================================
35,834,553
===================================================================================
WISCONSIN-2.40%
Fond du Lac (City of) School District;
Refunding Unlimited Tax Series 2000 GO
5.25%, 04/01/10(b)(c)(d) NRR Aaa 1,000 1,089,980
- -----------------------------------------------------------------------------------
Two Rivers (City of) Public School District;
Refunding Unlimited Tax Series 2000 GO
5.50%, 03/01/08(d)(e) -- Aaa 680 726,165
- -----------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Marshfield Clinic);
Series 1997 RB
5.20%, 02/15/07(d)(e) AAA Aaa 2,210 2,298,091
- -----------------------------------------------------------------------------------
Wisconsin (State of);
Refunding Unlimited Tax Series 1993 2 GO
5.13%, 11/01/11(d) AA- Aa3 2,000 2,173,380
- -----------------------------------------------------------------------------------
Unlimited Tax Series 1999 C GO
5.75%, 05/01/10(d) AA- Aa3 2,500 2,770,300
===================================================================================
9,057,916
===================================================================================
TOTAL INVESTMENTS-97.69% (Cost $349,809,117) 368,670,406
===================================================================================
OTHER ASSETS LESS LIABILITIES-2.31% 8,705,305
===================================================================================
NET ASSETS-100.00% $377,375,711
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
Investment Abbreviations:
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
NRR - Not Re-Rated
</Table>
<Table>
PCR - Pollution Control Revenue Bonds
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"). NRR indicates a security that is not
re-rated subsequent to funding of an escrow fund (consisting of U.S.
Treasury obligations). Ratings are not covered by the Report of Independent
Registered Public Accounting Firm.
(b) Advance refunded; secured by an escrow fund of U.S. Treasury obligations.
(c) Security has an irrevocable call by the issuer or mandatory put by the
holder. Maturity date reflects such call or put.
(d) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at March 31,
2005 was $362,263,406, which represented 98.26% of the Fund's Total
Investments. See Note 1A.
(e) Principal and/or 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.
(f) Principal and interest payments are fully enhanced by a letter of credit
from the bank listed or a predecessor bank, branch or subsidiary.
(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 March 31, 2005.
(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 March 31, 2005 represented 0.32% of the
Fund's Net Assets. Unless otherwise indicated, this security is not
considered illiquid.
See accompanying notes which are an integral part of the financial statements.
F-8
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2005
<Table>
ASSETS:
Investments, at market value (cost
$349,809,117) $368,670,406
- -----------------------------------------------------------
Cash 103,296
- -----------------------------------------------------------
Receivables for:
Investments sold 4,105,650
- -----------------------------------------------------------
Fund shares sold 17,249,745
- -----------------------------------------------------------
Interest 4,967,435
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 50,180
- -----------------------------------------------------------
Other assets 49,024
===========================================================
Total assets 395,195,736
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 17,259,844
- -----------------------------------------------------------
Dividends 422,016
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 73,524
- -----------------------------------------------------------
Accrued distribution fees -- Class A3 33,352
- -----------------------------------------------------------
Accrued trustees' fees 3,658
- -----------------------------------------------------------
Accrued transfer agent fees 14,014
- -----------------------------------------------------------
Accrued operating expenses 13,617
===========================================================
Total liabilities 17,820,025
===========================================================
Net assets applicable to shares outstanding $377,375,711
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $356,727,629
- -----------------------------------------------------------
Undistributed net investment income 1,786,891
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (98)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 18,861,289
===========================================================
$377,375,711
___________________________________________________________
===========================================================
NET ASSETS:
Class A $246,945,873
___________________________________________________________
===========================================================
Class A3 $ 97,651,240
___________________________________________________________
===========================================================
Institutional Class $ 32,778,598
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 22,021,052
___________________________________________________________
===========================================================
Class A3 8,709,155
___________________________________________________________
===========================================================
Institutional Class 2,924,064
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.21
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.21 divided
by 99.00%) $ 11.32
___________________________________________________________
===========================================================
Class A3
Net asset value and offering price per
share $ 11.21
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 11.21
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-9
STATEMENT OF OPERATIONS
For the year ended March 31, 2005
<Table>
INVESTMENT INCOME:
Interest $ 18,828,977
==========================================================================
EXPENSES:
Advisory fees 1,248,606
- --------------------------------------------------------------------------
Administrative services fees 112,384
- --------------------------------------------------------------------------
Custodian fees 13,732
- --------------------------------------------------------------------------
Distribution fees -- Class A3 366,298
- --------------------------------------------------------------------------
Transfer agent fees -- Class A and A3 167,434
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 733
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 24,165
- --------------------------------------------------------------------------
Registration and filing fees 101,699
- --------------------------------------------------------------------------
Other 152,346
==========================================================================
Total expenses 2,187,397
==========================================================================
Less: Expenses reimbursed and expense offset arrangement (43,555)
==========================================================================
Net expenses 2,143,842
==========================================================================
Net investment income 16,685,135
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 1,705,196
- --------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (19,461,479)
==========================================================================
Net gain (loss) from investment securities (17,756,283)
==========================================================================
Net decrease in net assets resulting from operations $ (1,071,148)
__________________________________________________________________________
==========================================================================
</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, 2005 and 2004
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 16,685,135 $ 20,166,806
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities 1,705,196 4,632,582
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (19,461,479) (4,921,148)
============================================================================================
Net increase (decrease) in net assets resulting from
operations (1,071,148) 19,878,240
============================================================================================
Distributions to shareholders from net investment income:
Class A (12,789,127) (18,180,437)
- --------------------------------------------------------------------------------------------
Class A3 (3,993,534) (2,284,936)
- --------------------------------------------------------------------------------------------
Institutional Class (229,601) --
============================================================================================
Decrease in net assets resulting from distributions (17,012,262) (20,465,373)
============================================================================================
Share transactions-net:
Class A (130,756,619) (148,381,078)
- --------------------------------------------------------------------------------------------
Class A3 865,686 72,183,578
- --------------------------------------------------------------------------------------------
Institutional Class 33,135,524 --
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (96,755,409) (76,197,500)
============================================================================================
Net increase (decrease) in net assets (114,838,819) (76,784,633)
============================================================================================
NET ASSETS:
Beginning of year 492,214,530 568,999,163
============================================================================================
End of year (including undistributed net investment income
of $1,786,891 and $2,114,018, respectively) $ 377,375,711 $ 492,214,530
____________________________________________________________________________________________
============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-11
NOTES TO FINANCIAL STATEMENTS
March 31, 2005
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. Each company listed in the
Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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 -- Securities, including restricted securities, are
valued according to the following policy.
Securities are fair valued using an evaluated quote provided by an
independent pricing service approved by the Board of Trustees. Evaluated
quotes 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. Short-term obligations with maturities of 60 days or
less and commercial paper are valued at amortized cost which approximates
market value. Securities with a demand feature exercisable within one to
seven days are valued at par.
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 Fund's valuation committee following procedures approved 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 unreliable are valued at fair value as determined in good faith by
or under the supervision of the Trust's officers following procedures
approved 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.
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.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized net gains (losses) on
securities per share in the Financial Highlights. Transaction costs are
included in the calculation of the Fund's net asset value and, accordingly,
they reduce the Fund's total returns. These transaction costs are not
considered operating expenses and are not reflected in net investment
income reported in the Statement of Operations and Statement of Changes in
Net Assets, or the net investment income per share and ratios of expenses
and net investment income reported in the Financial Highlights, nor are
they limited by any expense limitation arrangements between the Fund and
the advisor.
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.
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.
F-12
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. 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 0.30%
- ---------------------------------------------------------------------------
Over $500 million up to and including $1 billion 0.25%
- ---------------------------------------------------------------------------
Over $1 billion 0.20%
___________________________________________________________________________
===========================================================================
</Table>
For the year ended March 31, 2005, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $36,568 of expenses
incurred by the Fund in connection with market timing matters in the AIM Funds,
including legal, audit, shareholder reporting, communications and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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. Pursuant to such agreement, for the year ended
March 31, 2005, AIM was paid $112,384.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the year ended March 31, 2005, the Fund
paid AISI $167,434 for Class A and Class A3 shares and $733 for Institutional
Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class A3
and Institutional Class shares of the Fund. The Trust has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A3
shares (the "Plan"). The Fund, pursuant to the Plan, pays ADI compensation at
the annual rate of 0.35% of the Fund's average daily net assets of Class A3. 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, 2005, the Class A3 shares paid $366,298.
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, 2005, ADI advised the Fund that it retained $6,947 in front-end
sales commissions from the sale of Class A shares and $640 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 ADI.
NOTE 3--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended March 31, 2005, the
Fund received credits from this arrangement which resulted in the reduction of
the Fund's total expenses of $6,987.
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. Those Trustees who defer compensation have
the option to select various AIM 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, 2005, the Fund paid legal fees of $4,911 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.
F-13
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 (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. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. 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. During the year ended March
31, 2005, the Fund had average interfund borrowings for the number of days the
borrowings were outstanding in the amount of $3,544,353 with a weighted average
interest rate of 1.98% and interest expense of $3,208.
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. The Fund did not borrow under the facility
during the year ended March 31, 2005.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with The Bank of New York, 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 at 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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income -- tax-exempt $17,012,262 $20,465,373
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- --------------------------------------------------------------------------
Undistributed ordinary income -- tax exempt $ 1,853,643
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 18,861,289
- --------------------------------------------------------------------------
Temporary book/tax differences (66,752)
- --------------------------------------------------------------------------
Capital loss carryforward (98)
- --------------------------------------------------------------------------
Shares of beneficial interest 356,727,629
==========================================================================
Total net assets $377,375,711
__________________________________________________________________________
==========================================================================
</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 trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $1,705,196 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 as of March 31, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
March 31, 2010 $98
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
F-14
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, 2005 was $15,819,229 and $105,077,337, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $18,863,006
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,717)
===============================================================================
Net unrealized appreciation of investment securities $18,861,289
_______________________________________________________________________________
===============================================================================
Investments have the same cost for tax and financial statement
purposes.
</Table>
NOTE 8--SHARE INFORMATION
The Fund currently consists of three classes of shares: Class A shares, Class A3
shares and Institutional Class shares. Class A shares were sold with a front-
end sales charge. Class A3 shares and Institutional Class shares are sold at net
asset value. Under certain 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(a)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------
2005 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,022,058 $ 11,670,866 3,092,223 $ 36,103,682
- --------------------------------------------------------------------------------------------------------------------------
Class A3 6,308,499 72,009,554 10,413,258 122,026,744
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 2,935,137 33,260,815 -- --
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 688,784 7,856,509 1,035,527 12,119,242
- --------------------------------------------------------------------------------------------------------------------------
Class A3 253,758 2,891,752 139,598 1,632,789
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 25 288 -- --
==========================================================================================================================
Reacquired:
Class A (13,126,884) (150,283,994) (16,799,104) (196,604,002)
- --------------------------------------------------------------------------------------------------------------------------
Class A3 (6,521,503) (74,035,620) (4,390,111) (51,475,955)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (11,098) (125,579) -- --
==========================================================================================================================
(8,451,224) $ (96,755,409) (6,508,609) $ (76,197,500)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 9% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. There is also one individual that is a record
owner of more than 5% of the outstanding shares of the Fund and owns 6% of
the outstanding shares of the Fund. The Trust has no knowledge as to whether
all or any portion of the shares owned of record by these shareholders are
also owned beneficially.
(b) Institutional Class shares commenced sales on July 30, 2004.
F-15
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,
-----------------------------------------------------------
2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.69 $ 11.70 $ 11.06 $ 11.17 $ 10.71
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.49 0.47(a) 0.48 0.45 0.49
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.49) (0.01) 0.60 (0.12) 0.46
=========================================================================================================================
Total from investment operations (0.00) 0.46 1.08 0.33 0.95
=========================================================================================================================
Less distributions from net investment income (0.48) (0.47) (0.44) (0.44) (0.49)
=========================================================================================================================
Net asset value, end of period $ 11.21 $ 11.69 $ 11.70 $ 11.06 $ 11.17
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) (0.01)% 4.04% 9.86% 2.99% 9.11%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $246,946 $390,903 $539,679 $678,800 $608,393
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.43%(c) 0.42% 0.38% 0.38% 0.41%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.44%(c) 0.42% 0.38% 0.38% 0.41%
=========================================================================================================================
Ratio of net investment income to average net assets 4.09%(c) 3.98% 4.10% 4.00% 4.48%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 4% 6% 7% 58% 40%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $306,198,084.
F-16
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS A3
------------------------------------------
OCTOBER 31, 2002
YEAR ENDED (DATE SALES
MARCH 31, COMMENCED) TO
---------------------- MARCH 31,
2005 2004 2003
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.69 $ 11.70 $ 11.59
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.43 0.43(a) 0.18
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.47) (0.01) 0.10
========================================================================================================
Total from investment operations (0.04) 0.42 0.28
========================================================================================================
Less distributions from net investment income (0.44) (0.43) (0.17)
========================================================================================================
Net asset value, end of period $ 11.21 $ 11.69 $ 11.70
________________________________________________________________________________________________________
========================================================================================================
Total return(b) (0.37)% 3.67% 2.47%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $97,651 $101,312 $29,320
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.78%(c) 0.77% 0.73%(d)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.79%(c) 0.77% 0.73%(d)
========================================================================================================
Ratio of net investment income to average net assets 3.74%(c) 3.63% 3.75%(d)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(e) 4% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $104,656,555.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-17
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
JULY 30, 2004
(DATE SALES
COMMENCED) TO
MARCH 31,
2005
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.40
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.32
===================================================================================
Net gains (losses) on securities (both realized and
unrealized) (0.19)
===================================================================================
Total from investment operations 0.13
===================================================================================
Less distributions from net investment income (0.32)
===================================================================================
Net asset value, end of period $ 11.21
___________________________________________________________________________________
===================================================================================
Total return(a) 1.13%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $32,779
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.42%(b)
- -----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.43%(b)
===================================================================================
Ratio of net investment income to average net assets 4.10%(b)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(c) 4%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$7,966,591.
(c) Not annualized for periods less than one year.
NOTE 10--CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On March 23, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees of the Trust appointed PricewaterhouseCoopers LLP ("PWC") as the
independent registered public accounting firm of the Fund for the fiscal year
ending March 31, 2006. For the prior reporting period, Ernst & Young ("E&Y") was
the Fund's independent registered public accounting firm. The change in the
Fund's independent auditors was part of an effort by the Audit Committee to
increase operational efficiencies by reducing the number of different audit
firms engaged by the Audit Committee to audit AIM Funds with March 31 fiscal
year ends. The Fund is in the process of obtaining a formal resignation from E&Y
as the independent registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused it to make reference to that matter in connection with its report.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
F-18
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid and the remaining half will be paid on or before December 31,
2005. AIM and ADI agreed to pay a total of $50 million, of which $30 million is
civil penalties, all of which has been paid. The entire $325 million IFG
settlement fund will be made available for distribution to the shareholders of
those AIM Funds that IFG formerly advised that were harmed by market timing
activity, and the entire $50 million settlement fund by AIM and ADI will be made
available for distribution to the shareholders of those AIM Funds advised by AIM
that were harmed by market timing activity, all as to be determined by an
independent distribution consultant. The IFG and AIM settlement funds may
increase as a result of contributions from third parties who reach final
settlements with the SEC or other regulators to resolve allegations of market
timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by the independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. Under the settlements with the
NYAG and COAG, AIM has agreed to reduce management fees on certain equity and
balanced AIM Funds by $15 million per year for the next five years, based upon
effective fee rates and assets under management as of July 1, 2004, not to
increase certain management fees and to provide more information to investors
regarding fees.
Under the terms of the settlements, AIM is undertaking certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties include monitoring
compliance and managing the process by which proposed management fees to be
charged the AIM Funds are negotiated. Also, commencing in 2008 and not less than
every fifth calendar year thereafter, the AIM Funds will hold shareholder
meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
such Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a former
member of the board of directors of the AIM Funds formerly advised by IFG),
Timothy J. Miller (the former chief investment officer and a former portfolio
manager for IFG), Thomas A. Kolbe (the former national sales manager of IFG) and
Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on certain equity and balanced AIM Funds by $15
million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office
F-19
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
for the Southern District of New York, some of which concern one or more of the
AIM Funds formerly advised by IFG. IFG is providing full cooperation with
respect to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the United States Attorney's Office for the Southern
District of New York, the United States Attorney's Office for the Central
District of California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
Pending Regulatory Civil Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking injunctive relief; civil monetary penalties; a
writ of quo warranto against the defendants; pre-judgment and post-judgment
interest; costs and expenses, including counsel fees; and other relief.
If AIM is unsuccessful in its defense of the WVAG proceedings, it could be
barred from serving as an investment adviser for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Such results could affect the ability of AIM or any other
investment advisor directly or indirectly owned by AMVESCAP, from serving as an
investment advisor to any registered investment company, including your Fund.
Your Fund has been informed by AIM that, if these results occur, AIM will seek
exemptive relief from the SEC to permit it to continue to serve as your Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
Private Civil 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 AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. 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 ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in two of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM 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) common
law 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.
Based on a recent court decision, the state court action has been removed to
Federal court.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
F-20
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
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 Federal 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division and subsequently consolidated for pre-trial purposes into one lawsuit.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. 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 (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees. These actions have been consolidated for pre-trial
purposes.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM 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.
F-21
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, 2005, 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 five 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.
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. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of March 31, 2005 by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. 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, 2005, 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 five
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
May 18, 2005
F-22
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of March 31, 2005
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 114
portfolios in the AIM 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>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President company); Director and 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director, Chairman and President, A I M
Advisors, Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc., Fund
Management Company and INVESCO
Distributors, Inc. (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.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company); Annuity and Life Re
(Holdings), Ltd. (insurance company);
and CompuDyne Corporation (provider of
products and services to the public
security market)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 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 Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) (owner) Dos Angelos Ranch, L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
TRUSTEES AND OFFICERS (continued)
As of March 31, 2005
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 114
portfolios in the AIM 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) Other Directorship(s)
Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk(5) -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC; and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2004 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior 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 N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson(6) -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management, Inc.;
and Managing Partner, Beutel, Goodman
Capital Management
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
(5) Mr. Burk was elected Senior Vice President of the Trust effective February
15, 2005.
(6) Mr. Ferguson was elected Vice President of the Trust effective February 24,
2005.
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 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney, Suite
Houston, TX 77046-1173 Suite 100 1200
Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment The Bank of New York
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. 2 Hanson Place
1735 Market Street & Frankel LLP P.O. Box 4739 Brooklyn, NY 11217-1431
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739
Americas
New York, NY 10036-2714
</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, 2005.
AIM Tax-Free Intermediate Fund paid ordinary dividends in the amount of $0.4779
per Class A share, $0.4365 per Class A3 share and $0.3205 per Institutional
Class share during its tax year ended March 31, 2005. 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 SECTOR EQUITY (1) The following name changes became
effective October 15, 2004: INVESCO
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund(1) Advantage Health Sciences Fund to AIM
AIM Basic Balanced Fund* AIM Energy Fund(1) Advantage Health Sciences Fund, INVESCO
AIM Basic Value Fund AIM Financial Services Fund(1) Dynamics Fund to AIM Dynamics Fund,
AIM Blue Chip Fund AIM Global Health Care Fund INVESCO Energy Fund to AIM Energy Fund,
AIM Capital Development Fund AIM Global Real Estate Fund INVESCO Financial Services Fund to AIM
AIM Charter Fund AIM Gold & Precious Metals Fund(1) Financial Services Fund, INVESCO Gold &
AIM Constellation Fund AIM Leisure Fund(1) Precious Metals Fund to AIM Gold &
AIM Diversified Dividend Fund AIM Multi-Sector Fund(1) Precious Metals Fund, INVESCO
AIM Dynamics Fund(1) AIM Real Estate Fund(7) International Core Equity Fund to AIM
AIM Large Cap Basic Value Fund AIM Technology Fund(1) International Core Equity Fund, INVESCO
AIM Large Cap Growth Fund AIM Utilities Fund(1) Leisure Fund to AIM Leisure Fund, INVESCO
AIM Mid Cap Basic Value Fund Mid-Cap Growth Fund to AIM Mid Cap Stock
AIM Mid Cap Core Equity Fund(2) FIXED INCOME Fund, INVESCO Multi-Sector Fund to AIM
AIM Mid Cap Growth Fund Multi-Sector Fund, INVESCO S&P 500 Index
AIM Opportunities I Fund TAXABLE Fund to AIM S&P 500 Index Fund, INVESCO
AIM Opportunities II Fund Small Company Growth Fund to AIM Small
AIM Opportunities III Fund AIM Floating Rate Fund Company Growth Fund, INVESCO Technology
AIM Premier Equity Fund AIM High Yield Fund Fund to AIM Technology Fund, INVESCO U.S.
AIM S&P 500 Index Fund(1) AIM Income Fund Government Money Fund to Premier U.S.
AIM Select Equity Fund AIM Intermediate Government Fund Government Money Portfolio, INVESCO
AIM Small Cap Equity Fund(3) AIM Limited Maturity Treasury Fund Utilities Fund to AIM Utilities Fund. (2)
AIM Small Cap Growth Fund(4) AIM Money Market Fund As of end of business on February 27,
AIM Small Company Growth Fund(1) AIM Short Term Bond Fund 2004, AIM Mid Cap Core Equity Fund has
AIM Trimark Endeavor Fund AIM Total Return Bond Fund limited public sales of its shares to
AIM Trimark Small Companies Fund Premier Portfolio certain investors. For more information on
AIM Weingarten Fund Premier U.S. Government Money Portfolio(1) who may continue to invest in the Fund,
please contact your financial advisor. (3)
*Domestic equity and income fund Effective December 13, 2004, AIM Small Cap
Equity Fund is open to all investors. (4)
INTERNATIONAL/GLOBAL EQUITY TAX-FREE As of end of business on March 18, 2002,
AIM Small Cap Growth Fund has limited
AIM Asia Pacific Growth Fund AIM High Income Municipal Fund public sales of its shares to certain
AIM Developing Markets Fund AIM Municipal Bond Fund investors. For more information on who may
AIM European Growth Fund AIM Tax-Exempt Cash Fund continue to invest in the Fund, please
AIM European Small Company Fund(5) AIM Tax-Free Intermediate Fund contact your financial advisor. (5) As of
AIM Global Aggressive Growth Fund Premier Tax-Exempt Portfolio end of business on March 28, 2005, AIM
AIM Global Equity Fund European Small Company Fund has limited
AIM Global Growth Fund AIM ALLOCATION SOLUTIONS public sales of its shares to certain
AIM Global Value Fund investors. For more information on who may
AIM International Core Equity Fund(1) AIM Conservative Allocation Fund continue to invest in the Fund, please
AIM International Growth Fund AIM Growth Allocation Fund(8) contact your financial advisor. (6)
AIM International Small Company Fund(6) AIM Moderate Allocation Fund Effective December 30, 2004, AIM
AIM Trimark Fund AIM Moderate Growth Allocation Fund International Emerging Growth Fund was
AIM Moderately Conservative Allocation Fund renamed AIM International Small Company
Fund. As of end of business on March 14,
2005, the Fund has limited public sales of
its shares to certain investors. For more
information on who may continue to invest
in the Fund, please contact your financial
advisor. (7) As of end of business on
April 29, 2005, AIM Real Estate Fund has
limited public sales of its shares to
certain investors. For more information on
who may continue to invest in the Fund,
please contact your financial advisor. (8)
Effective April 29, 2005, AIM Aggressive
Allocation Fund was renamed AIM Growth
Allocation Fund.
If used after July 20, 2005, 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 $131
billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest
independent financial services companies
with $375 billion in assets under
management. Data as of March 31, 2005.
CONSIDER THE INVESTMENT OBJECTIVES, RISKS,
AND CHARGES AND EXPENSES CAREFULLY. FOR
THIS AND OTHER INFORMATION ABOUT AIM
FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY
BEFORE INVESTING.
AIMinvestments.com TFI-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
--Registered Trademark--
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark--
</Table>
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant
had adopted a code of ethics (the "Code") that applies to the
Registrant's principal executive officer ("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. Dr. Mathai-Davis is "independent" within the meaning
of that term as 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 Percentage of Fees
to Non-Audit Billed Applicable to
Services Provided Non-Audit Services
for fiscal year end Provided for fiscal
Fees Billed for 2005 Pursuant to Fees Billed for year end 2004
Services Rendered Waiver of Services Rendered to Pursuant to Waiver
to the Registrant Pre-Approval the Registrant for of Pre-Approval
for fiscal year end 2005 Requirement(1) fiscal year end 2004 Requirement(1)(2)
------------------------ ------------------------ ------------------------ ------------------------
Audit Fees $ 91,758 N/A $ 77,852 N/A
Audit-Related Fees(3) $ 6,800 0% $ 5,900 0%
Tax Fees(4) $ 7,839 0% $ 8,147 0%
All Other Fees(5) $ 226 0% $ 0 0%
------------------------ ------------------------
Total Fees $ 106,623 0% $ 91,899 0%
</Table>
E&Y billed the Registrant aggregate non-audit fees of $14,865 for the fiscal
year ended 2005, and $14,047 for the fiscal year ended 2004, for non-audit
services rendered to the Registrant.
- --------------------------------------------------------------------------------
(1) 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
paid by the Registrant to E&Y 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.
(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) Audit Related Fees for the fiscal year ended March 31, 2005 includes
fees billed for consultation services. 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, 2005 includes fees billed
for reviewing tax returns. Tax fees for fiscal year ended March 31,
2004 includes fees billed for reviewing tax returns and consultation
services.
(5) All Other Fees for the fiscal year ended March 31, 2005 includes fees
billed for access to an accounting and regulatory research tool.
FEES BILLED BY E&Y RELATED TO AIM AND AIM AFFILIATES
E&Y billed AIM Advisors, Inc. ("AIM"), the Registrant's adviser, and
any entity controlling, controlled by or under common control with AIM that
provides ongoing services to the Registrant ("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 Fees Billed for
Non-Audit Services Percentage of Fees Non-Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2005 Provided for fiscal fiscal year end 2004 Provided for fiscal
That Were Required year end 2005 That Were Required year end 2004
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee(2) Requirement(1)(3)
-------------------- -------------------- -------------------- --------------------
Audit-Related Fees(4) $ 220,115 0% $ 196,777 0%
Tax Fees $ 0 0% $ 0 0%
All Other Fees $ 0 0% $ 0 0%
-------------------- --------------------
Total Fees(5) $ 220,115 0% $ 196,777 0%
</Table>
- --------------------------------------------------------------------------------
(1) 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
paid by the Registrant, AIM and AIM Affiliates to E&Y 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.
(2) 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.
(3) 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.
(4) Audit-Related Fees for the fiscal year ended March 31, 2005 includes
fees billed for services to test and report on the controls and
operations of an affiliated transfer agent. 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 $302,621 for the fiscal year ended 2005,
and $220,095 for the fiscal year ended 2004, for non-audit services
rendered to AIM and AIM Affiliates.
The Audit Committee also has considered whether the provision of
non-audit services that were rendered to AIM and AIM Affiliates that
were not required to be pre-approved pursuant to SEC regulations, if
any, is compatible with maintaining E&Y's independence. To the extent
that such services were provided, the Audit Committee determined that
the provision of such services is compatible with E&Y maintaining
independence with respect to the Registrant.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds and the INVESCO Funds (the "Funds")
Last Amended September 14, 2004
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/Trustees (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 Committees pre-approve the
audit and non-audit services provided to the Funds by each 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 Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("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 Committees. Additionally, any fees exceeding 110% of general
pre-approved fee levels will also require specific pre-approval by the Audit
Committees.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each 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 Committees consider a different period and states otherwise. The Audit
Committees 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 Committees in fulfilling their responsibilities.
DELEGATION
The Audit Committees 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 quarterly meeting.
AUDIT SERVICES
The annual audit services engagement terms (including fees) will be subject to
specific pre-approval of the Audit Committees. 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 Committees 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.
GENERAL PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees 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 Audit Committees believe 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.
No Auditor shall represent any Fund or any Service Provider before a tax court,
district court or federal court of claims.
ALL OTHER SERVICES
The Audit Committees 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.
SPECIFIC PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committees believe 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.
PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of fees or established amounts for services to be provided by the
Auditor under general pre-approval policies will be set periodically by the
Audit Committees. Any proposed fees exceeding 110% of the maximum such amounts
will be reported to the Audit Committees at the quarterly Audit Committees
meeting and will require specific pre-approval by the Audit Committees. 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.
PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees 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 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 Committees 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 Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees 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 Committees 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 Committees have 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 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
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
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.
Investments in securities of unaffiliated issuers is included as
part of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of March 16, 2005, an evaluation was performed under the
supervision and with the participation of the officers of the
Registrant, including the PEO and 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 16,
2005, the Registrant's disclosure controls and procedures were
reasonably designed 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 second fiscal quarter of the period covered by
the report that have materially affected, or are reasonably likely
to materially affect, the Registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
12(a) (1) Code of Ethics.
12(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.
12(a) (3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under 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, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Tax-Exempt Funds
By: /s/ ROBERT H. GRAHAM
--------------------------------------
Robert H. Graham
Principal Executive Officer
Date: June 6, 2005
Pursuant to the requirements of the Securities and 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.
By: /s/ ROBERT H. GRAHAM
--------------------------------------
Robert H. Graham
Principal Executive Officer
Date: June 6, 2005
By: /s/ SIDNEY M. DILGREN
--------------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: June 6, 2005
EXHIBIT INDEX
12(a) (1) Code of Ethics.
12(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.
12(a) (3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the Investment
Company Act of 1940.