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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- 07890
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: 09/30/05
Item 1. Reports to Stockholders.
AIM HIGH INCOME MUNICIPAL FUND
Semiannual Report to Shareholders o September 30, 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 September 30, 2005, and is based on total net assets.
ABOUT SHARE CLASSES OTHER INFORMATION o Some organizations choose not to have
their bonds rated. Often the issuer of
o Class B shares are not available as an o Revenue bonds are issued to finance an unrated bond is a small entity or
investment for retirement plans public-works projects and are supported municipality that does not have extra
maintained pursuant to Section 401 of directly by the project's revenues. money to pay for a rating.
the Internal Revenue Code, including General obligation (GO) bonds are backed
401(k) plans, money purchase pension by the full faith and credit (including o Effective August 5, 2005, the Fund was
plans and profit sharing plans. Plans the taxing and further borrowing power) offered on a limited basis. Please see
that had existing accounts invested in of a state or municipality. Revenue the prospectus for information on who
Class B shares prior to September 30, bonds often are considered more may continue to buy shares.
2003, will continue to be allowed to attractive, since many public-works
make additional purchases. projects (water and sewer improvements, The Fund provides a complete list of its
for example) are necessities, and demand holdings four times in each fiscal year,
PRINCIPAL RISKS OF INVESTING IN THE FUND for them remains constant regardless of at the quarter-ends. For the second and
economic conditions. Shareholders may fourth quarters, the lists appear in the
o Investing in higher-yielding, benefit from their consistent income in Fund's semiannual and annual reports to
lower-rated municipal bonds, commonly the event of an economic slowdown. shareholders. For the first and third
known as junk bonds, has a greater risk Escrowed and pre-refunded bonds are quarters, the Fund files the lists with
of price fluctuation and loss of bonds whose repayment is guaranteed by the Securities and Exchange Commission
principal and income than investing in the funds from a second bond issue, (SEC) on Form N-Q. The most recent list
higher-rated general obligation which are usually invested in U.S. of portfolio holdings is available at
municipal bonds and U.S. government Treasury bonds. AIMinvestments.com. From our home page,
securities (such as U.S. Treasury bills, click on Products & Performance, then
notes and bonds), for which the o Weighted average maturity is the Mutual Funds, then Fund Overview. Select
government guarantees repayment of weighted average of the remaining terms your Fund from the drop-down menu and
principal and interest if held to to maturity of the securities underlying click on Complete Quarterly Holdings.
maturity. the collateral pool at the date of Shareholders can also look up the Fund's
issue, using the balances of the Forms N-Q on the SEC's Web site at
ABOUT INDEXES USED IN THIS REPORT securities as the issue date as the sec.gov. And copies of the Fund's Forms
weighting factor. N-Q may be reviewed and copied at the
o The unmanaged LIPPER HIGH YIELD SEC's Public Reference Room at 450 Fifth
MUNICIPAL DEBT FUND INDEX represents an o The average credit quality of the Street, N.W., Washington, D.C.
average of the 10 largest high-yield Fund's holdings as of the close of the 20549-0102. You can obtain information
municipal-bond funds tracked by Lipper, reporting period represents the weighted on the operation of the Public Reference
Inc., an independent mutual fund average quality rating of the securities Room, including information about
performance monitor. in the portfolio as assigned by duplicating fee charges, by calling
Nationally Recognized Statistical Rating 202-942-8090 or 800-732-0330, or by
o The unmanaged LEHMAN BROTHERS Organizations based on assessment of the electronic request at the following
MUNICIPAL BOND INDEX, which represents credit quality of the individual e-mail address: publicinfo@sec.gov. The
the performance of investment-grade securities. For non-rated securities in SEC file numbers for the Fund are
municipal bonds, is compiled by Lehman the portfolio the credit quality rating 811-07890 and 33-66242.
Brothers, a global investment bank. is assigned by A I M Advisors, Inc.
using similar criteria. A description of the policies and
o The Fund is not managed to track the procedures that the Fund uses to
performance of any particular index, o The returns shown in management's determine how to vote proxies relating
including the indexes defined here, and discussion of Fund performance are based to portfolio securities is available
consequently, the performance of the on net asset values calculated for without charge, upon request, from our
Fund may deviate significantly from the shareholder transactions. Generally Client Services department at
performance of the indexes. accepted accounting principles require 800-959-4246 or on the AIM Web site,
adjustments to be made to the net assets AIMinvestments.com. On the home page,
o A direct investment cannot be made in of the Fund at period end for financial scroll down and click on AIM Funds Proxy
an index. Unless otherwise indicated, reporting purposes, and as such, the net Policy. The information is also
index results include reinvested asset values for shareholder available on the SEC Web site, sec.gov.
dividends, and they do not reflect sales transactions and the returns based on
charges. Performance of an index of those net asset values may differ from Information regarding how the Fund voted
funds reflects fund expenses; the net asset values and returns proxies related to its portfolio
performance of a market index does not. reported in the Financial Highlights. securities during the 12 months ended
June 30, 2005, 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 Securities and Exchange
Commission's Web site, sec.gov.
========================================
FUND NASDAQ SYMBOLS
Class A Shares AHMAX
Class B Shares AHMBX
Class C Shares AHMCX
========================================
</Table>
==========================================================================
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
AIM HIGH INCOME MUNICIPAL FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
[PHOTO OF The six-month period covered by this report was a good one
ROBERT H. for the vast majority of investors. Equity and fixed-income
GRAHAM] indexes, including municipal bond indexes, delivered
positive total returns. Solid economic growth and generally
impressive company earnings offset concerns about rising oil
prices and the Federal Reserve's repeated increases in
short-term interest rates. In the short run, it appeared
that hurricanes Katrina and Rita, which heavily damaged
ROBERT H. GRAHAM parts of the Gulf Coast as the reporting period was ending,
had inflicted little damage on the U.S. economy, though it
may take some time before the full impact of the storms is
known.
For a discussion of how market conditions affected your
Fund and how the Fund was managed during the reporting
period, please turn to Page 3.
ADDITIONAL INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
this report on your Fund. First, on Page 2, is a letter from
Bruce Crockett, the independent Chair of the Board of
[PHOTO OF Trustees of the AIM Funds. We first introduced you to Mr.
MARK H. Crockett in the semiannual report on your Fund dated one
WILLIAMSON] year ago. Mr. Crockett has been on our Funds' Board since
1992; he assumed his responsibilities as Chair last October.
Mr. Crockett has expressed an interest in keeping
shareholders informed of the work of the Board regularly via
letters in the Fund reports. We certainly consider this a
MARK H. WILLIAMSON valuable addition to the reports. The Board is charged with
looking out for the interests of shareholders, and Mr.
Crockett's letter provides insight into some of the many
issues the Board addresses in governing your Fund.
One of the most important decisions the Board makes
each year is whether to approve the advisory agreement your
Fund has with AIM. Essentially, this agreement hires AIM to
manage the assets in your Fund. A discussion of the factors
the Board considered in reviewing the agreement is the
second new element in the report, and we encourage you to
read it. It appears on Pages 7 and 8.
Further information about the markets, your Fund, and
investing in general is always available on our widely
acclaimed Web site, AIMinvestments.com. We invite you to
visit it frequently.
We at AIM remain committed 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 happy to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, President,
AIM Funds A I M Advisors, Inc.
November 14, 2005
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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM HIGH INCOME MUNICIPAL FUND
DEAR AIM FUNDS SHAREHOLDERS:
As independent Chair of the Board of Trustees of the AIM
Funds, I'm writing to report on the work being done by your
Board.
[PHOTO OF At our most recent meeting in June 2005, your Board
BRUCE L. approved voluntary fee reductions from A I M Advisors, Inc.
CROCKETT] (AIM) that save shareholders approximately $20.8 million
annually, based on asset levels as of March 31, 2005. The
BRUCE L. CROCKETT majority of these expense reductions, which took effect July
1, 2005, will be achieved by a permanent reduction to 0.25%
of the Rule 12b-1 fees on Class A and Class A3 shares of
those AIM Funds that previously charged these fees at a
higher rate.
Our June meeting, which was the culmination of more than
two and one-half months of review and discussions, took
place over a three-day period. The meeting included your
Board's annual comprehensive evaluation of each fund's
advisory agreement with AIM. After this evaluation, in which
questions about fees, performance and operations were
addressed by AIM, your Board approved all advisory
agreements for the year beginning July 1, 2005. You can find
information on the factors considered and conclusions
reached by your Board in its evaluation of each fund's
advisory agreement at AIMinvestments.com. (Go to "Products &
Performance" and click on "Investment Advisory Agreement
Renewals.") The advisory agreement information about your
Fund is also included in this semiannual report on Pages 7
and 8. I encourage you to review it.
Together with monitoring fund expenses, fund performance
is your Board's priority. Our initial goal is to work with
AIM to bring about improvement in every AIM Fund that has
been underperforming its category.
Your Board has a well-defined process and structure for
monitoring all funds and identifying and assisting AIM in
improving underperforming funds. Our Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 13 independent
Board members. Further, our Investments Committee is divided
into three underlying subcommittees, each responsible for,
among other things, reviewing the performance, fees and
expenses of the funds that have been assigned to it.
At subcommittee meetings, held throughout the year, the
performance of every AIM Fund is evaluated. If a fund has
underperformed its peer group for a meaningful period, we
work closely with AIM to discover the causes and help
develop the right responses. In some cases, AIM may
determine that a change in portfolio management strategy or
portfolio managers is required. In other cases, where a fund
no longer seems viable, it may be merged with a similar
fund, being careful to consider the needs of all
shareholders affected by the decision. Following AIM's
recommendation and your Board's approval, eight funds were
recently merged.
Be assured that your Board is working closely with the
management of AIM to help you reach your investment goals.
Should you or your advisor have questions or comments about
the governance of AIM Funds, I invite you to write to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston, TX 77046. Your Board looks forward to
keeping you informed about the governance of your funds.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
November 14, 2005
2
AIM HIGH INCOME MUNICIPAL FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
====================================================================================== MARKET CONDITIONS AND YOUR FUND
PERFORMANCE SUMMARY FUND VS. INDEXES
During the period, the high yield
Shares of AIM High Income Municipal Fund TOTAL RETURNS, 3/31/05-9/30/05, municipal bond market underperformed the
(at net asset value) posted positive EXCLUDING APPLICABLE SALES CHARGES. IF broad U.S. stock market, which weathered
returns during the six-month reporting SALES CHARGES WERE INCLUDED, RETURNS investor concerns about high energy
period ended September 30, 2005, WOULD BE LOWER. prices, inflation and the economic
outpacing returns of the Lehman Brothers impact of Hurricane Katrina.
Municipal Bond Index, your Fund's broad Class A Shares 4.91%
market and style-specific benchmark. Although the volume of municipal bond
Please turn to Page 5 for long-term Class B Shares 4.52 issues through September was on pace to
performance results. set an all-time record high, issuance of
Class C Shares 4.41 high-yield municipal paper was on pace
Your Fund's outperformance stemmed to establish a record low. After several
primarily from a very low weighting in Lehman Brothers Municipal years of historically low interest
the airline bond sector, which plummeted Bond Index (Broad Market and rates, issuers that could advance refund
in September in the wake of bankruptcy Style-specific Index) 2.80 (or issue longer-maturity bonds in order
filings by two major airlines. Our to pay off earlier bonds to take
investments in the charter school, Lipper High Yield Municipal advantage of lower interest rates) have
hospital, continuing care retirement Debt Fund Index done so, and that has taken a large
facility and tax increment financing (Peer Group Index) 3.87 supply of high yield municipal bonds out
sectors, all of which of the market. The continued restraint
SOURCE: LIPPER, INC. of state and local governments in
launching new projects helped tighten
performed well, contributed positively the supply of revenue bonds. Limited
to your Fund's total return. supply combined with increasing demand
helped create pricing stability, adding
====================================================================================== an element of price appreciation
potential.
HOW WE INVEST o credit quality deterioration or other
unfavorable circumstances impacting the During the reporting period, the
We invest mostly in municipal revenue financial viability of an issuer/project Federal Reserve (the Fed) increased its
bonds as proceeds for specific projects target funds rate four times to end at
are used to pay interest and principal o to reduce or extend duration(1) of the 3.75% on September 25, 2005. As the Fed
on those bonds. Fund. raised the federal funds rate, we also
increased your Fund's duration by about
We believe an opportunity exists o to reinvest in other securities with a year. This slightly aided performance
among relatively small, less-followed more favorable return characteristics or because longer-duration yields declined,
municipal revenue bond issues. These and prices for these bonds rose. (Bond
bonds, which are backed by dedicated o to change sector exposure prices and yields move in opposite
revenues from specific projects, may be directions.) In the high yield municipal
priced incorrectly in the market with (1) Duration measures how sensitive a market, increases in coupon rates were
yields that do not accurately correspond bond's price is to interest rate not in lock step with Treasury bonds.
to the risk factors of the securities. movements. A longer duration means more
sensitivity to rate changes; a shorter
We generally take a buy-and-hold duration means less sensitivity. For
approach but may decide to sell a instance, a shorter duration bond's
holding for any of the following price would fall less for a given rise
factors: in interest rates and thus provide more
principal protection. (continued)
===================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE FIXED-INCOME HOLDINGS
By type of bond, as of 9/30/05 % OF NET
COUPON MATURITY ASSETS
[PIE CHART]
1. Orange (County of) Health Facilities Authority 2.80% 11/01/28 1.0%
Revenue Bonds 77.0%
2. New York City (City of)
General Obligation Bonds 11.8% Industrial Development Agency 6.25 03/01/15 1.0
Industrial Development and 3. Lombard (City of) Public Facilities Corp. 7.13 01/01/36 0.8
Other Bonds 9.8%
4. Summit Academy North 5.50 11/01/30 0.7
Other Assets Less Liabilities 1.4%
5. Maplewood (City of)
The Fund's holdings are subject to (Volunteers of America Care Center Project) 5.38 10/01/24 0.7
change, and there is no assurance that
the Fund will continue to hold any TOTAL NET ASSETS $337.1 MILLION
particular security.
TOTAL NUMBER OF HOLDINGS 412
AVERAGE CREDIT QUALITY RATING BB
WEIGHTED AVERAGE MATURITY 21.18 YEARS
AVERAGE DURATION 6.63 YEARS
===================================================================================================================================
</Table>
3
AIM HIGH INCOME MUNICIPAL FUND
<Table>
Although damage from Hurricane outweighed the potential price FRANKLIN RUBEN is lead
Katrina was devastating, the storm did appreciation. We remain committed to portfolio manager of
not affect performance because the Fund largely avoiding the airline sector [RUBEN AIM High Income
had no investments in Mississippi, unless airline business fundamentals PHOTO] Municipal Fund. Mr.
Louisiana or Alabama. improve. Ruben joined AIM in
1997 after having
Sectors that contributed positively For the most part, we avoided the served as a senior
to your Fund's performance included: volatile tobacco settlement bonds, which fixed-income research analyst and
are backed by revenue of tobacco associate portfolio manager. A native of
======================================= companies and the promises of those Johannesburg, South Africa, he graduated
We believe an companies to make payments to states. with a B.S. in accounting and an M.S. in
opportunity exists While price performance in tobacco bonds finance, both from The University of
among relatively small, has been attractive from a total return Texas at Dallas. Mr. Ruben also
less-followed municipal perspective, we believe the business completed the Cash Management Executive
revenue bond issues. risk of these bonds outweighs further Education Program at Duke University.
======================================= potential price appreciation.
RICHARD A. BERRY,
o Charter schools. Positive operating Chartered Financial
histories have developed at certain Our exposure to the Alternative [BERRY Analyst, senior
schools, which we believe the market Minimum Tax (AMT) was about 3% of Fund PHOTO] portfolio manager, is
will identify and compensate assets. The default rate of Fund manager of AIM High
accordingly. Another potential benefit holdings was very low and was not Income Municipal Fund.
of owning charter school bonds is that significant in terms of absolute Mr. Berry joined AIM in
in certain states, a state-funded reserve performance. 1987 and has been in the investment
pool has been created, lowering the risk industry since 1968. He has served as
of default because the bonds are backed IN CLOSING president and director of the Dallas
by government securities. Association of Investment Analysts,
The market reaction to the economy--the chairman of the board of regents of the
o Hospitals. Hospitals, which are the belief that growth is likely to stay, Financial Analysts Seminar and a trustee
largest issuer of municipal bonds, albeit at a more moderate pace--may help of Lancaster Independent School
continue to be a solid investment as an support the price and supply of revenue District. He received his B.B.A. and
aging population seeks more medical bonds. States and cities may feel the M.B.A. from Texas Christian University.
care. Because of the large number of need to stimulate local economies by
issues, valuations were attractive, and using revenue bonds to support new SHARON A. COPPER is
we continued to add exposure to these projects; these new issuances would portfolio manager of
bonds. likely be supported with a better credit [COPPER AIM High Income
backdrop and revenue environment, PHOTO] Municipal Fund. She
o Tax increment financing (TIF) possibly leading to firmer prices. joined AIM in 1992 as
districts. TIF bonds are used for such an investment officer
purposes as building shopping centers or We believe the Fund is positioned to and research analyst
construction of infrastructure such as take advantage of potential capital for long-term and short-term municipal
road, sewer and water facilities. appreciation opportunities. Many of the securities and was promoted to her
Purchasing these bonds is the way Fund's revenue bond holdings are tied to current position in 1997. Ms. Copper
municipal bond funds can, in essence, local and national economies. During a received a B.B.A. in marketing with a
invest in the real estate market. stable economy, cash flows for these minor in finance from Southeastern
projects are sustainable and credit Louisiana University and an M.B.A. in
o Continuing care retirement facilities. questions become more certain. finance from the University of St.
These bonds, issued by nonprofit or Thomas. She belongs to the National
charitable organizations, have performed As always, we thank you for your Federation of Municipal Analysts.
well as the population ages and baby investment in AIM High Income Municipal
boomers near retirement. Fund. Assisted by Municipal Bond Team
The poor performance of airline bonds The views and opinions expressed in
detracted from Fund performance, but management's discussion of Fund
only minimally because of our low performance are those of A I M Advisors,
exposure to these bonds (about 3% of Inc. These views and opinions are
Fund holdings as of the close of the subject to change at any time based on
reporting period). The Chapter 11 factors such as market and economic
bankruptcy filings by Northwest Airlines conditions. These views and opinions may
and Delta Airlines (not Fund holdings as not be relied upon as investment advice
of September 30, 2005) validated our or recommendations, or as an offer for a
belief that the business risks of owning particular security. The information is
these bonds not a complete analysis of every aspect
of any market, country, industry,
security or the Fund. 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. [RIGHT ARROW GRAPHIC]
See important Fund and index FOR A PRESENTATION OF YOUR FUND'S
disclosures inside front cover. LONG-TERM PERFORMANCE, PLEASE SEE
PAGE 5.
</Table>
4
AIM HIGH INCOME MUNICIPAL FUND
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
Below you will find a presentation of your Fund's performance record for periods
ended September 30, 2005, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how Fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
================================================================================
<Table>
===================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 9/30/05, including applicable sales charges
AFTER TAXES ON
DISTRIBUTIONS
AFTER TAXES ON AND SALE OF
CLASS A SHARES BEFORE TAXES DISTRIBUTIONS FUND SHARES
Inception (1/2/98) 3.93% 3.92% 4.14%
5 Years 6.13 6.13 6.11
1 Year 4.00 4.00 4.59
CLASS B SHARES
Inception (1/2/98) 3.79% 3.79% 3.94%
5 Years 6.05 6.05 5.97
1 Year 3.36 3.36 4.00
CLASS C SHARES
Inception (1/2/98) 3.77% 3.77% 3.93%
5 Years 6.35 6.34 6.22
1 Year 7.24 7.24 6.53
RECENT MONTH-END PERFORMANCE. THE PERFORMANCE OF THE FUND'S SHARE
PERFORMANCE FIGURES REFLECT REINVESTED CLASSES WILL DIFFER DUE TO DIFFERENT
DISTRIBUTIONS, CHANGES IN NET ASSET SALES CHARGE STRUCTURES AND CLASS
VALUE AND THE EFFECT OF THE MAXIMUM EXPENSES.
SALES CHARGE UNLESS OTHERWISE STATED.
INVESTMENT RETURN AND PRINCIPAL VALUE HAD THE ADVISOR NOT WAIVED FEES
WILL FLUCTUATE SO THAT YOU MAY HAVE A AND/OR REIMBURSED EXPENSES, PERFORMANCE
GAIN OR LOSS WHEN YOU SELL SHARES. WOULD HAVE BEEN LOWER.
CLASS A SHARE PERFORMANCE REFLECTS AFTER-TAX RETURNS ARE CALCULATED
THE MAXIMUM 4.75% SALES CHARGE, AND USING THE HISTORICAL HIGHEST INDIVIDUAL
CLASS B AND CLASS C SHARE PERFORMANCE FEDERAL MARGINAL INCOME TAX RATE. THEY
REFLECTS THE APPLICABLE CONTINGENT DO NOT REFLECT THE EFFECT OF STATE AND
DEFERRED SALES CHARGE (CDSC) FOR THE LOCAL TAXES. ACTUAL AFTER-TAX RETURNS
THE PERFORMANCE DATA QUOTED REPRESENT PERIOD INVOLVED. THE CDSC ON CLASS B DEPEND ON THE INVESTOR'S TAX SITUATION
PAST PERFORMANCE AND CANNOT GUARANTEE SHARES DECLINES FROM 5% BEGINNING AT THE AND MAY DIFFER FROM THOSE SHOWN.
COMPARABLE FUTURE RESULTS; CURRENT TIME OF PURCHASE TO 0% AT THE BEGINNING AFTER-TAX RETURNS SHOWN ARE NOT RELEVANT
PERFORMANCE MAY BE LOWER OR HIGHER. OF THE SEVENTH YEAR. THE CDSC ON CLASS C TO INVESTORS WHO HOLD THEIR SHARES IN
PLEASE VISIT AIMINVESTMENTS.COM FOR THE SHARES IS 1% FOR THE FIRST YEAR AFTER TAX-DEFERRED ACCOUNTS SUCH AS 401(K)S OR
MOST PURCHASE. IRAS.
===================================================================================================================================
</Table>
================================================================================
FUND PROVIDES CURRENT INCOME
30-DAY TAXABLE
DISTRIBUTION EQUIVALENT 30-DAY 30-DAY TAXABLE EQUIVALENT
RATE DISTRIBUTION RATE SEC YIELD 30-DAY SEC YIELD
Class A 5.09% 7.83% 4.52% 6.95%
Class B 4.60 7.08 3.99 6.14
Class C 4.60 7.08 3.99 6.14
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 offering
price.
o The Fund's 30-day taxable equivalent distribution rate is calculated
in the same manner as the 30-day distribution rate, with an adjustment for a
stated, assumed 35% tax rate, the highest marginal federal income tax rate in
effect on September 30, 2005.
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-tocall 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 35% tax rate, the
highest marginal federal income tax rate in effect on September 30, 2005.
o Had the advisor not waived fees and/or reimbursed expenses, 30-day yields
would have been 4.09%, 3.54% and 3.54% for Class A, Class B and Class C shares,
respectively. Taxable equivalent 30-day yields would have been 6.29%, 5.45% and
5.45% for Class A, Class B and Class C shares, respectively.
================================================================================
5
AIM HIGH INCOME MUNICIPAL FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE with the amount you invested, to The hypothetical account values and
estimate the expenses that you paid over expenses may not be used to estimate the
As a shareholder of the Fund, you incur the period. Simply divide your account actual ending account balance or
two types of costs: (1) transaction value by $1,000 (for example, an $8,600 expenses you paid for the period. You
costs, which may include sales charges account value divided by $1,000 = 8.6), may use this information to compare the
(loads) on purchase payments; contingent then multiply the result by the number ongoing costs of investing in the Fund
deferred sales charges on redemptions; in the table under the heading entitled and other funds. To do so, compare this
and redemption fees, if any; and (2) "Actual Expenses Paid During Period" to 5% hypothetical example with the 5%
ongoing costs, including management estimate the expenses you paid on your hypothetical examples that appear in the
fees; distribution and/or service fees 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 Please note that the expenses shown
understand your ongoing costs (in COMPARISON 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
April 1, 2005, through September 30, before expenses, which is not the Fund's information is useful in comparing
2005. actual return. The Fund's actual ongoing costs only, and will not help
cumulative total returns at net asset you determine the relative total costs
ACTUAL EXPENSES value after expenses for the six months of owning different funds. In addition,
ended September 30, 2005, appear in the if these transactional costs were
The table below provides information table "Fund vs. Indexes" on Page 3. included, your costs would have been
about actual account values and actual higher.
expenses. You may use the information in
this table, together
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
SHARE BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
CLASS ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
(4/01/05) (9/30/05)(1) PERIOD(2) (9/30/05) PERIOD(2) RATIO
A $1,000.00 $1,049.10 $2.83 $1,022.31 $2.79 0.55%
B 1,000.00 1,045.20 6.67 1,018.55 6.58 1.30
C 1,000.00 1,044.10 6.66 1,018.55 6.58 1.30
(1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2005, through September
30, 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 September 30, 2005, appear in the table "Fund vs. Indexes" on Page 3.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 183/365 to reflect the most recent fiscal half-year.
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
6
AIM HIGH INCOME MUNICIPAL FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
<Table>
The Board of Trustees of AIM Tax-Exempt o The quality of services to be provided o Fees relative to those of comparable
Funds (the "Board") oversees the by AIM. The Board reviewed the funds with other advisors. The Board
management of AIM High Income Municipal credentials and experience of the reviewed the advisory fee rate for the
Fund (the "Fund") and, as required by officers and employees of AIM who will Fund under the Advisory Agreement. The
law, determines annually whether to provide investment advisory services to Board compared effective contractual
approve the continuance of the Fund's the Fund. In reviewing the advisory fee rates at a common asset
advisory agreement with A I M Advisors, qualifications of AIM to provide level and noted that the Fund's rate was
Inc. ("AIM"). Based upon the investment advisory services, the Board comparable to the median rate of the
recommendation of the Investments reviewed the qualifications of AIM's funds advised by other advisors with
Committee of the Board, which is investment personnel and considered such investment strategies comparable to
comprised solely of independent issues as AIM's portfolio and product those of the Fund that the Board
trustees, at a meeting held on June 30, review process, various back office reviewed. The Board noted that AIM has
2005, the Board, including all of the support functions provided by AIM and agreed to limit the Fund's total
independent trustees, approved the AIM's equity and fixed income trading operating expenses, as discussed below.
continuance of the advisory agreement operations. Based on the review of these Based on this review, the Board
(the "Advisory Agreement") between the and other factors, the Board concluded concluded that the advisory fee rate for
Fund and AIM for another year, effective that the quality of services to be the Fund under the Advisory Agreement
July 1, 2005. provided by AIM was appropriate and that was fair and reasonable.
AIM currently is providing satisfactory
The Board considered the factors services in accordance with the terms of o Expense limitations and fee waivers.
discussed below in evaluating the the Advisory Agreement. The Board noted that AIM has voluntarily
fairness and reasonableness of the agreed to waive fees and/or limit
Advisory Agreement at the meeting on o The performance of the Fund relative expenses of the Fund in an amount
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed necessary to limit total annual
ongoing oversight of the Fund. In their the performance of the Fund during the operating expenses to a specified
deliberations, the Board and the past one, three and five calendar years percentage of average daily net assets
independent trustees did not identify against the performance of funds advised for each class of the Fund. The Board
any particular factor that was by other advisors with investment considered the voluntary nature of this
controlling, and each trustee attributed strategies comparable to those of the fee waiver/expense limitation and noted
different weights to the various Fund. The Board noted that the Fund's that it can be terminated at any time by
factors. performance in such periods was at or AIM without further notice to investors.
above the median performance of such The Board considered the effect this fee
One of the responsibilities of the comparable funds. Based on this review, waiver/expense limitation would have on
Senior Officer of the Fund, who is the Board concluded that no changes the Fund's estimated expenses and
independent of AIM and AIM's affiliates, should be made to the Fund and that it concluded that the levels of fee
is to manage the process by which the was not necessary to change the Fund's waivers/expense limitations for the Fund
Fund's proposed management fees are portfolio management team at this time. were fair and reasonable.
negotiated to ensure that they are
negotiated in a manner which is at arm's o The performance of the Fund relative o Breakpoints and economies of scale.
length and reasonable. To that end, the to indices. The Board reviewed the The Board reviewed the structure of the
Senior Officer must either supervise a performance of the Fund during the past Fund's advisory fee under the Advisory
competitive bidding process or prepare one, three and five calendar years Agreement, noting that it includes two
an independent written evaluation. The against the performance of the Lipper breakpoints. The Board reviewed the
Senior Officer has recommended an High Yield Municipal Debt Fund Index. level of the Fund's advisory fees, and
independent written evaluation in lieu The Board noted that the Fund's noted that such fees, as a percentage of
of a competitive bidding process and, performance for the one and five year the Fund's net assets, would decrease as
upon the direction of the Board, has periods was above the performance of net assets increase because the Advisory
prepared such an independent written such Index and comparable to such Index Agreement includes breakpoints. The
evaluation. Such written evaluation also for the three year period. Based on this Board noted that, due to the Fund's
considered certain of the factors review, the Board concluded that no current asset levels and the way in
discussed below. In addition, as changes should be made to the Fund and which the advisory fee breakpoints have
discussed below, the Senior Officer made that it was not necessary to change the been structured, the Fund has yet to
certain recommendations to the Board in Fund's portfolio management team at this benefit from the breakpoints. The Board
connection with such written evaluation. time. concluded that the Fund's fee levels
under the Advisory Agreement therefore
The discussion below serves as a o Meeting with the Fund's portfolio would reflect economies of scale at
summary of the Senior Officer's managers and investment personnel. With higher asset levels and that it was not
independent written evaluation and respect to the Fund, the Board is necessary to change the advisory fee
recommendations to the Board in meeting periodically with such Fund's breakpoints in the Fund's advisory fee
connection therewith, as well as a portfolio managers and/or other schedule.
discussion of the material factors and investment personnel and believes that
the conclusions with respect thereto such individuals are competent and able o Investments in affiliated money market
that formed the basis for the Board's to continue to carry out their funds. The Board also took into account
approval of the Advisory Agreement. responsibilities under the Advisory the fact that uninvested cash and cash
After consideration of all of the Agreement. collateral from securities lending
factors below and based on its informed arrangements (collectively, "cash
business judgment, the Board determined o Overall performance of AIM. The Board balances") of the Fund may be invested
that the Advisory Agreement is in the considered the overall performance of in money market funds advised by AIM
best interests of the Fund and its AIM in providing investment advisory and pursuant to the terms of an SEC
shareholders and that the compensation portfolio administrative services to the exemptive order. The Board found that
to AIM under the Advisory Agreement is Fund and concluded that such performance the Fund may realize certain benefits
fair and reasonable and would have been was satisfactory. upon investing cash balances in AIM
obtained through arm's length advised money market funds, including a
negotiations. o Fees relative to those of clients of higher net return, increased liquidity,
AIM with comparable investment increased diversification or decreased
o The nature and extent of the advisory strategies. The Board noted that AIM transaction costs. The Board also found
services to be provided by AIM. The does not serve as an advisor to other that the Fund will not receive reduced
Board reviewed the services to be mutual funds or other clients with services if it invests its cash balances
provided by AIM under the Advisory investment strategies comparable to in such money market funds. The Board
Agreement. Based on such review, the those of the Fund. noted that, to the extent the Fund
Board concluded that the range of invests in affiliated money market
services to be provided by AIM under the funds, AIM has voluntarily agreed to
Advisory Agreement was appropriate and waive a portion
that AIM currently is providing services
in accordance with the terms of the
Advisory Agreement.
</Table>
7
AIM HIGH INCOME MUNICIPAL FUND
<Table>
of the advisory fees it receives from o Benefits of soft dollars to AIM. The o Other factors and current trends. In
the Fund attributable to such Board considered the benefits realized determining whether to continue the
investment. The Board further determined by AIM as a result of brokerage Advisory Agreement for the Fund, the
that the proposed securities lending transactions executed through "soft Board considered the fact that AIM,
program and related procedures with dollar" arrangements. Under these along with others in the mutual fund
respect to the lending Fund is in the arrangements, brokerage commissions paid industry, is subject to regulatory
best interests of the lending Fund and by the Fund and/or other funds advised inquiries and litigation related to a
its respective shareholders. The Board by AIM are used to pay for research and wide range of issues. The Board also
therefore concluded that the investment execution services. This research is considered the governance and compliance
of cash collateral received in used by AIM in making investment reforms being undertaken by AIM and its
connection with the securities lending decisions for the Fund. The Board affiliates, including maintaining an
program in the money market funds concluded that such arrangements were internal controls committee and
according to the procedures is in the appropriate. retaining an independent compliance
best interests of the lending Fund and consultant, and the fact that AIM has
its respective shareholders. o AIM's financial soundness in light of undertaken to cause the Fund to operate
the Fund's needs. The Board considered in accordance with certain governance
o Independent written evaluation and whether AIM is financially sound and has policies and practices. The Board
recommendations of the Fund's Senior the resources necessary to perform its concluded that these actions indicated a
Officer. The Board noted that, upon obligations under the Advisory good faith effort on the part of AIM to
their direction, the Senior Officer of Agreement, and concluded that AIM has adhere to the highest ethical standards,
the Fund, who is independent of AIM and the financial resources necessary to and determined that the current
AIM's affiliates, had prepared an fulfill its obligations under the regulatory and litigation environment to
independent written evaluation in order Advisory Agreement. which AIM is subject should not prevent
to assist the Board in determining the the Board from continuing the Advisory
reasonableness of the proposed o Historical relationship between the Agreement for the Fund.
management fees of the AIM Funds, Fund and AIM. In determining whether to
including the Fund. The Board noted that continue the Advisory Agreement for the
the Senior Officer's written evaluation Fund, the Board also considered the
had been relied upon by the Board in prior relationship between AIM and the
this regard in lieu of a competitive Fund, as well as the Board's knowledge
bidding process. In determining whether of AIM's operations, and concluded that
to continue the Advisory Agreement for it was beneficial to maintain the
the Fund, the Board considered the current relationship, in part, because
Senior Officer's written evaluation and of such knowledge. The Board also
the recommendation made by the Senior reviewed the general nature of the
Officer to the Board that the Board non-investment advisory services
consider implementing a process to currently performed by AIM and its
assist them in more closely monitoring affiliates, such as administrative,
the performance of the AIM Funds. The transfer agency and distribution
Board concluded that it would be services, and the fees received by AIM
advisable to implement such a process as and its affiliates for performing such
soon as reasonably practicable. services. In addition to reviewing such
services, the trustees also considered
o Profitability of AIM and its the organizational structure employed by
affiliates. The Board reviewed AIM and its affiliates to provide those
information concerning the profitability services. Based on the review of these
of AIM's (and its affiliates') and other factors, the Board concluded
investment advisory and other activities that AIM and its affiliates were
and its financial condition. The Board qualified to continue to provide
considered the overall profitability of non-investment advisory services to the
AIM, as well as the profitability of AIM Fund, including administrative, transfer
in connection with managing the Fund. agency and distribution services, and
The Board noted that AIM's operations that AIM and its affiliates currently
remain profitable, although increased are providing satisfactory
expenses in recent years have reduced non-investment advisory services.
AIM's profitability. Based on the review
of the profitability of AIM's and its
affiliates' investment advisory and
other activities and its financial
condition, the Board concluded that the
compensation to be paid by the Fund to
AIM under its Advisory Agreement was not
excessive.
</Table>
8
FINANCIALS
SCHEDULE OF INVESTMENTS
September 30, 2005
(unaudited)
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-98.60%
ARIZONA-1.24%
Arizona (State of) Health Facilities
Authority (Blood Systems Inc.); Series 2004
RB
5.00%, 04/01/21(a) $ 355 $ 364,131
- -----------------------------------------------------------------------
Centerra Community Facilities District;
Unlimited Tax Series 2005 GO
5.50%, 07/15/29(a) 400 402,220
- -----------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Desert Heights Charter School);
Educational Facilities Series 2003 IDR
7.25%, 08/01/19(a) 830 860,884
- -----------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Horizon Community Learning
Center); Refunding Series 2005 IDR
5.25%, 06/01/35(a) 1,500 1,507,140
- -----------------------------------------------------------------------
Scottsdale (City of) Industrial Development
Authority (Scottsdale Healthcare); Hospital
Series 2001 IDR
5.80%, 12/01/31(a) 500 537,540
- -----------------------------------------------------------------------
Tucson (City of) Industrial Development
Authority (Arizona AgriBusiness & Equine
Center Inc.); Educational Facilities Series
2004 A IDR
6.13%, 09/01/34(a) 500 512,195
=======================================================================
4,184,110
=======================================================================
CALIFORNIA-3.09%
California (State of) Educational Facilities
Authority (Fresno Pacific University);
Series 2000 A RB
6.75%, 03/01/19(a) 1,000 1,098,860
- -----------------------------------------------------------------------
California (State of) Educational Facilities
Authority (Keck Graduate Institute); Series
2000 RB
6.75%, 06/01/30(a) 390 428,251
- -----------------------------------------------------------------------
California (State of) Health Facilities
Financing Authority (Cedars-Sinai Medical
Center); Refunding Series 2005 RB
5.00%, 11/15/27(a) 1,000 1,032,000
- -----------------------------------------------------------------------
5.00%, 11/15/34(a) 750 764,880
- -----------------------------------------------------------------------
California (State of) Statewide Communities
Development Authority (Daughters of Charity
Health); Series 2005 A RB
5.25%, 07/01/30(a) 1,250 1,295,225
- -----------------------------------------------------------------------
California (State of) Statewide Communities
Development Authority (Daughters of Charity
Health); Series 2005 G RB
5.00%, 07/01/22(a) 1,450 1,488,885
- -----------------------------------------------------------------------
California (State of) Statewide Communities
Development Authority (Hospice of Napa
Valley Project); Series 2004 A RB
7.00%, 01/01/34(a) 900 939,357
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
CALIFORNIA-(CONTINUED)
California (State of) Statewide Communities
Development Authority (Notre Dame de Namur
University); Series 2003 RB
6.50%, 10/01/23(a) 1,000 1,025,350
- -----------------------------------------------------------------------
Golden State Tobacco Securitization Corp.;
Asset-Backed Series 2005 A RB
(INS-Financial Guaranty Insurance Co.)
5.00%, 06/01/35(a)(b) $ 500 $ 521,365
- -----------------------------------------------------------------------
Turlock (City of) Health Facilities Authority
(Emanuel Medical Center Inc.); Series 2004
COP
5.00%, 10/15/24(a) 980 989,918
- -----------------------------------------------------------------------
5.38%, 10/15/34(a) 800 820,400
=======================================================================
10,404,491
=======================================================================
COLORADO-11.11%
Antelope Heights Metropolitan District;
Limited Tax Series 2003 GO
8.00%, 12/01/23(a) 500 551,360
- -----------------------------------------------------------------------
Beacon Point Metropolitan District; Limited
Tax Series 2005 A GO
6.25%, 12/01/35(a) 1,500 1,513,320
- -----------------------------------------------------------------------
Bradburn Metropolitan District No. 3; Limited
Tax Series 2003 GO
7.50%, 12/01/33(a) 500 537,990
- -----------------------------------------------------------------------
Bromley Park Metropolitan District No. 2;
Limited Tax Series 2002 B GO
8.05%, 12/01/32(a) 500 541,390
- -----------------------------------------------------------------------
Bromley Park Metropolitan District No. 2;
Limited Tax Series 2003 GO
8.05%, 12/01/32(a) 750 812,085
- -----------------------------------------------------------------------
Buckhorn Valley Metropolitan District No. 2;
Limited Tax Series 2003 GO
7.00%, 12/01/23(a) 500 503,170
- -----------------------------------------------------------------------
Castle Oaks Metropolitan District; Limited
Tax Series 2005 GO
6.00%, 12/01/25(a) 1,000 993,540
- -----------------------------------------------------------------------
6.13%, 12/01/35(a) 1,500 1,489,635
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Academy Charter
School Project); Series 2000 RB
7.13%, 12/15/30(a) 1,195 1,284,434
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Denver
Arts School Project); Series 2003 RB
8.00%, 05/01/34(a) 500 534,985
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Excel
Academy Project); Series 2003 RB
7.30%, 12/01/11(a)(c)(d) 570 649,338
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-Knowledge Quest Project); Series
2005 RB
6.50%, 05/01/36(a) 945 965,365
- -----------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
COLORADO-(CONTINUED)
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-Littleton Academy Building Project);
Series 2002 RB
6.00%, 01/15/22(a) $ 500 $ 528,265
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Peak
to Peak Project); Refunding & Improvement
Series 2004 RB (INS-XL Capital Assurance
Inc.)
5.25%, 08/15/24(a)(b) 500 540,405
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Peak
to Peak Project); Series 2001 RB
7.63%, 08/15/11(a)(c)(d) 500 611,970
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-Pioneer Charter Project); Series
2003 RB
7.75%, 10/15/33(a) 750 788,100
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Platte
Academy Project); Series 2002 A RB
7.25%, 03/01/10(a)(c)(d) 500 567,670
- -----------------------------------------------------------------------
7.25%, 03/01/10(a)(c)(d) 500 579,455
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-Ridgeview Classical Schools
Project); Series 2005 A RB (INS-XL Capital
Assurance Inc.)
5.50%, 08/15/25(a)(b) 445 490,159
- -----------------------------------------------------------------------
5.50%, 08/15/35(a)(b) 555 604,312
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-University Lab School Project);
Series 2001 RB
6.13%, 06/01/11(a)(c)(d) 150 170,613
- -----------------------------------------------------------------------
6.25%, 06/01/11(a)(c)(d) 500 571,900
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Denver Academy Inc.
Project); Refunding Series 2003 A RB
7.00%, 11/01/23(a) 500 547,885
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Denver Science &
Technology Project); Series 2004 RB
5.00%, 12/01/13(a) 750 776,865
- -----------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Heritage Christian
School); Series 2004 A RB
7.50%, 06/01/34(a) 1,000 1,109,040
- -----------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (Portercare Adventist Health);
Hospital Series 2001 RB
6.50%, 11/15/11(a)(c)(d) 500 586,205
- -----------------------------------------------------------------------
Conservatory Metropolitan District; Limited
Tax Series 2003 GO
7.50%, 12/01/27(a) 750 814,477
- -----------------------------------------------------------------------
Conservatory Metropolitan District; Limited
Tax Series 2005 GO
6.75%, 12/01/34(a) 810 831,773
- -----------------------------------------------------------------------
Denver (City of) Health & Hospital Authority;
Refunding Health Care Series 2004 A RB
6.25%, 12/01/33(a) 500 538,195
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
COLORADO-(CONTINUED)
Denver West Metropolitan District; Unlimited
Tax Series 2005 B GO
5.25%, 12/01/30(a) $1,000 $ 1,026,490
- -----------------------------------------------------------------------
High Plains Metropolitan District; Limited
Tax Series 2005 A GO
6.25%, 12/01/35(a) 750 756,660
- -----------------------------------------------------------------------
Montrose (County of) (Homestead at Montrose
Inc.); Health Care Facilities Series 2003 A
RB
5.75%, 02/01/15(a) 250 255,592
- -----------------------------------------------------------------------
6.75%, 02/01/22(a) 200 205,824
- -----------------------------------------------------------------------
7.00%, 02/01/25(a) 800 826,776
- -----------------------------------------------------------------------
Neu Towne Metropolitan District; Limited Tax
Series 2004 GO
7.25%, 12/01/34(a) 775 819,787
- -----------------------------------------------------------------------
Piney Creek Village Metropolitan District;
Limited Tax Series 2005 GO
5.50%, 12/01/35(a) 1,200 1,188,552
- -----------------------------------------------------------------------
Riverdale Peaks II Metropolitan District;
Unlimited Tax Series 2005 GO
6.50%, 12/01/35(a) 1,000 1,002,540
- -----------------------------------------------------------------------
Saddle Rock South Metropolitan District No. 2
(Mill Levy Obligation); Limited Tax Series
2000 GO
7.20%, 12/01/19(a) 535 562,462
- -----------------------------------------------------------------------
SBC Metropolitan District; Refunding
Unlimited Tax Series 2005 GO (INS-ACA
Financial Guaranty Corp.)
5.00%, 12/01/29(a)(b) 725 732,431
- -----------------------------------------------------------------------
5.00%, 12/01/34(a)(b) 1,000 1,000,720
- -----------------------------------------------------------------------
Serenity Ridge Metropolitan District No. 2;
Limited Tax Series 2004 GO
7.50%, 12/01/34(a) 750 807,270
- -----------------------------------------------------------------------
Southlands Metropolitan District No. 1;
Unlimited Tax Series 2004 GO
6.75%, 12/01/16(a) 500 548,830
- -----------------------------------------------------------------------
7.13%, 12/01/34(a) 500 547,515
- -----------------------------------------------------------------------
Table Rock Metropolitan District; Limited Tax
Series 2003 GO
7.00%, 12/01/33(a) 750 778,920
- -----------------------------------------------------------------------
University of Northern Colorado; Refunding &
Improvement Auxiliary Facilities System
Series 2001 RB (INS-Ambac Assurance Corp.)
5.00%, 06/01/23(a)(b) 1,000 1,039,850
- -----------------------------------------------------------------------
Wheatlands Metropolitan District No. 2;
Limited Tax Series 2005 GO
6.00%, 12/01/25(a) 580 579,606
- -----------------------------------------------------------------------
6.13%, 12/01/35(a) 2,000 1,998,420
- -----------------------------------------------------------------------
Wyndham Hill Metropolitan District No. 2;
Limited Tax Series 2005 GO
6.25%, 12/01/25(a) 750 746,940
- -----------------------------------------------------------------------
6.38%, 12/01/35(a) 1,000 995,240
=======================================================================
37,454,326
=======================================================================
</Table>
F-2
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
DISTRICT OF COLUMBIA-0.78%
District of Columbia Tobacco Settlement
Financing Corp.; Asset-Backed Series 2001
RB
6.25%, 05/15/24(a) $ 500 $ 538,585
- -----------------------------------------------------------------------
6.50%, 05/15/33(a) 1,785 2,093,680
=======================================================================
2,632,265
=======================================================================
FLORIDA-6.78%
Concorde Estates Community Development
District; Capital Improvement Series 2004 B
RB
5.00%, 05/01/11(a) 500 503,005
- -----------------------------------------------------------------------
Cory Lakes Community Development District;
Special Assessment Series 2001 A GO
8.38%, 05/01/17(a) 435 492,842
- -----------------------------------------------------------------------
Cory Lakes Community Development District;
Special Assessment Series 2001 B GO
8.38%, 05/01/17(a) 280 293,280
- -----------------------------------------------------------------------
Cypress Lakes Community Development District;
Special Assessment Series 2004 A RB
6.00%, 05/01/34(a) 625 650,606
- -----------------------------------------------------------------------
East Homestead Community Development
District; Special Assessment Series 2005 GO
5.45%, 11/01/36(a) 875 883,015
- -----------------------------------------------------------------------
Fishhawk Community Development District;
Special Assessment Series 1996 GO
7.63%, 05/01/06(a)(c)(d) 780 814,640
- -----------------------------------------------------------------------
Fishhawk Community Development District II;
Special Assessment Series 2003 B RB
5.00%, 11/01/07(a) 100 100,892
- -----------------------------------------------------------------------
Islands at Doral Southwest Community
Development District; Special Assessment
Series 2003 GO
6.38%, 05/01/35(a) 500 537,590
- -----------------------------------------------------------------------
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 1,307,275
- -----------------------------------------------------------------------
Lucaya Community Development District;
Capital Improvement Special Assessment
Series 2005 RB
5.38%, 05/01/35(a) 1,000 1,005,160
- -----------------------------------------------------------------------
Miami Beach (City of) Health Facilities
Authority (Mount Sinai Medical Center);
Hospital Series 2001 A RB
6.70%, 11/15/19(a) 1,000 1,098,330
- -----------------------------------------------------------------------
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) 500 557,435
- -----------------------------------------------------------------------
Midtown Miami Community Development District
(Parking Garage Project); Special
Assessment Series 2004 A RB
6.00%, 05/01/24(a) 1,000 1,065,830
- -----------------------------------------------------------------------
6.25%, 05/01/37(a) 1,000 1,065,150
- -----------------------------------------------------------------------
Mount Dora (City of) Health Facilities
Authority (Waterman Village Project);
Refunding Series 2004 A RB
5.75%, 08/15/18(a) 750 755,632
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
FLORIDA-(CONTINUED)
Orange (County of) Health Facilities
Authority (Adventist Health System);
Hospital Series 2002 RB
5.63%, 11/15/32(a) $1,065 $ 1,139,561
- -----------------------------------------------------------------------
Orange (County of) Health Facilities
Authority (Orlando Lutheran Towers, Inc.);
Refunding Health Care Facilities Series
2005 RB
5.38%, 07/01/20(a) 1,100 1,095,468
- -----------------------------------------------------------------------
5.70%, 07/01/26(a) 1,000 1,001,900
- -----------------------------------------------------------------------
Orange (County of) Health Facilities
Authority (Presbyterian Retirement
Communities, Inc. Project); VRD Series 1998
RB
(LOC-Bank of America, N.A.) 2.80%,
11/01/28(f)(g) 3,374 3,374,000
- -----------------------------------------------------------------------
Poinciana Community Development District;
Special Assessment Series 2000 A RB
7.13%, 05/01/31(a) 1,000 1,069,720
- -----------------------------------------------------------------------
Principal One Community Development District;
Special Assessment Series 2005 GO
5.65%, 05/01/35(a) 655 661,458
- -----------------------------------------------------------------------
Reunion East Community Development District;
Special Assessment Series 2002 A RB
7.38%, 05/01/33(a) 1,000 1,119,640
- -----------------------------------------------------------------------
Seven Oaks Community Development District II;
Special Assessment Series 2003 B RB
5.30%, 11/01/08(a) 110 110,828
- -----------------------------------------------------------------------
Urban Orlando Community Development District;
Capital Improvement Special Assessment
Series 2001 A RB
6.95%, 05/01/33(a) 1,000 1,087,550
- -----------------------------------------------------------------------
Urban Orlando Community Development District;
Capital Improvement Special Assessment
Series 2004 RB
6.25%, 05/01/34(a) 1,000 1,072,570
=======================================================================
22,863,377
=======================================================================
GEORGIA-2.28%
Atlanta (City of) (Atlantic Station Project);
Tax Allocation Series 2001 GO
7.75%, 12/01/14(a) 750 814,702
- -----------------------------------------------------------------------
7.90%, 12/01/24(a) 750 813,937
- -----------------------------------------------------------------------
Atlanta (City of) (Eastside Project); Tax
Allocation Series 2005 B GO
5.40%, 01/01/20(a) 1,000 1,002,540
- -----------------------------------------------------------------------
5.60%, 01/01/30(a) 2,000 2,015,800
- -----------------------------------------------------------------------
Fulton (County of) Residential Care
Facilities Authority (Canterbury Court
Project); Series 2004 A RB
6.13%, 02/15/26(a) 500 521,150
- -----------------------------------------------------------------------
6.13%, 02/15/34(a) 200 205,312
- -----------------------------------------------------------------------
Rockdale (County of) Development Authority
(Visy Paper, Inc. Project); Solid Waste
Disposal Series 1993 IDR
7.50%, 01/01/26(a)(h) 1,500 1,522,530
- -----------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
GEORGIA-(CONTINUED)
Savannah (City of) Economic Development
Authority (Marshes of Skidaway); First
Mortgage Series 2003 A RB
7.40%, 01/01/24(a) $ 750 $ 786,675
=======================================================================
7,682,646
=======================================================================
ILLINOIS-4.66%
Chicago (City of) (Chatham Ridge
Redevelopment Project); Tax Increment
Allocation Series 2002 GO
5.95%, 12/15/12(a) 275 292,592
- -----------------------------------------------------------------------
6.05%, 12/15/13(a) 475 509,024
- -----------------------------------------------------------------------
Chicago (City of) (Lake Shore East Project);
Special Assessment Series 2003 RB
6.63%, 12/01/22(a) 500 545,760
- -----------------------------------------------------------------------
6.75%, 12/01/32(a) 500 544,995
- -----------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (American College of Surgeons
Project); VRD Series 1996 RB (LOC-Northern
Trust Co.)
2.80%, 08/01/26(f)(g) 794 794,000
- -----------------------------------------------------------------------
Illinois (State of) Finance Authority (Beacon
Hill); Refunding Series 2005 A RB
5.15%, 02/15/13(a) 655 662,087
- -----------------------------------------------------------------------
5.25%, 02/15/14(a) 300 302,346
- -----------------------------------------------------------------------
5.35%, 02/15/15(a) 225 227,218
- -----------------------------------------------------------------------
Illinois (State of) Finance Authority
(Friendship Village Schaumburg); Series
2005 A RB
5.38%, 02/15/25(a) 1,000 1,011,310
- -----------------------------------------------------------------------
5.63%, 02/15/37(a) 1,000 1,013,380
- -----------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Bethesda Home & Retirement
Center);
Series 1999 A RB
6.25%, 09/01/14(a) 500 520,425
- -----------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Lutheran Hillside Village
Project); Series 2001 A RB
7.38%, 08/15/31(a) 1,000 1,079,920
- -----------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Swedish American Hospital);
Series 2000 RB
6.88%, 05/15/10(a)(c)(d) 690 790,685
- -----------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Villa St. Benedict); Series 2003
A-1 RB
6.90%, 11/15/33(a) 500 539,345
- -----------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority; Series 2003 A RB
7.00%, 11/15/32(a) 800 834,072
- -----------------------------------------------------------------------
Lincolnshire (Village of) Special Service
Area No. 1 (Sedgebrook Project); Special
Tax Series 2004 GO
5.00%, 03/01/11(a) 520 534,752
- -----------------------------------------------------------------------
6.25%, 03/01/34(a) 750 801,712
- -----------------------------------------------------------------------
Lombard (City of) Public Facilities Corp.;
First Tier Conference Center & Hotel Series
2005 A-1 RB
6.38%, 01/01/15(a) 750 754,537
- -----------------------------------------------------------------------
7.13%, 01/01/36(a) 2,500 2,558,550
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
ILLINOIS-(CONTINUED)
Metropolitan Pier & Exposition Authority
(McCormick Place Expansion); Dedicated
State Tax Series 2002 A RB (INS-MBIA
Insurance Corp.)
5.00%, 12/15/28(a)(b) $1,250 $ 1,300,912
- -----------------------------------------------------------------------
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 79,995
=======================================================================
15,697,617
=======================================================================
INDIANA-0.31%
Petersburg (City of) (Indiana Power & Light
Co.); Refunding Series 1991 PCR
5.75%, 08/01/21(a) 1,000 1,052,400
=======================================================================
IOWA-1.68%
Des Moines (City of) (Luther Park Apartments
Inc. Project); Sr. Housing Series 2004 RB
6.00%, 12/01/23(a) 500 513,425
- -----------------------------------------------------------------------
Iowa (State of) Finance Authority (Friendship
Haven Project); Retirement Community Series
2004 A RB
6.13%, 11/15/32(a) 500 508,225
- -----------------------------------------------------------------------
Marion (City of) (Village Place at Marion
Project); Multifamily Housing Series 2005 A
RB
6.00%, 09/01/35(a) 400 398,764
- -----------------------------------------------------------------------
Polk (County of) (Luther Park Health Center
Inc. Project); Health Care Facilities
Series 2003 RB
6.50%, 10/01/20(a) 750 774,810
- -----------------------------------------------------------------------
Polk (County of) (Luther Park Health Center
Inc. Project); Health Care Facilities
Series 2004 RB
6.00%, 10/01/24(a) 290 296,980
- -----------------------------------------------------------------------
6.15%, 10/01/36(a) 600 609,186
- -----------------------------------------------------------------------
Scott (County of) (Ridgecrest Village
Project); Refunding Series 2004 RB
4.75%, 11/15/12(a) 750 739,410
- -----------------------------------------------------------------------
5.63%, 11/15/18(a) 1,000 1,036,010
- -----------------------------------------------------------------------
Scott (County of) (Ridgecrest Village
Project); Series 2000 A RB
7.25%, 11/15/26(a) 750 802,387
=======================================================================
5,679,197
=======================================================================
KANSAS-1.44%
Hutchinson (City of) (Wesley Towers, Inc.);
Refunding & Improvement Health Care
Facilities Series 1999 A RB
6.25%, 11/15/19(a) 750 770,280
- -----------------------------------------------------------------------
Olathe (City of) (Aberdeen Village, Inc.);
Refunding Senior Living Facility Series
2005 A RB
5.60%, 05/15/28(a) 1,500 1,514,295
- -----------------------------------------------------------------------
Overland Park Development Corp. (Overland
Park Convention Center Hotel Project);
First Tier Series 2001 A RB
7.38%, 01/01/32(a) 1,500 1,637,115
- -----------------------------------------------------------------------
</Table>
F-4
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
KANSAS-(CONTINUED)
Roeland Park (City of) (Roeland Park
Redevelopment, LLC Project); Special
Obligations Tax Increment Allocation Series
2005 RB
5.75%, 08/01/24(a) $ 920 $ 922,999
=======================================================================
4,844,689
=======================================================================
KENTUCKY-0.26%
Jefferson (County of) (Beverly Enterprises,
Inc. Project); Refunding Health Facilities
Series 1999 RB
5.88%, 08/01/07(a) 195 195,092
- -----------------------------------------------------------------------
Kentucky (State of) Economic Development
Finance Authority (Christian Church Homes
of Kentucky, Inc.); Health Care Facilities
Series 1998 RB
5.50%, 11/15/30(a) 700 689,927
=======================================================================
885,019
=======================================================================
MAINE-0.15%
Maine (State of) Turnpike Authority; Turnpike
Series 2003 RB (INS-Ambac Assurance Corp.)
5.00%, 07/01/33(a)(b) 500 520,460
=======================================================================
MARYLAND-2.46%
Annapolis (City of) (Park Place Project);
Special Obligations Series 2005 A RB
5.35%, 07/01/34(a) 2,000 2,017,900
- -----------------------------------------------------------------------
Anne Arundel (County of) (Parole Town Center
Project); Tax Increment Allocation
Financing Series 2002 RB
5.00%, 07/01/12(a) 300 309,249
- -----------------------------------------------------------------------
Baltimore (City of) (Strathdale Manor
Project); Special Obligation Series 2003 RB
7.00%, 07/01/33(a) 968 1,064,568
- -----------------------------------------------------------------------
Howard (County of); Retirement Community
Series 2000 A RB
7.88%, 05/15/10(a)(c)(d) 780 946,296
- -----------------------------------------------------------------------
Maryland (State of) Health & Higher
Educational Facilities Authority (Medstar
Health); Refunding Series 2004 RB
5.50%, 08/15/33(a) 1,250 1,297,850
- -----------------------------------------------------------------------
Maryland (State of) Health & Higher
Educational Facilities Authority (Union
Hospital Cecil County); Series 2005 RB
5.00%, 07/01/35(a) 500 510,400
- -----------------------------------------------------------------------
Maryland (State of) Health & Higher
Educational Facilities Authority
(University of Maryland Medical System);
Series 2000 RB
6.75%, 07/01/30(a) 1,000 1,130,940
- -----------------------------------------------------------------------
Maryland (State of) Industrial Development
Financing Authority (Our Lady of Good
Counsel High School Facility); Series 2005
A RB
6.00%, 05/01/35(a) 1,000 1,027,660
=======================================================================
8,304,863
=======================================================================
MASSACHUSETTS-0.95%
Massachusetts (State of) Development Finance
Agency (Briarwood); Series 2001 B RB
7.50%, 12/01/10(a)(c)(d) 500 596,790
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
MASSACHUSETTS-(CONTINUED)
Massachusetts (State of) Health & Educational
Facilities Authority (Christopher House,
Inc.); Refunding Series 1999 A RB
6.88%, 01/01/29(a) $ 500 $ 503,075
- -----------------------------------------------------------------------
Massachusetts (State of) School Building
Authority; Dedicated Sales Tax Series 2005
A RB (INS-MBIA Insurance Corp.)
5.00%, 08/15/27(a)(b) 2,000 2,109,800
=======================================================================
3,209,665
=======================================================================
MICHIGAN-5.16%
Chandler Park Academy; Michigan Public School
Academy Series 2005 RB
5.13%, 11/01/30(a) 1,050 1,041,904
- -----------------------------------------------------------------------
Detroit Community High School; Michigan
Public School Academy Series 2005 RB
5.65%, 11/01/25(a) 1,485 1,478,733
- -----------------------------------------------------------------------
5.75%, 11/01/30(a) 1,000 1,001,840
- -----------------------------------------------------------------------
Gaylord (City of) Hospital Finance Authority
(Otsego Memorial Hospital Association);
Refunding Limited Obligation Series 2004 RB
6.50%, 01/01/31(a) 700 723,492
- -----------------------------------------------------------------------
Gogebic (County of) Hospital Finance
Authority (Grand View Health System, Inc.);
Refunding Series 1999 RB
5.88%, 10/01/16(a) 920 941,206
- -----------------------------------------------------------------------
Kent (County of) Hospital Finance Authority
(Metropolitan Hospital Project); Series
2005 A RB
5.25%, 07/01/30(a) 1,000 1,019,010
- -----------------------------------------------------------------------
5.75%, 07/01/25(a) 500 533,760
- -----------------------------------------------------------------------
Mecosta (County of) General Hospital;
Refunding Unlimited Tax Series 1999 GO
6.00%, 05/15/18(a) 500 513,015
- -----------------------------------------------------------------------
Michigan (State of) Hospital Finance
Authority (Chelsea Community Hospital
Obligated Group); Series 2005 RB
5.00%, 05/15/30(a) 855 852,555
- -----------------------------------------------------------------------
Michigan (State of) Hospital Finance
Authority (Marquette General Hospital
Obligation Group); Series 2005 A RB
5.00%, 05/15/34(a) 1,140 1,141,664
- -----------------------------------------------------------------------
Michigan (State of) Hospital Finance
Authority (Presbyterian Village); Refunding
Series 2005 RB
4.88%, 11/15/16(a) 685 674,567
- -----------------------------------------------------------------------
5.25%, 11/15/25(a) 450 448,587
- -----------------------------------------------------------------------
5.50%, 11/15/35(a) 750 755,295
- -----------------------------------------------------------------------
Michigan (State of) Municipal Bond Authority
(YMCA Service Learning Academy Project);
Public School Academy Facilities Program
Series 2001 RB
7.63%, 10/01/21(a) 700 762,531
- -----------------------------------------------------------------------
7.75%, 10/01/31(a) 500 545,055
- -----------------------------------------------------------------------
Michigan (State of) Strategic Fund (Detroit
Edison Pollution Control); Refunding
Limited Obligation Series 2001 C PCR
5.45%, 09/01/29(a) 500 525,695
- -----------------------------------------------------------------------
</Table>
F-5
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
MICHIGAN-(CONTINUED)
Summit Academy North; Refunding Michigan
Public School Academy Series 2005 RB
5.35%, 11/01/25(a) $ 500 $ 491,525
- -----------------------------------------------------------------------
5.50%, 11/01/30(a) 2,500 2,476,400
- -----------------------------------------------------------------------
Wenonah Park Properties, Inc. (Bay City
Hotel); Series 2002 RB
7.50%, 04/01/33(a) 1,000 952,160
- -----------------------------------------------------------------------
7.88%, 04/01/22(a) 500 503,375
=======================================================================
17,382,369
=======================================================================
MINNESOTA-11.08%
Apple Valley (City of) Economic Development
Authority (Evercare Senior Living LLC
Projects); Health Care Series 2005 A RB
6.13%, 06/01/35(a) 2,240 2,208,125
- -----------------------------------------------------------------------
Buhl (City of) (Forest Health Services
Project); Nursing Home Series 2003 A RB
6.40%, 08/01/23(a) 575 592,422
- -----------------------------------------------------------------------
6.75%, 08/01/27(a) 500 522,715
- -----------------------------------------------------------------------
Cloquet (City of) (HADC Cloquet LLC Project);
Refunding Housing Facilities Series 2005 A
RB
5.00%, 08/01/20(a) 575 574,362
- -----------------------------------------------------------------------
5.50%, 08/01/25(a) 1,035 1,048,714
- -----------------------------------------------------------------------
5.88%, 08/01/35(a) 865 877,655
- -----------------------------------------------------------------------
Cold Spring (City of) (Assumption Home,
Inc.); Nursing Home & Senior Housing Series
2005 RB
5.50%, 03/01/25(a) 425 432,323
- -----------------------------------------------------------------------
5.75%, 03/01/35(a) 600 605,832
- -----------------------------------------------------------------------
Cuyana Range Hospital District; Health
Facilities Series 2005 RB
5.20%, 06/01/25(a) 400 400,876
- -----------------------------------------------------------------------
5.50%, 06/01/35(a) 1,000 1,005,130
- -----------------------------------------------------------------------
Duluth (City of) Economic Development
Authority (Benedictine Health System-St.
Mary's Duluth Clinic); Health Care
Facilities Series 2004 RB
5.25%, 02/15/33(a) 1,500 1,554,315
- -----------------------------------------------------------------------
Edina (City of) (Volunteers of America Care
Centers Project); Health Care Facilities
Series 2002 A RB
6.63%, 12/01/22(a) 250 267,140
- -----------------------------------------------------------------------
6.63%, 12/01/30(a) 250 263,205
- -----------------------------------------------------------------------
Fairmont (City of) (Homestead-GEAC Project);
Housing Facilities Series 2002 A-1 RB
7.25%, 04/01/22(a) 915 927,737
- -----------------------------------------------------------------------
Glencoe (City of) (Glencoe Regional Health
Services Project); Health Care Facilities
Series 2001 RB
7.40%, 04/01/11(a)(c)(d) 250 296,140
- -----------------------------------------------------------------------
7.50%, 04/01/11(a)(c)(d) 500 594,740
- -----------------------------------------------------------------------
Glencoe (City of) (Glencoe Regional Health
Services Project); Health Care Facilities
Series 2005 RB
5.00%, 04/01/31(a) 1,000 995,710
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
MINNESOTA-(CONTINUED)
Maplewood (City of) (Volunteers of America
Care Center Project); Health Care
Facilities Series 2005 A RB
5.00%, 10/01/13(a) $ 775 $ 771,063
- -----------------------------------------------------------------------
5.25%, 10/01/19(a) 1,250 1,232,700
- -----------------------------------------------------------------------
5.38%, 10/01/24(a) 2,500 2,441,000
- -----------------------------------------------------------------------
Minneapolis (City of) (Shelter Care
Foundation); Health Care Facilities Series
1999 A RB
6.00%, 04/01/10(a) 635 631,304
- -----------------------------------------------------------------------
Minneapolis (City of) (Village at St. Anthony
Falls Project); Refunding Tax Increment
Series 2004 GO
5.75%, 02/01/27(a) 605 607,928
- -----------------------------------------------------------------------
Moorhead (City of) Economic Development
Authority (Eventide Catered Living Facility
Project); Refunding Multifamily Housing
Series 1998 A RB
6.00%, 06/01/18(a) 500 500,295
- -----------------------------------------------------------------------
Northwest Multi-County Housing &
Redevelopment Authority (Pooled Housing
Program); Refunding Governmental Housing
Series 2005 A RB
5.35%, 07/01/15(a) 70 70,020
- -----------------------------------------------------------------------
6.20%, 07/01/30(a) 2,000 1,991,000
- -----------------------------------------------------------------------
Oakdale (City of) (Oak Meadows Project);
Refunding Senior Housing Series 2004 RB
6.00%, 04/01/24(a) 1,000 1,046,970
- -----------------------------------------------------------------------
Ramsey (City of) (Pact Charter School
Project); Lease Series 2004 A RB
6.50%, 12/01/22(a) 925 941,631
- -----------------------------------------------------------------------
6.75%, 12/01/33(a) 150 152,778
- -----------------------------------------------------------------------
Rochester (City of) (Samaritan Bethany Inc.
Project); Health Care & Housing Series 2003
A RB
5.38%, 08/01/12(a) 165 169,302
- -----------------------------------------------------------------------
5.50%, 08/01/13(a) 195 199,869
- -----------------------------------------------------------------------
6.25%, 08/01/19(a) 1,100 1,141,789
- -----------------------------------------------------------------------
Shakopee (City of) (St. Francis Regional
Medical Center); Health Care Facilities
Series 2004 RB
5.25%, 09/01/34(a) 500 514,665
- -----------------------------------------------------------------------
St. Cloud (City of) Housing & Redevelopment
Authority (Sterling Heights Apartments
Project); Multifamily Housing Series 2002
RB
7.00%, 10/01/23(a)(h) 495 507,890
- -----------------------------------------------------------------------
7.45%, 10/01/32(a)(h) 155 162,085
- -----------------------------------------------------------------------
St. Paul (City of) Housing & Redevelopment
Authority (Community of Peace Academy
Project); Lease Series 2001 A RB
7.38%, 12/01/19(a) 900 954,936
- -----------------------------------------------------------------------
St. Paul (City of) Housing & Redevelopment
Authority (Gillette Children's Specialty);
Health Care Series 2005 RB
5.00%, 02/01/15(a) 200 203,572
- -----------------------------------------------------------------------
St. Paul (City of) Housing & Redevelopment
Authority (New Spirit Charter School);
Lease Series 2002 A RB
7.50%, 12/01/31(a) 890 908,459
- -----------------------------------------------------------------------
</Table>
F-6
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
MINNESOTA-(CONTINUED)
St. Paul (City of) Housing & Redevelopment
Authority; Refunding Lease Series 2005 RB
6.50%, 01/01/22(a) $1,620 $ 1,620,373
- -----------------------------------------------------------------------
St. Paul (City of) Port Authority (Radisson
Kellogg Project); Hotel Facility Series
1999 2 RB
7.38%, 08/01/29(a) 1,225 1,283,775
- -----------------------------------------------------------------------
Stillwater (City of) (Health System
Obligation Group); Health Care Series 2005
RB
4.50%, 06/01/28(a) 1,000 968,180
- -----------------------------------------------------------------------
5.00%, 06/01/25(a) 1,500 1,554,015
- -----------------------------------------------------------------------
5.00%, 06/01/35(a) 1,000 1,019,120
- -----------------------------------------------------------------------
Vadnais Heights (City of) (Agriculture & Food
Sciences); Lease Series 2004 A RB
6.38%, 12/01/24(a) 900 900,612
- -----------------------------------------------------------------------
6.60%, 12/01/34(a) 275 274,791
- -----------------------------------------------------------------------
Virginia (City of) Housing & Redevelopment
Authority; Health Care Facility Lease
Series 2005 RB
5.38%, 10/01/30(a) 365 374,213
- -----------------------------------------------------------------------
Woodbury (City of) (Math & Science Academy
Project); Refunding Lease Series 2002 A RB
7.38%, 12/01/24(a) 250 260,432
- -----------------------------------------------------------------------
7.50%, 12/01/31(a) 750 780,352
=======================================================================
37,352,260
=======================================================================
MISSOURI-5.07%
370/Missouri Bottom Road/Tussing Road
Transportation Development District; Series
2002 RB
7.00%, 05/01/22(a) 750 818,235
- -----------------------------------------------------------------------
7.20%, 05/01/33(a) 500 545,540
- -----------------------------------------------------------------------
Branson (City of) Industrial Development
Authority (Branson Landing-Retail Project);
Tax Increment Allocation Series 2005 GO
5.25%, 06/01/21(a) 1,500 1,497,510
- -----------------------------------------------------------------------
Brentwood (City of) (Brentwood Square
Project); Refunding & Improvement Tax
Increment Allocation Series GO
4.50%, 05/01/22(a) 850 841,151
- -----------------------------------------------------------------------
Des Peres (City of) (West County Center
Project); Refunding Tax Increment
Allocation Series 2002 A RB
5.75%, 04/15/20(a) 1,000 1,027,630
- -----------------------------------------------------------------------
Desloge (City of) (U.S. Highway 67/State
Street Redevelopment Project); Refunding
Tax Increment Allocation Series 2005 GO
5.20%, 04/15/20(a) 1,000 1,004,080
- -----------------------------------------------------------------------
Fenton (City of) (Gravois Bluffs Project);
Refunding & Improvement Tax Increment
Series 2001 A RB
7.00%, 10/01/21(a) 1,050 1,135,071
- -----------------------------------------------------------------------
Hanley Road & North of Folk Ave.
Transportation District; Series 2005 RB
5.00%, 10/01/25(a) 1,000 997,490
- -----------------------------------------------------------------------
5.40%, 10/01/31(a) 750 750,127
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
MISSOURI-(CONTINUED)
Kansas City (City of) Industrial Development
Authority (The Bishop Spencer Place, Inc.);
First Mortgage Health Care Facilities
Series 2004 A IDR
6.25%, 01/01/24(a) $ 500 $ 522,800
- -----------------------------------------------------------------------
Maplewood (City of) (Maplewood South
Redevelopment Area); Refunding Tax
Increment Series 2005 RB
5.20%, 11/01/22(a) 500 497,455
- -----------------------------------------------------------------------
5.75%, 11/01/26(a) 1,350 1,353,240
- -----------------------------------------------------------------------
Missouri (State of) Health & Educational
Facilities (Senior Living
Facilities-Lutheran Senior Services);
Series 2005 A RB
5.38%, 02/01/35(a) 2,000 2,075,660
- -----------------------------------------------------------------------
Richmond Heights (City of) (Francis Place
Redevelopment Project); Refunding &
Improvement Tax Increment & Transportation
Sales Tax Series 2005 RB
5.63%, 11/01/25(a) 750 755,700
- -----------------------------------------------------------------------
St. Joseph (City of) Industrial Development
Authority (The Shoppes at North Village
Project); Tax Increment Allocation
Series 2005 A IDR
5.25%, 11/01/13(a) 500 516,770
- -----------------------------------------------------------------------
5.38%, 11/01/24(a) 500 495,560
- -----------------------------------------------------------------------
5.50%, 11/01/27(a) 750 750,225
- -----------------------------------------------------------------------
St. Joseph (City of) Industrial Development
Authority (The Shoppes at North Village
Project); Tax Increment Allocation Series
2005 B RB
5.38%, 11/01/23(a) 500 493,995
- -----------------------------------------------------------------------
5.50%, 11/01/27(a) 1,000 1,000,300
=======================================================================
17,078,539
=======================================================================
MONTANA-0.67%
Montana (State of) Facility Finance Authority
(Bozeman Deaconess Health Services); Health
Care Facilities Series 2005 RB
4.50%, 06/01/30(a) 1,000 956,850
- -----------------------------------------------------------------------
4.50%, 06/01/35(a) 250 236,300
- -----------------------------------------------------------------------
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) 750 760,470
- -----------------------------------------------------------------------
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) 310 313,447
=======================================================================
2,267,067
=======================================================================
NEVADA-1.05%
Boulder City (City of) (Boulder City Hospital
Inc. Project); Refunding Hospital Series
1998 RB
5.85%, 01/01/22(a) 1,000 1,002,130
- -----------------------------------------------------------------------
Clark (County of) (Nevada Power Co. Project);
Refunding Series 1992 C IDR
7.20%, 10/01/22(a) 550 558,250
- -----------------------------------------------------------------------
</Table>
F-7
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
NEVADA-(CONTINUED)
Clark (County of) (Southwest Gas Corp.
Project); Series 2005 A IDR (INS-Ambac
Assurance Corp.)
4.85%, 10/01/35(a)(b)(h) $ 250 $ 250,195
- -----------------------------------------------------------------------
Las Vegas Valley Water District; Refunding &
Water Improvement Limited Tax Series 2003 A
GO (INS-Financial Guaranty Insurance Co.)
5.00%, 06/01/32(a)(b) 1,150 1,189,042
- -----------------------------------------------------------------------
University and Community College System of
Nevada; Universities Series 2002 A RB
(INS-Financial Guaranty Insurance Co.)
5.40%, 07/01/31(a)(b) 500 530,020
=======================================================================
3,529,637
=======================================================================
NEW HAMPSHIRE-0.80%
New Hampshire (State of) Business Finance
Authority (Alice Peck Day Health System);
Series 1999 A RB
6.88%, 10/01/19(a) 1,050 1,114,564
- -----------------------------------------------------------------------
New Hampshire (State of) Health & Education
Facilities Authority (The Huntington at
Nashua); Series 2003 A RB
6.88%, 05/01/23(a) 750 794,625
- -----------------------------------------------------------------------
6.88%, 05/01/33(a) 750 786,682
=======================================================================
2,695,871
=======================================================================
NEW JERSEY-2.85%
New Jersey (State of) Economic Development
Authority (Arbor); Senior Mortgage Series
1998 A RB
5.88%, 05/15/16(a) 120 123,586
- -----------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Cedar Crest Village, Inc.
Facility); Retirement Community Series 2001
A RB
7.25%, 11/15/21(a) 500 548,195
- -----------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Continental Airlines, Inc.
Project); Special Facility Series 2000 RB
7.00%, 11/15/30(a)(h) 500 435,530
- -----------------------------------------------------------------------
7.20%, 11/15/30(a)(h) 425 379,172
- -----------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Continental Airlines, Inc.
Project); Special Facility Series 2003 RB
9.00%, 06/01/33(a)(h) 500 521,570
- -----------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Lions Gate Project); First
Mortgage Series 2005 A RB
5.00%, 01/01/15(a) 825 830,404
- -----------------------------------------------------------------------
5.75%, 01/01/25(a) 710 723,703
- -----------------------------------------------------------------------
5.88%, 01/01/37(a) 1,360 1,392,300
- -----------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Seashore Gardens Living Center
Project); First Mortgage Series 2001 RB
8.00%, 04/01/23(a) 800 862,560
- -----------------------------------------------------------------------
8.00%, 04/01/31(a) 500 536,225
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
NEW JERSEY-(CONTINUED)
New Jersey (State of) Health Care Facilities
Financing Authority (Raritan Bay Medical
Center); Series 1994 RB
7.25%, 07/01/14(a) $ 50 $ 52,747
- -----------------------------------------------------------------------
7.25%, 07/01/27(a) 1,750 1,800,575
- -----------------------------------------------------------------------
New Jersey (State of) Transportation Trust
Fund Authority; Transportation System
Series 2005 B RB (INS-Ambac Assurance
Corp.)
5.25%, 12/15/22(a)(b) 500 566,435
- -----------------------------------------------------------------------
5.25%, 12/15/23(a)(b) 750 843,300
=======================================================================
9,616,302
=======================================================================
NEW YORK-3.16%
Albany (County of) Industrial Development
Agency (Albany College of Pharmacy);
Series 2004 A IDR
5.38%, 12/01/24(a) 400 418,964
- -----------------------------------------------------------------------
Monroe (County of) Industrial Development
Agency (Woodland Village Project); Civic
Facility Series 2000 IDR
8.55%, 11/15/32(a) 1,000 1,086,920
- -----------------------------------------------------------------------
New York (State of) Dormitory Authority
(Mount Sinai NYU Health Obligated Group);
Series 2000 A RB
5.50%, 07/01/26(a) 500 507,535
- -----------------------------------------------------------------------
New York City (City of) Industrial
Development Agency (Liberty-7 World Trade
Center); Series 2005 A IDR
6.25%, 03/01/15(a) 3,000 3,215,040
- -----------------------------------------------------------------------
Onondaga (County of) Industrial Development
Agency (Solvay Paperboard LLC Project);
Refunding Solid Waste Disposal Facility
Series 1998 IDR
7.00%, 11/01/30(a)(h) 2,000 2,098,940
- -----------------------------------------------------------------------
Orange (County of) Industrial Development
Agency (Arden Hill Life Care Center
Newburgh); Civic Facility Series 2001 C IDR
7.00%, 08/01/31(a) 550 583,572
- -----------------------------------------------------------------------
Suffolk (County of) Industrial Development
Agency (Spellman High-Voltage Electronics
Corp. Facility); Series 1997 A IDR
6.38%, 12/01/17(a)(h) 350 345,222
- -----------------------------------------------------------------------
Syracuse (City of) Industrial Development
Agency (Jewish Home of Central New York,
Inc.); First Mortgage Series 2001 A IDR
7.38%, 03/01/21(a) 350 376,722
- -----------------------------------------------------------------------
7.38%, 03/01/31(a) 500 536,735
- -----------------------------------------------------------------------
Westchester (County of) Industrial
Development Agency (Hebrew Hospital Senior
Housing Inc.); Continuing Care Retirement
Series 2000 A IDR
7.00%, 07/01/21(a) 600 645,090
- -----------------------------------------------------------------------
7.38%, 07/01/30(a) 500 538,155
- -----------------------------------------------------------------------
Westchester Tobacco Asset Securitization
Corp.; Tobacco Settlement Asset-Backed
Series 2005 RB
5.00%, 06/01/26(a) 300 302,958
=======================================================================
10,655,853
=======================================================================
</Table>
F-8
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
NORTH CAROLINA-1.07%
North Carolina (State of) Medical Care
Commission (Arbor Acres United Methodist
Retirement Community, Inc. Project); First
Mortgage Health Care Facilities Series 2002
RB
6.38%, 03/01/32(a) $ 500 $ 525,555
- -----------------------------------------------------------------------
North Carolina (State of) Medical Care
Commission (Forest at Duke Project); First
Mortgage Retirement Facilities Series 2002
RB
6.38%, 09/01/32(a) 250 264,865
- -----------------------------------------------------------------------
North Carolina (State of) Medical Care
Commission (United Church Homes and
Services); Refunding First Mortgage
Retirement Facilities Series 2005 A RB
5.25%, 09/01/21(a) 1,000 1,020,500
- -----------------------------------------------------------------------
North Carolina (State of) Medical Care
Commission (United Methodist); Refunding
First Mortgage Retirement Facilities Series
2005 C RB
5.25%, 10/01/24(a) 750 768,180
- -----------------------------------------------------------------------
5.50%, 10/01/32(a) 1,000 1,028,670
=======================================================================
3,607,770
=======================================================================
NORTH DAKOTA-0.37%
Dickinson (City of) (St Luke's Home Project);
Refunding Congregate Housing Series 2005 A
RB
5.00%, 05/01/20(a) 170 169,383
- -----------------------------------------------------------------------
5.10%, 05/01/22(a) 365 363,409
- -----------------------------------------------------------------------
Grand Forks (City of) (4000 Valley Square
Project); Special Term Senior Housing
Series 1997 RB
6.38%, 12/01/34(a) 725 729,720
=======================================================================
1,262,512
=======================================================================
OHIO-2.44%
Adams (County of) (Adams County Hospital
Project); Hospital Facilities Improvement
Series 2005 RB
5.00%, 09/01/07(a) 340 340,354
- -----------------------------------------------------------------------
5.25%, 09/01/08(a) 355 355,554
- -----------------------------------------------------------------------
5.50%, 09/01/09(a) 375 375,765
- -----------------------------------------------------------------------
5.75%, 09/01/10(a) 395 395,984
- -----------------------------------------------------------------------
Cleveland-Cuyahoga (County of) Port
Authority; Special Assessment Tax Increment
Series 2001 RB
7.35%, 12/01/31(a) 1,000 1,081,510
- -----------------------------------------------------------------------
Cuyahoga (County of) (Canton Inc. Project);
Hospital Facilities Series 2000 RB
7.50%, 01/01/30(a) 750 840,158
- -----------------------------------------------------------------------
Franklin (County of) (Ohio Presbyterian
Retirement Services); Health Care
Facilities Improvement Series 2005 A RB
5.00%, 07/01/26(a) 350 353,469
- -----------------------------------------------------------------------
5.13%, 07/01/35(a) 1,250 1,260,875
- -----------------------------------------------------------------------
Franklin (County of) (Ohio Presbyterian
Retirement Services); Health Care
Facilities Series 2001 A RB
7.13%, 07/01/29(a) 500 551,945
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
OHIO-(CONTINUED)
Lucas (County of) (Sunset Retirement
Communities); Refunding & Improvement
Health Care Facilities Series 2000 A RB
6.50%, 08/15/20(a) $ 500 $ 530,355
- -----------------------------------------------------------------------
6.55%, 08/15/24(a) 500 530,310
- -----------------------------------------------------------------------
Madison (County of) (Madison County Hospital
Project); Refunding Hospital Improvement
Series 1998 RB
6.25%, 08/01/08(a)(c)(d) 590 601,269
- -----------------------------------------------------------------------
Toledo (City of) & Lucas (County of) Port
Authority (St. Mary Woods Project); Series
2004 A RB
6.00%, 05/15/24(a) 500 508,420
- -----------------------------------------------------------------------
6.00%, 05/15/34(a) 500 504,165
=======================================================================
8,230,133
=======================================================================
OKLAHOMA-0.20%
Oklahoma (State of) Development Finance
Authority (Comanche County Hospital
Project); Series 2002 B RB
6.60%, 07/01/31(a) 625 688,400
=======================================================================
OREGON-1.00%
Clackamas (County of) Hospital Facility
Authority (Gross-Willamette Falls Project);
Refunding Series 2005 RB
5.13%, 04/01/26(a) 1,000 993,100
- -----------------------------------------------------------------------
Oregon (State of) Health, Housing,
Educational & Cultural Facilities Authority
(Oregon Baptist Retirement Homes); Series
1996 RB
8.00%, 11/15/26(a) 745 772,885
- -----------------------------------------------------------------------
Yamhill (County of) Hospital Authority
(Friendsview Retirement Community); Series
2003 RB
7.00%, 12/01/21(a) 1,555 1,618,771
=======================================================================
3,384,756
=======================================================================
PENNSYLVANIA-5.57%
Allegheny (County of) Hospital Development
Authority (Villa Saint Joseph of Baden);
Health Care Facilities Series 1998 RB
6.00%, 08/15/28(a) 500 496,270
- -----------------------------------------------------------------------
Allegheny (County of) Industrial Development
Authority (Propel Schools-Homestead
Project); Charter School Series 2004 A IDR
7.00%, 12/15/15(a) 780 809,609
- -----------------------------------------------------------------------
Allegheny (County of) Redevelopment Authority
(Pittsburgh Mills Project); Tax Allocation
Series 2004 RB
5.10%, 07/01/14(a) 500 516,900
- -----------------------------------------------------------------------
5.60%, 07/01/23(a) 500 520,245
- -----------------------------------------------------------------------
Blair (County of) Industrial Development
Authority (Village of Pennsylvania State
Project); Series 2002 A IDR
6.90%, 01/01/22(a) 500 531,130
- -----------------------------------------------------------------------
7.00%, 01/01/34(a) 500 529,140
- -----------------------------------------------------------------------
Chartiers Valley Industrial & Commercial
Development Authority (Asbury Health
Center); Refunding First Mortgage Series
1999 IDR 6.38%, 12/01/19(a) 1,000 1,038,840
- -----------------------------------------------------------------------
</Table>
F-9
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
PENNSYLVANIA-(CONTINUED)
Clarion (County of) Industrial Development
Authority (Beverly Enterprises, Inc.
Project); Refunding Health Facilities
Series 2001 IDR
7.38%, 12/01/08(a) $ 420 $ 426,250
- -----------------------------------------------------------------------
Crawford (County of) Hospital Authority
(Wesbury United Methodist Community);
Senior Living Facilities Series 1999 RB
6.25%, 08/15/29(a) 750 776,843
- -----------------------------------------------------------------------
Cumberland (County of) Industrial Development
Authority (The Woods at Cedar Run
Retirement Facility); Refunding First
Mortgage
Series 1998 A IDR
6.50%, 11/01/18(a)(i)(j) 1,000 342,320
- -----------------------------------------------------------------------
Cumberland (County of) Municipal Authority
(Wesley Affiliated Services, Inc.);
Retirement Community Series 2002 A RB
6.00%, 01/01/13(a) 800 815,920
- -----------------------------------------------------------------------
7.13%, 01/01/25(a) 700 767,256
- -----------------------------------------------------------------------
Lancaster (County of) Hospital Authority
(Saint Anne's Home); Health Center Series
1999 RB
6.63%, 04/01/28(a) 500 519,330
- -----------------------------------------------------------------------
Lancaster (County of) Industrial Development
Authority (Garden Spot Village Project);
Series 2000 A IDR
7.60%, 05/01/22(a) 250 275,303
- -----------------------------------------------------------------------
7.63%, 05/01/31(a) 500 547,670
- -----------------------------------------------------------------------
Lawrence (County of) Industrial Development
Authority (Shenango Presbyterian Senior
Care Obligated Group); Senior Health &
Housing Facilities Series 2001 B IDR
7.50%, 11/15/31(a) 1,000 1,028,290
- -----------------------------------------------------------------------
Lebanon (County of) Health Facilities
Authority (Pleasant View Retirement);
Health Center Series 2005 A RB
5.30%, 12/15/26(a) 1,000 1,001,870
- -----------------------------------------------------------------------
Lehigh (County of) General Purpose Authority
(Bible Fellowship Church Home Inc.); First
Mortgage Series 2001 RB
7.63%, 11/01/21(a) 250 276,888
- -----------------------------------------------------------------------
7.75%, 11/01/33(a) 750 824,573
- -----------------------------------------------------------------------
Montgomery (County of) Higher Education &
Health Authority (Philadelphia Geriatric
Center); Series 1999 A RB
7.38%, 12/01/09(a)(c)(d) 1,340 1,555,981
- -----------------------------------------------------------------------
Montgomery (County of) Higher Education &
Health Authority (Temple Continuing Care
Center); Series 1999 RB
6.63%, 07/01/19(a)(i)(j) 1,250 225,138
- -----------------------------------------------------------------------
6.75%, 07/01/29(a)(i)(j) 460 82,745
- -----------------------------------------------------------------------
Montgomery (County of) Industrial Development
Authority (Whitemarsh Continuing Care
Retirement Community Project); Mortgage
Series 2005 IDR
6.25%, 02/01/35(a) 1,000 1,048,890
- -----------------------------------------------------------------------
North Penn (Region of) Health, Hospital &
Education Authority (Maple Village
Project); Hospital Series 2000 A RB
8.00%, 04/01/10(a)(c)(d) 300 354,078
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
PENNSYLVANIA-(CONTINUED)
Pennsylvania (State of) Economic Development
Financing Authority (Northwestern Human
Services, Inc. Project); Series 1998 A RB
5.25%, 06/01/14(a) $1,000 $ 991,020
- -----------------------------------------------------------------------
Pennsylvania (State of) Higher Educational
Facilities Authority (Student Association,
Inc. Project at California University of
Pennsylvania); Student Housing Series 2000
A RB
6.75%, 09/01/20(a) 500 528,130
- -----------------------------------------------------------------------
6.75%, 09/01/32(a) 320 336,147
- -----------------------------------------------------------------------
Pennsylvania (State of) Higher Educational
Facilities Authority (Widener University);
Series 2005 RB
5.00%, 07/15/31(a) 1,055 1,078,674
- -----------------------------------------------------------------------
Philadelphia (City of) Industrial Development
Authority (Cathedral Village Project);
Series 2003 A IDR
6.88%, 04/01/34(a) 500 541,605
=======================================================================
18,787,055
=======================================================================
RHODE ISLAND-0.08%
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 A RB
6.13%, 06/01/32(a) 240 254,830
=======================================================================
SOUTH CAROLINA-2.09%
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) 800 958,952
- -----------------------------------------------------------------------
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 1,630,260
- -----------------------------------------------------------------------
South Carolina (State of) Jobs-Economic
Development Authority (South Carolina
Episcopal Home at Still Hopes Project);
Residential Care Facilities Series 2004 A
RB
6.25%, 05/15/25(a) 750 774,825
- -----------------------------------------------------------------------
6.38%, 05/15/32(a) 1,250 1,301,150
- -----------------------------------------------------------------------
South Carolina (State of) Jobs-Economic
Development Authority (Westley Commons
Project); First Mortgage Health Facilities
Series 2000 RB
7.75%, 10/01/15(a) 700 776,468
- -----------------------------------------------------------------------
8.00%, 10/01/31(a) 300 331,161
- -----------------------------------------------------------------------
Tobacco Settlement Revenue Management
Authority; Tobacco Settlement Asset-Backed
Series 2001 B RB
6.38%, 05/15/28(a) 1,170 1,262,617
=======================================================================
7,035,433
=======================================================================
SOUTH DAKOTA-0.47%
South Dakota (State of) Health & Educational
Facilities Authority (Sioux Valley
Hospitals & Health System); Series 2004 A
RB
5.25%, 11/01/27(a) 500 524,245
- -----------------------------------------------------------------------
5.25%, 11/01/34(a) 500 517,860
- -----------------------------------------------------------------------
</Table>
F-10
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
SOUTH DAKOTA-(CONTINUED)
South Dakota (State of) Health & Educational
Facilities Authority (Westhills Village
Retirement Community); Series 2003 RB
5.65%, 09/01/23(a) $ 500 $ 528,670
=======================================================================
1,570,775
=======================================================================
TENNESSEE-0.87%
Davidson & Williamson (Counties of) (Harpeth
Valley Utilities District); Utilities
Improvement Series 2004 RB (INS-MBIA
Insurance Corp.)
5.00%, 09/01/34(a)(b) 1,000 1,042,280
- -----------------------------------------------------------------------
Johnson City (City of) Health & Educational
Facilities Board (Appalachian Christian
Village Project); Retirement Facilities
Series 2004 A RB
6.00%, 02/15/24(a) 500 501,770
- -----------------------------------------------------------------------
6.25%, 02/15/32(a) 350 358,673
- -----------------------------------------------------------------------
Shelby (County of) Health, Educational &
Housing Facilities Board (Germantown
Village); Residential Care Series 2003 A RB
7.00%, 12/01/23(a) 1,000 1,022,290
=======================================================================
2,925,013
=======================================================================
TEXAS-8.49%
Abilene (City of) Health Facilities
Development Corp. (Sears Methodist
Retirement System Obligated Group Report);
Retirement Facility Series 2003 A RB
7.00%, 11/15/33(a) 1,000 1,087,130
- -----------------------------------------------------------------------
Atlanta (City of) Hospital Authority;
Hospital Facility Series 1999 RB
6.70%, 08/01/19(a) 500 520,980
- -----------------------------------------------------------------------
Bexar (County of) Health Facilities
Development Corp. (Army Retirement
Residence Project); Series 2002 RB
6.30%, 07/01/32(a) 500 532,950
- -----------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(American Opportunity Housing); Multifamily
Housing Sr. Series 2002 A-1 RB
6.85%, 12/01/23(a) 750 754,515
- -----------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Villa Madrid/Cumberland Apartments);
Multifamily Housing Series 1998 A RB
7.25%, 05/01/16(a)(i)(j) 200 138,908
- -----------------------------------------------------------------------
Board of Regents of the University of Texas
System; Financing System Series 2001 C RB
5.00%, 08/15/20(a) 1,000 1,053,340
- -----------------------------------------------------------------------
Board of Regents of the University of Texas
System; Financing System Series 2003 B RB
5.00%, 08/15/33(a) 1,500 1,557,165
- -----------------------------------------------------------------------
Comal (County of) Health Facilities
Development Corp. (McKenna Memorial
Hospital Project); Healthcare System Series
2002 A RB
6.25%, 02/01/32(a) 2,225 2,383,732
- -----------------------------------------------------------------------
Corpus Christi (Port of) Industrial
Development Corp. (Valero); Refunding
Series 1997 C IDR
5.40%, 04/01/18(a) 605 628,153
- -----------------------------------------------------------------------
Dallas-Fort Worth (Cities of) International
Airport Facilities Improvement Corp.;
Refunding Series 2000 A-3 RB
9.13%, 05/01/29(a)(h) 500 475,000
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
TEXAS-(CONTINUED)
Decatur (City of) Hospital Authority (Wise
Regional Health System); Hospital Series
2004 A RB
5.63%, 09/01/13(a) $ 985 $ 985,256
- -----------------------------------------------------------------------
7.00%, 09/01/25(a) 825 893,129
- -----------------------------------------------------------------------
7.13%, 09/01/34(a) 905 981,237
- -----------------------------------------------------------------------
Grand Prairie (City of) Housing Finance Corp.
(Independent Senior Living Center); Series
2003 RB
7.63%, 01/01/20(a) 1,000 1,040,740
- -----------------------------------------------------------------------
Gulf Coast Waste Disposal Authority (Valero
Energy Corp. Project); Series 2001 RB
6.65%, 04/01/32(a)(h) 900 983,259
- -----------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Memorial Hermann Health
Care); Hospital Series 2001 A RB
6.38%, 06/01/29(a) 500 553,635
- -----------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Saint Luke's Episcopal
Hospital); Series 2001 A RB
5.63%, 08/15/11(a)(c)(d) 750 838,815
- -----------------------------------------------------------------------
Harris (County of); Refunding Limited Tax
Series 2002 GO
5.13%, 08/15/12(a)(c)(d) 370 403,548
- -----------------------------------------------------------------------
HFDC of Central Texas, Inc. (Villa de San
Antonio Project); Series 2004 A RB
6.00%, 05/15/25(a) 1,000 1,015,170
- -----------------------------------------------------------------------
Hidalgo (County of) Health Services Corp.
(Mission Hospital, Inc. Project); Hospital
Series 2005 RB
5.00%, 08/15/15(a) 500 510,245
- -----------------------------------------------------------------------
5.00%, 08/15/19(a) 350 355,236
- -----------------------------------------------------------------------
Houston (City of) (Continental Airlines, Inc.
Terminal E Project); Airport System Special
Facilities Series 2001 E RB
6.75%, 07/01/29(a)(h) 500 435,815
- -----------------------------------------------------------------------
Houston (City of) Health Facilities
Development Corp. (Buckingham Senior Living
Community); Retirement Facilities Series
2004 A RB
7.00%, 02/15/23(a) 300 330,906
- -----------------------------------------------------------------------
7.00%, 02/15/26(a) 750 826,208
- -----------------------------------------------------------------------
7.13%, 02/15/34(a) 450 495,131
- -----------------------------------------------------------------------
Meadow Parc Development, Inc. (Meadow Parc
Apartments Project); Multifamily Housing
Series 1998 RB
6.50%, 12/01/30(a) 1,200 1,165,884
- -----------------------------------------------------------------------
Midlothian Development Authority; Tax
Increment Contract Allocation Series 1999
RB
6.70%, 11/15/23(a) 800 825,272
- -----------------------------------------------------------------------
Midlothian Development Authority; Tax
Increment Contract Allocation Series 2001
RB
7.88%, 11/15/26(a) 1,000 1,103,900
- -----------------------------------------------------------------------
Midlothian Development Authority; Tax
Increment Contract Allocation Series 2004
RB
6.20%, 11/15/29(a) 1,000 1,007,200
- -----------------------------------------------------------------------
Sherman (City of) Higher Education Finance
Corp. (Austin College Project); Higher
Education VRD Series 1997 RB (LOC-Bank of
America, N.A.)
2.80%, 01/01/18(f)(g) 612 612,000
- -----------------------------------------------------------------------
</Table>
F-11
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
TEXAS-(CONTINUED)
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 $ 1,037,150
- -----------------------------------------------------------------------
Travis (County of) Health Facilities
Development Corp. (Querencia Barton Creek
Project); Retirement Facilities Series 2005
RB
5.50%, 11/15/25(a) 900 887,013
- -----------------------------------------------------------------------
5.65%, 11/15/35(a) 1,250 1,233,163
- -----------------------------------------------------------------------
Woodhill Public Facility Corp. (Woodhill
Apartments Project); Multifamily Housing
Series 1999 RB
7.50%, 12/01/29(a) 1,000 972,190
=======================================================================
28,623,975
=======================================================================
VERMONT-0.22%
Vermont (State of) Educational & Health
Buildings Financing Agency (Copley Manor
Project); Health Care Facilities Series
2005 RB
6.50%, 04/01/33(a) 760 726,803
=======================================================================
VIRGIN ISLANDS-0.05%
Virgin Islands (Commonwealth of) Public
Finance Authority; Sr. Lien Matching Fund
Loan Notes Series 2004 A RB
5.25%, 10/01/24(a) 150 157,788
=======================================================================
VIRGINIA-3.81%
Chesterfield (County of) Health Center
Commission (Lucy Corr Village); Refunding
Mortgage Series 2005 RB
5.38%, 12/01/28(a) 2,250 2,213,235
- -----------------------------------------------------------------------
Hampton (City of) Redevelopment & Housing
Authority (Olde Hampton Hotel Association);
Refunding First Mortgage Series 1998 A RB
6.50%, 07/01/16(a) 500 482,905
- -----------------------------------------------------------------------
Henrico (County of) Economic Development
Authority (Virginia United Methodist
Homes); Refunding Residential Care Facility
Series 2002 A RB
6.50%, 06/01/22(a) 750 802,980
- -----------------------------------------------------------------------
James City (County of) Economic Development
Authority (Williamsburg Lodging); First
Mortgage Residential Care Facilities Series
2005 A RB
5.50%, 09/01/34(a) 750 755,783
- -----------------------------------------------------------------------
Lynchburg (City of) Industrial Development
Authority (The Summit); Residential Care
Facility Mortgage Series 2002 A IDR
6.25%, 01/01/28(a) 500 512,655
- -----------------------------------------------------------------------
Norfolk Redevelopment & Housing Authority
(Fort Norfolk Retirement Community, Inc.-
Harbor's Edge Project); First Mortgage
Series 2004 A RB
6.00%, 01/01/25(a) 500 516,355
- -----------------------------------------------------------------------
6.13%, 01/01/35(a) 1,100 1,135,431
- -----------------------------------------------------------------------
Peninsula Ports Authority (Virginia Baptist
Homes); Residential Care Facilities Series
2003 A RB
7.38%, 12/01/23(a) 500 559,965
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
VIRGINIA-(CONTINUED)
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2005 RB
5.50%, 06/01/26(a) $ 500 $ 519,315
- -----------------------------------------------------------------------
5.63%, 06/01/37(a) 2,250 2,337,278
- -----------------------------------------------------------------------
Virginia Beach Development Authority
(Westminster-Canterbury); Refunding
Residential Care Facilities Mortgage Series
2005 RB
5.38%, 11/01/32(a) 1,000 1,013,550
- -----------------------------------------------------------------------
Winchester (City of) Industrial Development
Authority (Westminster-Canterbury);
Residential Care Facilities Series 2005 A
IDR
5.20%, 01/01/27(a) 1,000 1,002,830
- -----------------------------------------------------------------------
5.30%, 01/01/35(a) 1,000 1,002,520
=======================================================================
12,854,802
=======================================================================
WASHINGTON-0.28%
Seattle (Port of) Industrial Development
Corp. (Sysco Food Services Project);
Refunding VRD Series 1994 IDR
2.83%, 11/01/25(f) 165 165,000
- -----------------------------------------------------------------------
Skagit (County of) Public Hospital District
No. 1 (Skagit Valley Hospital); Series 2005
RB
5.50%, 12/01/30(a) 750 775,898
=======================================================================
940,898
=======================================================================
WISCONSIN-4.40%
Badger Tobacco Asset Securitization Corp.;
Tobacco Settlement Asset-Backed Series 2002
RB
6.13%, 06/01/27(a) 2,245 2,399,411
- -----------------------------------------------------------------------
Milwaukee (City of) Redevelopment Authority
(Milwaukee Science Education Consortium,
Inc. Project); Series 2005 A RB
5.63%, 08/01/25(a) 2,000 1,962,360
- -----------------------------------------------------------------------
5.75%, 08/01/35(a) 1,815 1,758,281
- -----------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Beaver Dam Community
Hospitals, Inc. Project); Series 2004 A RB
6.50%, 08/15/26(a) 250 264,295
- -----------------------------------------------------------------------
6.75%, 08/15/34(a) 950 1,011,161
- -----------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Community Memorial
Hospital, Inc. Project); Series 2003 RB
7.13%, 01/15/22(a) 1,155 1,230,537
- -----------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Community
Rehabilitation Providers Facilities
Acquisition Program); Series 1998 RB
6.88%, 12/01/23(a) 200 212,014
- -----------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Eastcastle Place,
Inc. Project); Series 2004 RB
6.00%, 12/01/24(a) 500 512,100
- -----------------------------------------------------------------------
6.13%, 12/01/34(a) 500 506,215
- -----------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (FH Healthcare
Development Inc. Project); Series 1999 RB
6.25%, 11/15/09(a)(c)(d) 1,250 1,385,638
- -----------------------------------------------------------------------
</Table>
F-12
<Table>
<Caption>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
WISCONSIN-(CONTINUED)
Wisconsin (State of) Health & Educational
Facilities Authority (New Castle Place
Project); Series 2001 A RB
7.00%, 12/01/31(a) $ 250 $ 259,068
- -----------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Oakwood Village
Project); Series 2000 A RB
7.63%, 08/15/30(a) 1,000 1,049,690
- -----------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Tomah Memorial
Hospital, Inc. Project); Series 2003 RB
6.00%, 07/01/15(a) 100 104,264
- -----------------------------------------------------------------------
6.13%, 07/01/16(a) 150 156,780
- -----------------------------------------------------------------------
6.63%, 07/01/28(a) 750 786,443
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT MARKET
(000) VALUE
- -----------------------------------------------------------------------
<Caption>
WISCONSIN-(CONTINUED)
Wisconsin (State of) Health & Educational
Facilities Authority (Vernon Memorial
Healthcare Inc. Project) Series 2005 RB
5.25%, 03/01/35(a) $1,250 $ 1,250,850
=======================================================================
14,849,107
=======================================================================
WYOMING-0.16%
Teton (County of) Hospital District (Saint
John's Medical Center); Hospital Series
2002 RB
6.75%, 12/01/22(a) 500 524,290
=======================================================================
TOTAL INVESTMENTS-98.60% (Cost $322,282,086) 332,417,363
=======================================================================
OTHER ASSETS LESS LIABILITIES-1.40% 4,719,985
=======================================================================
NET ASSETS-100.00% $337,137,348
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
COP - Certification of Participation
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
INS - Insurance
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 September
30, 2005 was $327,472,363, which represented 97.13% of the Fund's Net
Assets. See Note 1A.
(b) Principal and/or interest payments are secured by the bond insurance company
listed.
(c) Advance refunded; secured by an escrow fund of U.S. Treasury obligations or
other highly rated collateral.
(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 September 30, 2005 represented 0.17% of
the Fund's Net Assets. Unless otherwise indicated, this security is not
considered to be illiquid.
(f) 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 September 30, 2005.
(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) Security subject to the alternative minimum tax.
(i) Defaulted security. Currently, the issuer is in default with respect to
interest payments. The aggregate market value of these securities at
September 30, 2005 was $789,111, which represented 0.23% of the Fund's Net
Assets.
(j) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The aggregate
market value of these securities considered illiquid at September 30, 2005
was $789,111, which represented 0.23% of the Fund's Net Assets.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-13
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$322,282,086) $332,417,363
- -----------------------------------------------------------
Receivables for:
Investments sold 1,100,049
- -----------------------------------------------------------
Fund shares sold 789,292
- -----------------------------------------------------------
Interest 5,340,159
- -----------------------------------------------------------
Fund expenses absorbed 23,717
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 33,151
- -----------------------------------------------------------
Other assets 44,726
===========================================================
Total assets 339,748,457
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,489,850
- -----------------------------------------------------------
Fund shares reacquired 221,828
- -----------------------------------------------------------
Dividends 652,093
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 40,439
- -----------------------------------------------------------
Accrued distribution fees 133,646
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,306
- -----------------------------------------------------------
Accrued transfer agent fees 14,319
- -----------------------------------------------------------
Accrued operating expenses 54,628
===========================================================
Total liabilities 2,611,109
===========================================================
Net assets applicable to shares outstanding $337,137,348
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $340,465,833
- -----------------------------------------------------------
Undistributed net investment income (620,072)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (12,843,690)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 10,135,277
===========================================================
$337,137,348
___________________________________________________________
===========================================================
NET ASSETS:
Class A $231,030,162
___________________________________________________________
===========================================================
Class B $ 49,281,670
___________________________________________________________
===========================================================
Class C $ 56,825,516
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 25,845,265
___________________________________________________________
===========================================================
Class B 5,507,808
___________________________________________________________
===========================================================
Class C 6,355,303
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 8.94
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $8.94 divided
by 95.25%) $ 9.39
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 8.95
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 8.94
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-14
STATEMENT OF OPERATIONS
For the six months ended September 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 8,069,666
=========================================================================
EXPENSES:
Advisory fees 867,668
- -------------------------------------------------------------------------
Administrative services fees 43,288
- -------------------------------------------------------------------------
Custodian fees 6,869
- -------------------------------------------------------------------------
Distribution fees:
Class A 240,732
- -------------------------------------------------------------------------
Class B 245,005
- -------------------------------------------------------------------------
Class C 238,180
- -------------------------------------------------------------------------
Transfer agent fees 68,658
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 11,568
- -------------------------------------------------------------------------
Other 149,570
=========================================================================
Total expenses 1,871,538
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (711,737)
=========================================================================
Net expenses 1,159,801
=========================================================================
Net investment income 6,909,865
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (222,085)
=========================================================================
Change in net unrealized appreciation of investment
securities 5,540,539
=========================================================================
Net gain from investment securities 5,318,454
=========================================================================
Net increase in net assets resulting from operations $12,228,319
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-15
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended September 30, 2005 and the year ended March 31, 2005
(Unaudited)
<Table>
<Caption>
SEPTEMBER 30, MARCH 31,
2005 2005
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 6,909,865 $ 9,483,945
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (222,085) (2,738,157)
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 5,540,539 3,618,908
===========================================================================================
Net increase in net assets resulting from operations 12,228,319 10,364,696
===========================================================================================
Distributions to shareholders from net investment income:
Class A (5,223,835) (6,195,517)
- -------------------------------------------------------------------------------------------
Class B (1,171,834) (2,361,558)
- -------------------------------------------------------------------------------------------
Class C (1,121,853) (1,151,589)
===========================================================================================
Decrease in net assets resulting from distributions (7,517,522) (9,708,664)
===========================================================================================
Share transactions-net:
Class A 95,026,480 37,926,121
- -------------------------------------------------------------------------------------------
Class B 1,907,075 1,224,371
- -------------------------------------------------------------------------------------------
Class C 22,953,787 14,710,348
===========================================================================================
Net increase in net assets resulting from share
transactions 119,887,342 53,860,840
===========================================================================================
Net increase in net assets 124,598,139 54,516,872
===========================================================================================
NET ASSETS:
Beginning of period 212,539,209 158,022,337
- -------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income (loss) of $(620,072) and $(12,415), respectively) $337,137,348 $212,539,209
___________________________________________________________________________________________
===========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-16
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
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 consists of 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.
Effective August 5, 2005, the Fund is offered on a limited basis to certain
investors.
The Fund's investment objective is to achieve a high level of current income
that is exempt from federal income taxes.
Under the Trust's organizational documents, 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 including estimates
and assumptions related to taxation. 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 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 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
F-17
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gain, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
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 "exempt interest dividends", as defined in the
Internal Revenue Code.
F. 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.
G. LOWER-RATED SECURITIES -- The Fund may invest 100% of its net 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 based on the annual rate of the Fund's
average daily net assets as follows:
<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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (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 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 six months ended September 30, 2005, AIM waived fees of $706,851.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. These expenses along with the related expense
reimbursement, are included in the Statement of Operations. For the six months
ended September 30, 2005, AMVESCAP reimbursed expenses of the Fund in the amount
of $373.
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 six months
ended September 30, 2005, AIM was paid $43,288.
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 six months ended September 30,
2005, the Fund paid AISI $68,658.
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 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 National Association of Securities Dealers ("NASD")
Rules impose a cap on the total sales charges, including asset-based sales
charges, that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the six months ended September 30, 2005, the Class A, Class B and
Class C shares paid $240,732, $245,005 and $238,180, respectively.
F-18
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 six
months ended September 30, 2005, ADI advised the Fund that it retained $138,456
in front-end sales commissions from the sale of Class A shares and $329, $17,482
and $21,275 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.
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 six months ended September 30,
2005, the Fund received credits from these arrangement which resulted in the
reduction of the Fund's total expenses of $4,513.
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
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 who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the six months ended September 30, 2005, the Fund paid legal fees of
$1,742 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 six months ended September 30, 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 as a compensating balance in the account so the custodian
can be compensated by earning the additional interest; or (ii) compensate by
paying the custodian bank at a rate agreed upon by the custodian bank and AIM,
not to exceed the rate contractually agreed upon.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
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.
F-19
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 six months
ended September 30, 2005 was $125,644,416 and $10,190,324, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $12,750,420
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,619,619)
===============================================================================
Net unrealized appreciation of investment securities $10,130,801
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $322,286,562.
</Table>
NOTE 8--SHARE INFORMATION
The Fund currently consists of 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
- ---------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2005(a) MARCH 31, 2005
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Class A 12,120,892 $108,005,218 7,312,242 $63,728,286
- ---------------------------------------------------------------------------------------------------------------------
Class B 847,543 7,558,187 979,400 8,502,043
- ---------------------------------------------------------------------------------------------------------------------
Class C 3,037,558 27,059,524 2,141,353 18,712,926
=====================================================================================================================
Issued as reinvestment of dividends:
Class A 321,787 2,878,217 349,115 3,033,614
- ---------------------------------------------------------------------------------------------------------------------
Class B 51,152 457,727 109,354 949,368
- ---------------------------------------------------------------------------------------------------------------------
Class C 73,440 657,130 80,868 702,804
=====================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 78,271 697,838 147,549 1,283,329
- ---------------------------------------------------------------------------------------------------------------------
Class B (78,184) (697,838) (147,389) (1,283,329)
=====================================================================================================================
Reacquired:
Class A (1,854,382) (16,554,793) (3,473,425) (30,119,108)
- ---------------------------------------------------------------------------------------------------------------------
Class B (606,073) (5,411,001) (800,836) (6,943,711)
- ---------------------------------------------------------------------------------------------------------------------
Class C (533,256) (4,762,867) (544,009) (4,705,382)
=====================================================================================================================
13,458,748 $119,887,342 6,154,222 $53,860,840
_____________________________________________________________________________________________________________________
=====================================================================================================================
</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 18% of the
outstanding shares of the Fund. ADI 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. 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-20
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, ----------------------------------------------------------
2005 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.76 $ 8.73 $ 8.64 $ 8.59 $ 8.59 $ 8.72
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.23(a) 0.51 0.51 0.54 0.55(b) 0.54
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.20 0.04 0.10 0.03 (0.01) (0.11)
=================================================================================================================================
Total from investment operations 0.43 0.55 0.61 0.57 0.54 0.43
=================================================================================================================================
Less dividends from net investment income (0.25) (0.52) (0.52) (0.52) (0.54) (0.56)
=================================================================================================================================
Net asset value, end of period $ 8.94 $ 8.76 $ 8.73 $ 8.64 $ 8.59 $ 8.59
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 4.91% 6.51% 7.30% 6.81% 6.41% 5.12%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $231,030 $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%(d) 0.55% 0.55% 0.55% 0.55% 0.55%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.04%(d) 1.08% 1.07% 1.05% 1.07% 1.17%
=================================================================================================================================
Ratio of net investment income to average net
assets 5.03%(d) 5.83% 5.91% 6.22% 6.26%(b) 6.23%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 4% 12% 12% 14% 30% 15%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) 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.
(c) 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 and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$192,059,500.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, ---------------------------------------------------------
2005 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.77 $ 8.74 $ 8.65 $ 8.60 $ 8.61 $ 8.72
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.44 0.45 0.47 0.48(b) 0.47
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.20 0.05 0.10 0.04 (0.02) (0.10)
=================================================================================================================================
Total from investment operations 0.39 0.49 0.55 0.51 0.46 0.37
=================================================================================================================================
Less dividends from net investment income (0.21) (0.46) (0.46) (0.46) (0.47) (0.48)
=================================================================================================================================
Net asset value, end of period $ 8.95 $ 8.77 $ 8.74 $ 8.65 $ 8.60 $ 8.61
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 4.52% 5.73% 6.51% 6.02% 5.47% 4.44%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $49,282 $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%(d) 1.30% 1.30% 1.30% 1.31% 1.30%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.79%(d) 1.83% 1.82% 1.80% 1.83% 1.92%
=================================================================================================================================
Ratio of net investment income to average net
assets 4.28%(d) 5.08% 5.16% 5.47% 5.50%(b) 5.48%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 4% 12% 12% 14% 30% 15%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) 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.
(c) 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 and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$48,867,090.
(e) Not annualized for periods less than one year.
F-21
NOTE 9--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, --------------------------------------------------------
2005 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.77 $ 8.74 $ 8.65 $ 8.60 $ 8.61 $ 8.72
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.44 0.45 0.47 0.48(b) 0.47
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.19 0.05 0.10 0.04 (0.02) (0.10)
=================================================================================================================================
Total from investment operations 0.38 0.49 0.55 0.51 0.46 0.37
=================================================================================================================================
Less dividends from net investment income (0.21) (0.46) (0.46) (0.46) (0.47) (0.48)
=================================================================================================================================
Net asset value, end of period $ 8.94 $ 8.77 $ 8.74 $ 8.65 $ 8.60 $ 8.61
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 4.41% 5.73% 6.51% 6.02% 5.47% 4.43%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $56,826 $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%(d) 1.30% 1.30% 1.30% 1.31% 1.30%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.79%(d) 1.83% 1.82% 1.80% 1.83% 1.92%
=================================================================================================================================
Ratio of net investment income to average net
assets 4.28%(d) 5.08% 5.16% 5.47% 5.50%(b) 5.48%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 4% 12% 12% 14% 30% 15%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) 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.
(c) 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 and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$47,505,861.
(e) Not annualized for periods less than one year.
F-22
NOTE 10--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On March 23, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") 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. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior reporting period, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained 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 E&Y to make reference to that matter in connection with such reports.
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), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
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 that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. As the methodology is unknown at the present time, management
of AIM and the Fund are unable to estimate the impact, if any, that the
distribution of these two fair funds may have on the Fund or whether such
distribution will have an impact on the Fund's financial statements in the
future.
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
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators 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. IFG,
AIM and ADI are providing full cooperation with respect to these inquiries. As
described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities
and individuals are defendants in numerous civil lawsuits related to one or more
of these issues. Regulatory actions and/or additional civil lawsuits related to
these or other issues may be filed against the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed a civil lawsuit 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 this lawsuit. 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, among other things, injunctive relief, civil monetary penalties and a
writ of quo warranto against the defendants. If AIM is unsuccessful in its
defense of the WVAG lawsuit, it could be barred from serving as an investment
advisor 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 the Fund. The 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 the Fund's investment advisor. There is no assurance
that such exemptive relief will be granted.
On June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. On July 7, 2005, the Supreme
Court of West Virginia ruled in the context of a separate lawsuit that the WVAG
does not have authority pursuant to W.Va. Code Section 46A-6-104 of the West
Virginia Consumer Credit and Protection Act to bring an action based upon
conduct that is ancillary to the purchase or sale of securities. AIM intends to
seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this
ruling.
F-23
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI. The WVASC makes findings
of fact that essentially mirror the WVAG's allegations mentioned above and
conclusions of law to the effect that AIM and ADI violated the West Virginia
securities laws. The WVASC orders AIM and ADI to cease any further violations
and seeks to impose monetary sanctions to be determined by the Commissioner. AIM
and ADI have the right to contest the WVASC's findings and conclusions, which
they intend to do.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- 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 and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while AIM Funds and/or specific share classes were closed generally to
new investors and/or while other share classes of the same AIM Fund were not
charged the same distribution fees;
- 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; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which they
were eligible to participate (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the Court issued rulings on the common
issues of law presented in defendants' motions to dismiss the shareholder class
and derivative complaints. These rulings were issued in the context of the Janus
lawsuits, but the Court's legal determinations apply at the omnibus level to all
cases within his track, including the AIM and IFG cases. The Court dismissed for
failure to make pre-suit demand on the fund board all derivative causes of
action but one: the excessive fee claim under Section 36(b) of the Investment
Company Act of 1940 (the "1940 Act"), as to which the demand requirement does
not apply. The Court dismissed all claims asserted in the class complaint but
two: (i) the securities fraud claims under Section 10(b) of the Securities
Exchange Act of 1934, and (ii) the excessive fee claim under Section 36(b) of
the 1940 Act. In addition, the Court limited plaintiffs' potential recovery on
the 36(b) claim to fees attributable to timing assets, as opposed to all fees on
funds in which any timing occurred. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date. The Court will subsequently issue an
order applying his legal rulings to the allegations in the AIM and IFG
complaints.
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 above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-24
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Edward K. Dunn Jr. 11 Greenway Plaza
Jack M. Fields Lisa O. Brinkley Suite 100
Carl Frischling Senior Vice President and Chief Compliance Houston, TX 77046-1173
Robert H. Graham Officer
Vice Chair TRANSFER AGENT
Gerald J. Lewis Russell C. Burk AIM Investment Services, Inc.
Prema Mathai-Davis Senior Vice President and Senior Officer P.O. Box 4739
Lewis F. Pennock Houston, TX 77210-4739
Ruth H. Quigley Kevin M. Carome
Larry Soll Senior Vice President, Secretary and Chief CUSTODIAN
Raymond Stickel, Jr. Legal Officer The Bank of New York
Mark H. Williamson 2 Hanson Place
Sidney M. Dilgren Brooklyn, NY 11217-1431
Vice President, Treasurer
and Principal Financial Officer COUNSEL TO THE FUND
Ballard Spahr
Robert G. Alley Andrews & Ingersoll, LLP
Vice President 1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
J. Philip Ferguson
Vice President COUNSEL TO THE INDEPENDENT TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
Karen Dunn Kelley 1177 Avenue of the Americas
Vice President New York, NY 10036-2714
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(1) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Core Equity Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(1) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S. Government Money Portfolio
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund SECTOR EQUITY TAX-FREE
AIM Opportunities I Fund
AIM Opportunities II Fund AIM Advantage Health Sciences Fund AIM High Income Municipal Fund(1)
AIM Opportunities III Fund AIM Energy Fund AIM Municipal Bond Fund
AIM Premier Equity Fund AIM Financial Services Fund AIM Tax-Exempt Cash Fund
AIM S&P 500 Index Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Select Equity Fund AIM Global Real Estate Fund Premier Tax-Exempt Portfolio
AIM Small Cap Equity Fund AIM Gold & Precious Metals Fund
AIM Small Cap Growth Fund(1) AIM Leisure Fund AIM ALLOCATION SOLUTIONS
AIM Small Company Growth Fund AIM Multi-Sector Fund
AIM Trimark Endeavor Fund AIM Real Estate Fund(1) AIM Conservative Allocation Fund
AIM Trimark Small Companies Fund AIM Technology Fund AIM Growth Allocation Fund(2)
AIM Weingarten Fund AIM Utilities Fund AIM Moderate Allocation Fund
AIM Moderate Growth Allocation Fund
*Domestic equity and income fund AIM Moderately Conservative Allocation
Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International Allocation Fund
</Table>
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after December 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 $129 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $381 billion in assets under management. Data as of September 30,
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-SAR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ------------------------------------------------------------------------
</Table>
AIM TAX-EXEMPT CASH FUND
Semiannual Report to Shareholders o September 30, 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 September 30, 2005, and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES =================================== The Fund files its complete
schedule of portfolio holdings with
o Investor Class shares are closed TAXABLE the Securities and Exchange
to most investors. For more 7-DAY EQUIVALENT Commission (SEC) for the first and
information on who may continue to YIELD 7-DAY third quarters of each fiscal year
invest in the Investor Class YIELD* on Form N-Q. The Fund's Form N-Q
shares, please see the prospectus. filings are available on the SEC's
Class A Shares 1.84% 2.83% Web site, sec.gov. Copies of the
PRINCIPAL RISKS OF INVESTING IN THE Fund's Forms N-Q may be reviewed
FUND Investor Class and copied at the SEC's Public
Shares 1.94% 2.98% Reference Room at 450 Fifth Street,
o The Fund may invest in securities N.W., Washington, D.C. 20549-0102.
that carry foreign credit exposure. WEIGHTED AVERAGE MATURITY AT END OF You can obtain information on the
The risks of investing in PERIOD operation of the Public Reference
securities that carry foreign 30 Days Room, including information about
credit exposure include decreased duplicating fee charges, by calling
publicly available information NET ASSETS AT END OF PERIOD 202-942-8090 or 800-732-0330, or by
about issuers, inconsistent $57.9 million electronic request at the following
accounting, auditing and financial E-mail address: publicinfo@sec.gov.
reporting requirements and * Based on the highest personal The SEC file numbers for the Fund
standards of practice comparable to income tax rate in effect on are 811-07890 and 33-66242. The
those applicable to domestic September 30, 2005 (35%). Yields Fund's most recent portfolio
issuers, expropriation, will fluctuate. Had the advisor holdings, as filed on Form N-Q, are
nationalization or other adverse and distributor not waived fees also available at
political or economic developments and/or reimbursed expenses, AIMinvestments.com. From the right
and the difficulty of enforcing yields would have been lower. side of our home page, under the
obligations in other countries. heading "Products," click Mutual
=================================== Funds, then Fund Directory. From
the Fund Directory, click the name
=================================== of the Fund, then Quarterly
=================================== Holdings Archive. Then scroll down
FUND NASDAQ SYMBOLS to the Fund again and select the
PORTFOLIO COMPOSITION BY MATURITY quarter-end you wish to view.
Class A Shares ACSXX
In days, as of 9/30/05 A description of the policies and
Investor Class Shares TEIXX procedures that the Fund uses to
1-7 85.8% determine how to vote proxies
=================================== relating to portfolio securities is
8-14 0.0 available without charge, upon
request, from our Client Services
15-60 1.0 department at 800-659-1005 or on
the AIM Web site,
61-120 5.5 AIMinvestments.com. On the home
page, scroll down and click on AIM
121-180 0.0 Funds Proxy Policy. The information
is also available on the Securities
181-240 2.9 and Exchange Commission's Web site,
sec.gov.
241+ 4.8
Information regarding how the Fund
The number of days to maturity of voted proxies related to its
each holding is determined in portfolio securities during the 12
accordance with the provisions of months ended June 30, 2005, is
Rule 2a-7 under the Investment available at our Web site. Go to
Company Act of 1940, as amended. 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. This
information is also available on
the Securities and Exchange
Commission's 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
AND IS NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, A DEPOSITORY INSTITUTION. 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. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
====================================================================================================================================
</Table>
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
AIM TAX-EXEMPT CASH FUND
DEAR SHAREHOLDER:
[PHOTO OF This is the semiannual report on the performance of AIM
ROBERT H Tax-Exempt Cash Fund for the six-month reporting period
GRAHAM] ended September 30, 2005. The Fund continued to invest
primarily in securities that pay interest that is excluded
ROBERT H. GRAHAM from gross income for federal income tax purposes. Money
market funds strive to preserve the value of an investment
by maintaining a net asset value of $1.00 per share.
However, Fund shares are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other
[PHOTO OF government agency. The table on the inside front cover shows
MARK H. the seven-day yield for the Fund's two share classes as of
WILLIAMSON] September 30, 2005.
MARK H. WILLIAMSON HOW WE INVEST
We seek to provide as high a level of tax-exempt income as
is consistent with preservation of capital and maintenance
of liquidity. We invest in high quality, short-term
municipal obligations, focusing on three key elements:
o safety, or preservation of capital, through our rigorous
credit approval process
o liquidity, through a combination of short-term cash
management vehicles and selective use of longer maturities
o yield that is exempt from federal income tax
The portfolio's structure is driven to some extent by the
supply and availability of municipal securities. Liquidity
is managed with daily and weekly variable-rate demand notes.
We may also sell securities when there has been a negative
change in the credit quality of the company or geographic
region or to enhance yield.
MARKET CONDITIONS AFFECTING MONEY MARKET FUNDS
Despite some fluctuations, the economy continued to grow
over the period. Gross domestic product (GDP) grew at an
annualized rate of 3.3% in the second quarter of 2005 and an
estimated 3.8% in the third quarter.
Expansion was driven largely by consumer spending, while
increasing short-term interest rates and rising energy
prices were the most significant headwinds. Crude oil prices
broke records, and hurricanes Katrina and Rita rattled
consumer confidence late in the period. A sharp drop in
consumer confidence in September followed a decline in
retail sales for August, but the rest of the period (except
May) had positive growth in retail sales.
In response to evidence of economic growth, short-term
interest rates continued to rise throughout the period. When
the period began, the federal funds target rate was 2.75%.
During the period, the Federal Reserve (the Fed) raised the
target rate four times--each time by 25 basis points
(0.25%)--bringing the rate to 3.75% on September 30, 2005.
As a result of the Fed's actions, the yields on two-year
Treasury notes and other short-term instruments rose
gradually over the period, and the Fund's yield also rose.
Because of the Fed's statements that accompany each rate
increase, many market observers anticipated additional rate
hikes might occur before the end of 2005.
IN CONCLUSION
We are pleased to send you this report on your investment.
AIM is committed to the primary goals of safety, liquidity
and yield in money market fund management. We are also
dedicated to customer service. Should you have questions
about this report, please contact one of our Client Services
representatives at 800-959-4246.
<Table>
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, AIM Funds President, A I M Advisors, Inc.
November 14, 2005
</Table>
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.
1
AIM TAX-EXEMPT CASH FUND
DEAR AIM FUNDS SHAREHOLDERS:
[PHOTO OF As independent Chair of the Board of Trustees of the AIM
BRUCE L. Funds, I'm writing to report on the work being done by your
CROCKETT] Board.
BRUCE L. CROCKETT At our most recent meeting in June 2005, your Board
approved voluntary fee reductions from A I M Advisors, Inc.
(AIM) that save shareholders approximately $20.8 million
annually, based on asset levels as of March 31, 2005. The
majority of these expense reductions, which took effect July
1, 2005, will be achieved by a permanent reduction to 0.25%
of the Rule 12b-1 fees on Class A and Class A3 shares of
those AIM Funds that previously charged these fees at a
higher rate.
Our June meeting, which was the culmination of more than
two and one-half months of review and discussions, took
place over a three-day period. The meeting included your
Board's annual comprehensive evaluation of each fund's
advisory agreement with AIM. After this evaluation, in which
questions about fees, performance and operations were
addressed by AIM, your Board approved all advisory
agreements for the year beginning July 1, 2005. You can find
information on the factors considered and conclusions
reached by your Board in its evaluation of each fund's
advisory agreement at AIMinvestments.com. (Go to "Products &
Performance" and click on "Investment Advisory Agreement
Renewals.") The advisory agreement information about your
Fund is also included in this semiannual report on Pages 4
and 5. I encourage you to review it.
Together with monitoring fund expenses, fund performance
is your Board's priority. Our initial goal is to work with
AIM to bring about improvement in every AIM Fund that has
been underperforming its category.
Your Board has a well-defined process and structure for
monitoring all funds and identifying and assisting AIM in
improving underperforming funds. Our Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 13 independent
Board members. Further, our Investments Committee is divided
into three underlying subcommittees, each responsible for,
among other things, reviewing the performance, fees and
expenses of the funds that have been assigned to it.
At subcommittee meetings, held throughout the year, the
performance of every AIM Fund is evaluated. If a fund has
underperformed its peer group for a meaningful period, we
work closely with AIM to discover the causes and help
develop the right responses. In some cases, AIM may
determine that a change in portfolio management strategy or
portfolio managers is required. In other cases, where a fund
no longer seems viable, it may be merged with a similar
fund, being careful to consider the needs of all
shareholders affected by the decision. Following AIM's
recommendation and your Board's approval, eight funds were
recently merged.
Be assured that your Board is working closely with the
management of AIM to help you reach your investment goals.
Should you or your advisor have questions or comments about
the governance of AIM Funds, I invite you to write to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston, TX 77046. Your Board looks forward to
keeping you informed about the governance of your funds.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
November 14, 2005
2
AIM TAX-EXEMPT CASH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE with the amount you invested, to The hypothetical account values
estimate the expenses that you paid and expenses may not be used to
As a shareholder of the Fund, you over the period. Simply divide your estimate the actual ending account
incur ongoing costs, including account value by $1,000 (for balance or expenses you paid for
management fees; distribution example, an $8,600 account value the period. You may use this
and/or service fees (12b-1); and divided by $1,000 = 8.6), then information to compare the ongoing
other Fund expenses. This example multiply the result by the number costs of investing in the Fund and
is intended to help you understand in the table under the heading other funds. To do so, compare this
your ongoing costs (in dollars) of entitled "Actual Expenses Paid 5% hypothetical example with the 5%
investing in the Fund and to During Period" to estimate the hypothetical examples that appear
compare these costs with ongoing expenses you paid on your account in the shareholder reports of the
costs of investing in other mutual during this period. other funds.
funds. The example is based on an
investment of $1,000 invested at HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses
the beginning of the period and PURPOSES shown in the table are meant to
held for the entire period April 1, highlight your ongoing costs only.
2005, through September 30, 2005. The table below also provides Therefore, the hypothetical
information about hypothetical information is useful in comparing
ACTUAL EXPENSES account values and hypothetical ongoing costs only, and will not
expenses based on the Fund's actual help you determine the relative
The table below provides expense ratio and an assumed rate total costs of owning different
information about actual account of return of 5% per year before funds.
values and actual expenses. You may expenses, which is not the Fund's
use the information in this table, actual return.
together
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (4/01/05) (9/30/05)(1) PERIOD(2) (9/30/05) PERIOD(2) RATIO
A $1,000.00 $1,008.30 $4.58 $1,020.51 $4.61 0.91%
Investor 1,000.00 1,008.80 4.08 1,021.01 4.10 0.81
(1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2005, through September
30, 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 as indicated above multiplied by the average account value over the
period, multiplied by 183/365 to reflect the one-half year period.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
3
AIM TAX-EXEMPT CASH FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
<Table>
The Board of Trustees of AIM o The quality of services to be o Meeting with the Fund's portfolio
Tax-Exempt Funds (the "Board") provided by AIM. The Board reviewed managers and investment personnel.
oversees the management of AIM the credentials and experience of With respect to the Fund, the Board
Tax-Exempt Cash Fund (the "Fund") the officers and employees of AIM is meeting periodically with such
and, as required by law, determines who will provide investment Fund's portfolio managers and/or
annually whether to approve the advisory services to the Fund. In other investment personnel and
continuance of the Fund's advisory reviewing the qualifications of AIM believes that such individuals are
agreement with A I M Advisors, Inc. to provide investment advisory competent and able to continue to
("AIM"). Based upon the services, the Board reviewed the carry out their responsibilities
recommendation of the Investments qualifications of AIM's investment under the Advisory Agreement.
Committee of the Board, which is personnel and considered such
comprised solely of independent issues as AIM's portfolio and o Overall performance of AIM. The
trustees, at a meeting held on June product review process, AIM's legal Board considered the overall
30, 2005, the Board, including all and compliance function, AIM's use performance of AIM in providing
of the independent trustees, of technology, AIM's portfolio investment advisory and portfolio
approved the continuance of the administration function and the administrative services to the Fund
advisory agreement (the "Advisory quality of AIM's investment and concluded that such performance
Agreement") between the Fund and research. Based on the review of was satisfactory.
AIM for another year, effective these and other factors, the Board
July 1, 2005. concluded that the quality of o Fees relative to those of clients
services to be provided by AIM was of AIM with comparable investment
The Board considered the factors appropriate and that AIM currently strategies. The Board reviewed the
discussed below in evaluating the is providing satisfactory services advisory fee rate for the Fund
fairness and reasonableness of the in accordance with the terms of the under the Advisory Agreement. The
Advisory Agreement at the meeting Advisory Agreement. Board noted that this rate was
on June 30, 2005 and as part of the higher than the advisory fee rate
Board's ongoing oversight of the o The performance of the Fund for an institutional money market
Fund. In their deliberations, the relative to comparable funds. The fund advised by AIM with investment
Board and the independent trustees Board reviewed the performance of strategies comparable to those of
did not identify any particular the Fund during the past one, three the Fund. The Board also noted the
factor that was controlling, and and five calendar years against the "all-in" nature of the advisory fee
each trustee attributed different performance of funds advised by for such institutional money market
weights to the various factors. other advisors with investment fund, whereby AIM pays all of such
strategies comparable to those of fund's ordinary operating expenses.
One of the responsibilities of the Fund. The Board noted that the The Board also noted that Based on
the Senior Officer of the Fund, who Fund's performance in such periods this review, the Board concluded
is independent of AIM and AIM's was below the median performance of that the advisory fee rate for the
affiliates, is to manage the such comparable funds. Based on Fund under the Advisory Agreement
process by which the Fund's this review and after taking was fair and reasonable.
proposed management fees are account of all of the other factors
negotiated to ensure that they are that the Board considered in o Fees relative to those of
negotiated in a manner which is at determining whether to continue the comparable funds with other
arm's length and reasonable. To Advisory Agreement for the Fund, advisors. The Board reviewed the
that end, the Senior Officer must the Board concluded that no changes advisory fee rate for the Fund
either supervise a competitive should be made to the Fund and that under the Advisory Agreement. The
bidding process or prepare an it was not necessary to change the Board compared effective
independent written evaluation. The Fund's portfolio management team at contractual advisory fee rates at a
Senior Officer has recommended an this time. However, due to the common asset level and noted that
independent written evaluation in Fund's under-performance, the Board the Fund's rate was below the
lieu of a competitive bidding also concluded that it would be median rate of the funds advised by
process and, upon the direction of appropriate for management and the other advisors with investment
the Board, has prepared such an Board to continue to closely strategies comparable to those of
independent written evaluation. monitor the performance of the the Fund that the Board reviewed.
Such written evaluation also Fund. Based on this review, the Board
considered certain of the factors concluded that the advisory fee
discussed below. In addition, as o The performance of the Fund rate for the Fund under the
discussed below, the Senior Officer relative to indices. The Board Advisory Agreement was fair and
made certain recommendations to the reviewed the performance of the reasonable.
Board in connection with such Fund during the past one, three and
written evaluation. five calendar years against the o Expense limitations and fee
performance of the Lipper Tax waivers. The Board noted that there
The discussion below serves as a Exempt Money Market Index.* The were no fee waivers or expense
summary of the Senior Officer's Board noted that the Fund's limitations currently in effect for
independent written evaluation and performance for the one and three the Fund. The Board concluded that
recommendations to the Board in year periods was below the no such waivers or limitations were
connection therewith, as well as a performance of such Index and necessary at this time because the
discussion of the material factors comparable to such Index for the Fund's overall expense ratio was
and the conclusions with respect five year period. Based on this comparable to the median expense
thereto that formed the basis for review and after taking account of ratio of the funds advised by other
the Board's approval of the all of the other factors that the advisors with investment strategies
Advisory Agreement. After Board considered in determining comparable to those of the Fund
consideration of all of the factors whether to continue the Advisory that the Board reviewed.
below and based on its informed Agreement for the Fund, the Board
business judgment, the Board concluded that no changes should be o Breakpoints and economies of
determined that the Advisory made to the Fund and that it was scale. The Board reviewed the
Agreement is in the best interests not necessary to change the Fund's structure of the Fund's advisory
of the Fund and its shareholders portfolio management team at this fee under the Advisory Agreement,
and that the compensation to AIM time. However, due to the Fund's noting that it does not include any
under the Advisory Agreement is under-performance, the Board also breakpoints. The Board considered
fair and reasonable and would have concluded that it would be whether it would be appropriate to
been obtained through arm's length appropriate for management and the add advisory fee breakpoints for
negotiations. Board to continue to closely the Fund or whether, due to the
monitor the performance of the nature of the Fund and the advisory
o The nature and extent of the Fund. fee structures of comparable funds,
advisory services to be provided by it was reasonable to structure the
AIM. The Board reviewed the advisory fee without breakpoints.
services to be provided by AIM Based on this review, the Board
under the Advisory Agreement. Based concluded that it was not necessary
on such review, the Board concluded to add advisory fee breakpoints to
that the range of services to be the Fund's advisory fee schedule.
provided by AIM under the Advisory The Board reviewed the level of the
Agreement was appropriate and that Fund's advisory fees, and noted
AIM currently is providing services that such fees, as a
in accordance with the terms of the
Advisory Agreement.
* The unmanaged Lipper Tax Exempt Money Market Index represents an average of
the 30 largest tax-exempt money market funds tracked by Lipper, Inc., an
independent mutual fund performance monitor.
(continued)
</Table>
4
AIM TAX-EXEMPT CASH FUND
<Table>
percentage of the Fund's net o Profitability of AIM and its o Other factors and current trends.
assets, would remain constant under affiliates. The Board reviewed In determining whether to continue
the Advisory Agreement because the information concerning the the Advisory Agreement for the
Advisory Agreement does not include profitability of AIM's (and its Fund, the Board considered the fact
any breakpoints. The Board affiliates') investment advisory that AIM, along with others in the
concluded that the Fund's fee and other activities and its mutual fund industry, is subject to
levels under the Advisory Agreement financial condition. The Board regulatory inquiries and litigation
therefore would not reflect considered the overall related to a wide range of issues.
economies of scale. profitability of AIM, as well as The Board also considered the
the profitability of AIM in governance and compliance reforms
o Investments in affiliated money connection with managing the Fund. being undertaken by AIM and its
market funds. The Board also took The Board noted that AIM's affiliates, including maintaining
into account the fact that operations remain profitable, an internal controls committee and
uninvested cash and cash collateral although increased expenses in retaining an independent compliance
from securities lending recent years have reduced AIM's consultant, and the fact that AIM
arrangements (collectively, "cash profitability. Based on the review has undertaken to cause the Fund to
balances") of the Fund may be of the profitability of AIM's and operate in accordance with certain
invested in money market funds its affiliates' investment advisory governance policies and practices.
advised by AIM pursuant to the and other activities and its The Board concluded that these
terms of an SEC exemptive order. financial condition, the Board actions indicated a good faith
The Board found that the Fund may concluded that the compensation to effort on the part of AIM to adhere
realize certain benefits upon be paid by the Fund to AIM under to the highest ethical standards,
investing cash balances in AIM its Advisory Agreement was not and determined that the current
advised money market funds, excessive. regulatory and litigation
including a higher net return, environment to which AIM is subject
increased liquidity, increased o Benefits of soft dollars to AIM. should not prevent the Board from
diversification or decreased The Board considered the benefits continuing the Advisory Agreement
transaction costs. The Board also realized by AIM as a result of for the Fund.
found that the Fund will not brokerage transactions executed
receive reduced services if it through "soft dollar" arrangements.
invests its cash balances in such Under these arrangements, brokerage
money market funds. The Board noted commissions paid by other funds
that, to the extent the Fund advised by AIM are used to pay for
invests in affiliated money market research and execution services.
funds, AIM has voluntarily agreed This research may be used by AIM in
to waive a portion of the advisory making investment decisions for the
fees it receives from the Fund Fund. The Board concluded that such
attributable to such investment. arrangements were appropriate.
The Board further determined that
the proposed securities lending o AIM's financial soundness in
program and related procedures with light of the Fund's needs. The
respect to the lending Fund is in Board considered whether AIM is
the best interests of the lending financially sound and has the
Fund and its respective resources necessary to perform its
shareholders. The Board therefore obligations under the Advisory
concluded that the investment of Agreement, and concluded that AIM
cash collateral received in has the financial resources
connection with the securities necessary to fulfill its
lending program in the money market obligations under the Advisory
funds according to the procedures Agreement.
is in the best interests of the
lending Fund and its respective o Historical relationship between
shareholders. the Fund and AIM. In determining
whether to continue the Advisory
o Independent written evaluation Agreement for the Fund, the Board
and recommendations of the Fund's also considered the prior
Senior Officer. The Board noted relationship between AIM and the
that, upon their direction, the Fund, as well as the Board's
Senior Officer of the Fund, who is knowledge of AIM's operations, and
independent of AIM and AIM's concluded that it was beneficial to
affiliates, had prepared an maintain the current relationship,
independent written evaluation in in part, because of such knowledge.
order to assist the Board in The Board also reviewed the general
determining the reasonableness of nature of the non-investment
the proposed management fees of the advisory services currently
AIM Funds, including the Fund. The performed by AIM and its
Board noted that the Senior affiliates, such as administrative,
Officer's written evaluation had transfer agency and distribution
been relied upon by the Board in services, and the fees received by
this regard in lieu of a AIM and its affiliates for
competitive bidding process. In performing such services. In
determining whether to continue the addition to reviewing such
Advisory Agreement for the Fund, services, the trustees also
the Board considered the Senior considered the organizational
Officer's written evaluation and structure employed by AIM and its
the recommendation made by the affiliates to provide those
Senior Officer to the Board that services. Based on the review of
the Board consider implementing a these and other factors, the Board
process to assist them in more concluded that AIM and its
closely monitoring the performance affiliates were qualified to
of the AIM Funds. The Board continue to provide non-investment
concluded that it would be advisory services to the Fund,
advisable to implement such a including administrative, transfer
process as soon as reasonably agency and distribution services,
practicable. and that AIM and its affiliates
currently are providing
satisfactory non-investment
advisory services.
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
September 30, 2005
(Unaudited)
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
MUNICIPAL SECURITIES-100.17%
ALABAMA-8.79%
Montgomery (City of) Industrial Development
Board (Industrial Partners Project);
Refunding VRD Series 1989 IDR
(LOC-SunTrust Bank)
2.83%, 01/01/07(b)(c) -- Aa2 $ 430 $ 430,000
- --------------------------------------------------------------------------------------
Oxford (City of); Unlimited Tax VRD Series
2003 GO Wts.
(LOC-Branch Banking & Trust Co.)
2.83%, 07/01/15(b)(c) -- VMIG-1 4,665 4,665,000
======================================================================================
5,095,000
======================================================================================
ARIZONA-0.87%
Arizona (State of) Transportation Board
(Maricopa County Regional Area Road
Funding); Excise Tax Series 2002 RB
5.00%, 12/15/05 AA Aa2 500 502,596
======================================================================================
COLORADO-2.66%
Arvada (City of); Water Enterprise VRD Series
2001 RB
(INS-Financial Security Assurance Inc.)
2.70%, 11/01/20(d)(e) A-1+ -- 800 800,000
- --------------------------------------------------------------------------------------
Idaho Springs (City of); (Safeway Inc.
Project); Refunding VRD Series 1993 IDR
(LOC-Deutsche Bank A.G.)
2.80%, 06/01/08(b)(f)(g) A-1+ -- 740 740,000
======================================================================================
1,540,000
======================================================================================
FLORIDA-1.72%
Seminole (County of) Industrial Development
Authority (Florida Living Nursing);
Multi-Modal Health Facilities VRD Series
1991 IDR
(LOC-Bank of America, N.A.)
2.95%, 02/01/11(b)(c) -- VMIG-1 1,000 1,000,000
======================================================================================
GEORGIA-7.08%
Floyd (County of) Development Authority
(Shorter College Project); VRD Series 1998
RB
(LOC-SunTrust Bank)
2.90%, 06/01/17(b)(c) A-1+ -- 2,100 2,100,000
- --------------------------------------------------------------------------------------
Tallapoosa (City of) Development Authority
(U.S. Can Co. Project); Refunding VRD
Series 1994 IDR
(LOC-Deutsche Bank A.G.)
2.83%, 02/01/15(b)(c)(g) A-1 -- 2,000 2,000,000
======================================================================================
4,100,000
======================================================================================
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
<Caption>
ILLINOIS-5.61%
Chicago (City of) Metropolitan Water
Reclamation District-Greater Chicago;
Capital Improvement Unlimited Tax Series
1995 GO
6.30%, 12/01/05(h)(i) NRR Aaa $ 380 $ 382,407
- --------------------------------------------------------------------------------------
Illinois (State of) Educational Facilities
Authority (Aurora University); VRD Series
2002 RB
(LOC-Fifth Third Bank)
2.83%, 03/01/32(b)(c) -- VMIG-1 2,000 2,000,000
- --------------------------------------------------------------------------------------
Kane, Cook & Du Page (Counties of) School
District No. 46 (Elgin); Refunding
Unlimited Tax Series 2005 GO
(INS-Financial Security Assurance Inc.)
3.00%, 01/01/06(d) -- Aaa 865 866,677
======================================================================================
3,249,084
======================================================================================
IOWA-3.45%
Iowa (State of) Finance Authority (YMCA
Project); Economic Development VRD Series
2000 RB
(LOC-Wells Fargo Bank, N.A.)
2.86%, 06/01/10(b)(c)(j) -- -- 1,700 1,700,000
- --------------------------------------------------------------------------------------
Iowa (State of) School Corps.; School Cash
Anticipation Program Series 2005 B Wts.
Ctfs.
(INS-Financial Security Assurance Inc.)
3.50%, 01/27/06(d) -- MIG-1 300 301,137
======================================================================================
2,001,137
======================================================================================
KANSAS-0.86%
Leawood (City of); Unlimited Tax Temporary
Notes Series 2004-2 GO
3.00%, 10/01/05 -- MIG-1 500 500,000
======================================================================================
KENTUCKY-5.41%
Ewing (City of) Kentucky Area Development
District Financing Trust (Lease Acquisition
Program); VRD Series 2000 RB
(LOC-Wachovia Bank, N.A.)
2.85%, 06/01/33(b)(c) A-1+ -- 2,635 2,635,000
- --------------------------------------------------------------------------------------
University of Kentucky; Consolidated
Educational Buildings Refunding Series 2004
P, Q and R (Second Series) RB
(INS-Financial Security Assurance Inc.)
3.00%, 05/01/06(d) -- Aaa 500 501,121
======================================================================================
3,136,121
======================================================================================
MASSACHUSETTS-1.22%
Hudson (Town of); Limited Tax Series 2005 GO
(INS-Ambac Assurance Corp.)
4.00%, 05/01/06(d) AAA Aaa 700 705,570
======================================================================================
</Table>
F-1
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
MISSOURI-1.73%
Missouri (State of) Health & Educational
Facilities Authority (Washington University
Project); Educational Facilities VRD Series
1985 B RB
2.80%, 09/01/10(c) A-1+ VMIG-1 $1,000 $ 1,000,000
======================================================================================
NEVADA-1.77%
Clark (County of) School District; Limited
Tax Series 1996 GO
6.00%, 06/15/06(h)(i) AAA Aaa 500 516,024
- --------------------------------------------------------------------------------------
Clark (County of) School District; Limited
Tax Series 2001 F GO
(INS-Financial Security Assurance Inc.)
5.00%, 06/15/06(d) AAA Aaa 500 507,698
======================================================================================
1,023,722
======================================================================================
NEW MEXICO-5.18%
New Mexico (State of) Hospital Equipment Loan
Council (Dialysis Clinic Inc. Project); VRD
Series 2000 RB
(LOC-SunTrust Bank)
2.82%, 07/01/25(b)(c) -- VMIG-1 3,000 3,000,000
======================================================================================
NORTH CAROLINA-3.62%
Carteret (County of) Industrial Facilities &
Pollution Control Financing Authority
(Texasgulf Inc. Project); VRD Series 1985
PCR
(LOC-BNP Paribas)
2.92%, 10/01/05(b)(c)(g) -- Aa2 2,100 2,100,000
======================================================================================
NORTH DAKOTA-6.21%
Fargo (City of) (Cass Oil Co. Project);
Commercial Development VRD Series 1984 RB
(LOC-U.S. Bank, N.A.)
2.89%, 12/01/14(b)(c) A-1+ -- 3,600 3,600,000
======================================================================================
OHIO-2.56%
Loveland (City of) School District; Limited
Tax Series 2005 TAN (INS-Financial Security
Assurance Inc.)
4.00%, 06/01/06(d) AAA Aaa 700 706,335
- --------------------------------------------------------------------------------------
Ohio (State of) Air Quality Development
Authority (Timken Co. Project); Refunding
Multi-Modal Interchangeable Rate Air
Quality Development VRD Series 2001 RB
(LOC-Fifth Third Bank)
2.85%, 11/01/25(b)(c) A-1+ VMIG-1 400 400,000
- --------------------------------------------------------------------------------------
Youngstown (City of) Local School District;
Classroom Facilities & School Improvement
Unlimited Tax Series 2005 GO
(INS-Financial Security Assurance Inc.)
3.00%, 12/01/05(d) AAA Aaa 375 375,480
======================================================================================
1,481,815
======================================================================================
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
<Caption>
OKLAHOMA-6.21%
Muskogee (City of) Industrial Trust (Muskogee
Mall Ltd. Special Project); VRD Series 1985
IDR
(LOC-Bank of America, N.A.)
2.94%, 12/01/15(b)(c)(k) -- VMIG-1 $3,600 $ 3,600,000
======================================================================================
PENNSYLVANIA-4.49%
Allegheny (County of) Industrial Development
Authority (Carnegie Museums of Pittsburgh);
VRD Series 2002 IDR
(LOC-Citizens Bank of Pennsylvania)
2.75%, 08/01/32(b)(c) -- VMIG-1 1,000 1,000,000
- --------------------------------------------------------------------------------------
Franklin (County of) Industrial Development
Authority (Chambersburg Hospital Obligated
Group Projects); Health Care VRD Series
2000 IDR (INS-Ambac Assurance Corp.) 2.85%,
12/01/24(c)(d) A-1+ -- 1,600 1,600,000
======================================================================================
2,600,000
======================================================================================
SOUTH CAROLINA-0.87%
Charleston (County of) School District
Development Corp.; Unlimited Tax Series
2005 TAN GO
(CEP-South Carolina State Department of
Education)
3.75%, 04/13/06 -- MIG-1 500 503,144
======================================================================================
TENNESSEE-2.50%
Hawkins (County of) Industrial Development
Board (Leggett & Platt, Inc.); Refunding
VRD Series 1988 B IDR
(LOC-Wachovia Bank, N.A.)
2.90%, 10/01/27(b)(c)(j) -- -- 1,450 1,450,000
======================================================================================
TEXAS-19.15%
Amarillo (City of) Health Facilities Corp.
(Panhandle Pooled Health Care Loan
Program); VRD Series 1985 ACES RB
(LOC-BNP Paribas)
2.85%, 05/31/25(b)(c)(g)(k) -- VMIG-1 3,467 3,467,000
- --------------------------------------------------------------------------------------
Bexar (County of) Health Facilities
Development Corp. (Warm Springs
Rehabilitation Foundation Project); Health
Care System VRD Series 1997 RB
(LOC-JPMorgan Chase Bank)
2.83%, 09/01/27(b)(c) -- VMIG-1 2,500 2,500,000
- --------------------------------------------------------------------------------------
Garland (City of) Industrial Development
Authority Inc. (Carroll Co. Project); VRD
Series 1984 IDR
(LOC-Wells Fargo Bank, N.A.)
2.83%, 12/01/14 (Acquired 09/12/05; Cost
$2,800,000)(b)(c)(l) -- Aaa 2,800 2,800,000
- --------------------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
PRINCIPAL
RATINGS(A) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Harris (County of) Cultural Education
Facilities Finance Corp. (Houston Music
Hall Foundation-Hobby Center for the
Performing Arts Project); VRD Series 1999
RB
(LOC-JPMorgan Chase Bank)
2.83%, 06/01/29(b)(c) A-1+ -- $ 400 $ 400,000
- --------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Texas Children's
Hospital Project); Hospital Series 1999 A
RB
4.50%, 10/01/05 AA Aa2 400 400,000
- --------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Texas Children's
Hospital Project); Refunding Hospital
Series 1995 RB
6.00%, 10/01/05(m) AAA Aaa 500 500,000
- --------------------------------------------------------------------------------------
Texas (State of); Unlimited Tax Series 2005
TRAN GO
4.50%, 08/31/06 SP-1+ MIG-1 1,015 1,028,882
======================================================================================
11,095,882
======================================================================================
</Table>
<Table>
PRINCIPAL
RATINGS(A) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
<Caption>
WASHINGTON-3.83%
Seattle (Port of) Industrial Development
Corp. (Sysco Food Services of Seattle, Inc.
Project); Refunding VRD Series 1994 IDR
2.83%, 11/01/25(c)(k) A-1+ VMIG-1 2,220 2,220,000
======================================================================================
WISCONSIN-4.38%
Kimberly (Village of) (Fox Cities YMCA
Project); VRD Series 2002 RB
(LOC-M&I Marshall & Ilsley Bank)
2.83%, 04/01/32(b)(c) -- VMIG-1 $1,940 $ 1,940,000
- --------------------------------------------------------------------------------------
Marshfield (City of) Unified School District;
Series 2005 A BAN 4.00%, 11/01/05 -- MIG-1 600 600,526
======================================================================================
2,540,526
======================================================================================
TOTAL INVESTMENTS-100.17% (Cost $58,044,597)(n)(o) 58,044,597
======================================================================================
OTHER ASSETS LESS LIABILITIES-(0.17%) (101,095)
======================================================================================
NET ASSETS-100.00% $57,943,502
______________________________________________________________________________________
======================================================================================
</Table>
Investment Abbreviations:
<Table>
ACES - Adjustable Convertible Extendable Securities
BAN - Bond Anticipation Note
CEP - Credit Enhancement Provider
Ctfs. - Certificates
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
INS - Insurer
LOC - Letter of Credit
NRR - Not Re-Rated
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
TAN - Tax Anticipation Notes
TRAN - Tax and Revenue Anticipation Notes
VRD - Variable Rate Demand
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Ratings assigned by Standard & Poor's Corporation ("S&P") and Moody's
Investors Service. Inc. ("Moody's"), except as indicated in note (j)
below. NRR indicates a security that is not re-rated subsequent to
funding of a segregated escrow fund (consisting of U.S. Government
Obligations held by a bank custodian); this funding is pursuant to an
advance refunding of this security.
(b) Principal and interest payments are fully enhanced by a letter of credit
from the bank listed or a predecessor bank, branch or subsidiary.
(c) 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 September 30, 2005.
(d) Principal and/or interest payments are secured by the bond insurance
company listed.
(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 September 30, 2005.
(f) 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 September 30, 2005.
(g) The security is credit guaranteed, enhanced or has credit risk by a
foreign entity. The foreign credit exposure to countries other than the
United States of America (as percentage of total net assets) is
summarized as follows: France: 9.6%; Germany: 4.7%.
(h) Advance refunded; secured by an escrow fund of U.S. Government
obligations.
(i) Security has an irrevocable call by the issuer or mandatory put by the
holder. Maturity date reflects such call or put.
(j) Unrated security; determined by the investment advisor to be of
comparable quality to the rated securities in which the Fund may invest
pursuant to guidelines of quality adopted by the Board of Trustees and
followed by the investment advisor.
(k) In accordance with the procedures established by the Board of Trustees,
investments are through participation in joint accounts with other
mutual funds, private accounts, and certain non-registered investment
companies managed by the investment advisor or its affiliates.
(l) 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
September 30, 2005 represented 4.83% of the Fund's Net Assets. This
security is not considered to be illiquid.
(m) Secured by an escrow fund of U.S. Government obligations.
F-3
(n) This table provides a listing of those entities that have either issued,
guaranteed, backed or otherwise enhanced the credit quality of more than
5% of the securities held in the portfolio. In instances where the
entity has guaranteed, backed or otherwise enhanced the credit quality
of a security, it will not be primarily responsible for the issuer's
obligations but may be called upon to satisfy issuer's obligations.
<Table>
<Caption>
ENTITY PERCENTAGE
------ ----------
BNP Paribas 9.6%
------------------------------------------------------------
SunTrust Bank 9.5%
------------------------------------------------------------
Branch Banking & Trust Co. 8.1%
------------------------------------------------------------
Bank of America, N.A. 7.9%
------------------------------------------------------------
Wells Fargo Bank N.A. 7.8%
------------------------------------------------------------
Wachovia Bank, N.A. 7.1%
------------------------------------------------------------
Financial Security Assurance Inc. 7.0%
------------------------------------------------------------
U.S. Bank N.A. 6.2%
------------------------------------------------------------
JPMorgan Chase Bank 5.0%
------------------------------------------------------------
Other Entities less than 5% 31.8%
------------------------------------------------------------
<Caption>
</Table>
(o) Also represents cost for federal income tax purposes.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$58,044,597) $58,044,597
- -----------------------------------------------------------
Receivables for:
Fund shares sold 429,167
- -----------------------------------------------------------
Interest 242,324
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 57,827
- -----------------------------------------------------------
Other assets 21,528
===========================================================
Total assets 58,795,443
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 729,196
- -----------------------------------------------------------
Dividends 12,551
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 63,637
- -----------------------------------------------------------
Accrued distribution fees 3,478
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 2,869
- -----------------------------------------------------------
Accrued transfer agent fees 5,067
- -----------------------------------------------------------
Accrued operating expenses 35,143
===========================================================
Total liabilities 851,941
===========================================================
Net assets applicable to shares outstanding $57,943,502
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $57,921,970
- -----------------------------------------------------------
Undistributed net investment income 21,532
===========================================================
$57,943,502
___________________________________________________________
===========================================================
NET ASSETS:
Class A $43,073,185
___________________________________________________________
===========================================================
Investor Class $14,870,317
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 43,065,840
___________________________________________________________
===========================================================
Investor Class 14,895,286
___________________________________________________________
===========================================================
Net asset value, offering and redemption price
per share for each class $ 1.00
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
STATEMENT OF OPERATIONS
For the six months ended September 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $783,039
======================================================================
EXPENSES:
Advisory fees 107,434
- ----------------------------------------------------------------------
Administrative services fees 25,068
- ----------------------------------------------------------------------
Custodian fees 1,593
- ----------------------------------------------------------------------
Distribution fees -- Class A 56,606
- ----------------------------------------------------------------------
Transfer agent fees 38,940
- ----------------------------------------------------------------------
Trustees' and officer's fees and benefits 8,410
- ----------------------------------------------------------------------
Registration and filing fees 24,642
- ----------------------------------------------------------------------
Professional services fees 29,174
- ----------------------------------------------------------------------
Other 12,632
======================================================================
Total expenses 304,499
======================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (35,229)
======================================================================
Net expenses 269,270
======================================================================
Net investment income 513,769
======================================================================
Net increase in net assets resulting from operations $513,769
______________________________________________________________________
======================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended September 30, 2005 and the year ended March 31, 2005
(Unaudited)
<Table>
<Caption>
SEPTEMBER 30, MARCH 31,
2005 2005
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 513,769 $ 539,538
===========================================================================================
Net increase in net assets resulting from operations 513,769 539,538
===========================================================================================
Distributions to shareholders from net investment income:
Class A (372,771) (387,706)
- -------------------------------------------------------------------------------------------
Investor Class (140,998) (151,832)
===========================================================================================
Decrease in net assets resulting from distributions (513,769) (539,538)
===========================================================================================
Share transactions-net:
Class A (3,840,504) (28,633,291)
- -------------------------------------------------------------------------------------------
Investor Class (2,344,849) (2,953,498)
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (6,185,353) (31,586,789)
===========================================================================================
Net increase (decrease) in net assets (6,185,353) (31,586,789)
===========================================================================================
NET ASSETS:
Beginning of period 64,128,855 95,715,644
===========================================================================================
End of period (including undistributed net investment
income of $21,532 and $21,532, respectively) $57,943,502 $ 64,128,855
___________________________________________________________________________________________
===========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
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 consists of 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.
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 including estimates
and assumptions related to taxation. 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 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gain, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
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. 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-8
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.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. These expenses along with the related expense
reimbursement, are included in the Statement of Operations. For the six months
ended September 30, 2005, AMVESCAP reimbursed expenses of the Fund in the amount
of $477.
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 six months
ended September 30, 2005, AIM was paid $25,068.
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 six months ended September 30,
2005, the Fund paid AISI $38,940.
The Trust has entered into master distribution agreements 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. National Association of Securities Dealers ("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 six months ended September 30, 2005, the
Class A shares paid $22,642 after ADI waived Plan fees of $33,964.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended September 30, 2005,
the Fund engaged in securities purchases of $0 and sales of $5,723,116, which
resulted in net realized gains (losses) of $0.
NOTE 4--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 six months ended September 30,
2005, the Fund received credits from this arrangement which resulted in the
reduction of the Fund's total expenses of $788.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
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 who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended September 30, 2005, the Fund paid legal fees of
$1,503 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 6--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
F-9
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 six months ended
September 30, 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 as a compensating balance in the account so the custodian
can be compensated by earning the additional interest; or (ii) compensate by
paying the custodian bank at a rate agreed upon by the custodian bank and AIM,
not to exceed the rate contractually agreed upon.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of September 30, 2005.
NOTE 8--SHARE INFORMATION
The Fund currently consists of 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.
Investor Class shares of the Fund are offered only to certain grandfathered
investors.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31,
2005(a) 2005
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 23,316,635 $ 23,316,635 59,160,740 $ 59,160,740
- ------------------------------------------------------------------------------------------------------------------------
Investor Class 4,195,118 4,195,118 12,777,660 12,777,660
========================================================================================================================
Issued as reinvestment of dividends:
Class A 305,277 305,277 341,924 341,924
- ------------------------------------------------------------------------------------------------------------------------
Investor Class 134,820 134,820 146,193 146,193
========================================================================================================================
Reacquired:
Class A (27,462,416) (27,462,416) (88,135,955) (88,135,955)
- ------------------------------------------------------------------------------------------------------------------------
Investor Class (6,674,787) (6,674,787) (15,877,351) (15,877,351)
========================================================================================================================
(6,185,353) $ (6,185,353) (31,586,789) $(31,586,789)
________________________________________________________________________________________________________________________
========================================================================================================================
</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 19% 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-10
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,
SIX MONTHS ---------------------------------------------------
ENDED
SEPTEMBER 30,
2005 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.01 0.01 0.004 0.01 0.02 0.04
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.01) (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 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 0.83% 0.72% 0.41% 0.77% 1.84% 3.76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $43,073 $46,914 $75,547 $66,342 $54,996 $63,480
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.91%(b) 0.80% 0.76% 0.79% 0.79% 0.76%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.06%(b) 1.00% 0.91% 0.94% 0.94% 0.91%
=================================================================================================================================
Ratio of net investment income to average net
assets 1.64%(b) 0.68% 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 and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$45,161,063.
<Table>
<Caption>
INVESTOR CLASS
-----------------------------------------------
SEPTEMBER 30,
2003
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
SEPTEMBER 30, MARCH 31, MARCH 31,
2005 2005 2004
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.01 0.01 0.002
- -------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.01) (0.01) (0.002)
=============================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(a) 0.88% 0.82% 0.23%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $14,870 $17,215 $20,169
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets 0.81%(b) 0.70%(c) 0.67%(d)
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of net investment income to average net assets 1.74%(b) 0.78% 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 annualized and based on average daily net assets of
$16,062,288.
(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 10--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On March 23, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") 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. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior reporting period, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained 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 E&Y to make reference to that matter in connection with such reports.
F-11
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), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
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 that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. As the methodology is unknown at the present time, management
of AIM and the Fund are unable to estimate the impact, if any, that the
distribution of these two fair funds may have on the Fund or whether such
distribution will have an impact on the Fund's financial statements in the
future.
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
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators 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. IFG,
AIM and ADI are providing full cooperation with respect to these inquiries. As
described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities
and individuals are defendants in numerous civil lawsuits related to one or more
of these issues. Regulatory actions and/or additional civil lawsuits related to
these or other issues may be filed against the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed a civil lawsuit 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 this lawsuit. 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, among other things, injunctive relief, civil monetary penalties and a
writ of quo warranto against the defendants. If AIM is unsuccessful in its
defense of the WVAG lawsuit, it could be barred from serving as an investment
advisor 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 the Fund. The 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 the Fund's investment advisor. There is no assurance
that such exemptive relief will be granted.
On June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. On July 7, 2005, the Supreme
Court of West Virginia ruled in the context of a separate lawsuit that the WVAG
does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West
Virginia Consumer Credit and Protection Act to bring an action based upon
conduct that is ancillary to the purchase or sale of securities. AIM intends to
seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this
ruling.
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI. The WVASC makes findings
of fact that essentially mirror the WVAG's allegations mentioned above and
conclusions of law to the effect that AIM and ADI violated the West Virginia
securities laws. The WVASC orders AIM and ADI to cease any further violations
and seeks to impose monetary sanctions to be determined by the Commissioner. AIM
and ADI have the right to contest the WVASC's findings and conclusions, which
they intend to do.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds;
F-12
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
- that certain AIM Funds inadequately employed fair value pricing;
- 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 and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while AIM Funds and/or specific share classes were closed generally to
new investors and/or while other share classes of the same AIM Fund were not
charged the same distribution fees;
- 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; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which they
were eligible to participate (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the Court issued rulings on the common
issues of law presented in defendants' motions to dismiss the shareholder class
and derivative complaints. These rulings were issued in the context of the Janus
lawsuits, but the Court's legal determinations apply at the omnibus level to all
cases within his track, including the AIM and IFG cases. The Court dismissed for
failure to make pre-suit demand on the fund board all derivative causes of
action but one: the excessive fee claim under Section 36(b) of the Investment
Company Act of 1940 (the "1940 Act"), as to which the demand requirement does
not apply. The Court dismissed all claims asserted in the class complaint but
two: (i) the securities fraud claims under Section 10(b) of the Securities
Exchange Act of 1934, and (ii) the excessive fee claim under Section 36(b) of
the 1940 Act. In addition, the Court limited plaintiffs' potential recovery on
the 36(b) claim to fees attributable to timing assets, as opposed to all fees on
funds in which any timing occurred. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date. The Court will subsequently issue an
order applying his legal rulings to the allegations in the AIM and IFG
complaints.
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 above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-13
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Edward K. Dunn Jr. 11 Greenway Plaza
Jack M. Fields Lisa O. Brinkley Suite 100
Carl Frischling Senior Vice President and Chief Compliance Houston, TX 77046-1173
Robert H. Graham Officer
Vice Chair TRANSFER AGENT
Gerald J. Lewis Russell C. Burk AIM Investment Services, Inc.
Prema Mathai-Davis Senior Vice President and Senior Officer P.O. Box 4739
Lewis F. Pennock Houston, TX 77210-4739
Ruth H. Quigley Kevin M. Carome
Larry Soll Senior Vice President, Secretary and Chief CUSTODIAN
Raymond Stickel, Jr. Legal Officer The Bank of New York
Mark H. Williamson 2 Hanson Place
Sidney M. Dilgren Brooklyn, NY 11217-1431
Vice President, Treasurer
and Principal Financial Officer COUNSEL TO THE FUND
Ballard Spahr
Robert G. Alley Andrews & Ingersoll, LLP
Vice President 1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
J. Philip Ferguson
Vice President COUNSEL TO THE INDEPENDENT TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
Karen Dunn Kelley 1177 Avenue of the Americas
Vice President New York, NY 10036-2714
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
<Table>
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Growth Allocation Fund(2)
AIM Basic Value Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Charter Fund AIM Gold & Precious Metals Fund
AIM Constellation Fund AIM Leisure Fund
AIM Diversified Dividend Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Dynamics Fund AIM Real Estate Fund(1)
AIM Large Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund AIM International Allocation Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund FIXED INCOME
AIM Opportunities I Fund
AIM Opportunities II Fund TAXABLE
AIM Opportunities III Fund
AIM Premier Equity Fund AIM Floating Rate Fund
AIM S&P 500 Index Fund AIM High Yield Fund
AIM Select Equity Fund AIM Income Fund
AIM Small Cap Equity Fund AIM Intermediate Government Fund
AIM Small Cap Growth Fund(1) AIM Limited Maturity Treasury Fund
AIM Small Company Growth Fund AIM Money Market Fund
AIM Trimark Endeavor Fund AIM Short Term Bond Fund
AIM Trimark Small Companies Fund AIM Total Return Bond Fund
AIM Weingarten Fund Premier Portfolio
Premier U.S. Government Money Portfolio
*Domestic equity and income fund
TAX-FREE
AIM High Income Municipal Fund(1)
INTERNATIONAL/GLOBAL EQUITY AIM Municipal Bond Fund
AIM Tax-Exempt Cash Fund
AIM Asia Pacific Growth Fund AIM Tax-Free Intermediate Fund
AIM Developing Markets Fund Premier Tax-Exempt Portfolio
AIM European Growth Fund
AIM European Small Company Fund(1)
AIM Global Aggressive Growth Fund (1) This fund has limited public sales of its shares to certain
AIM Global Equity Fund investors. For more information on who may continue to invest in
AIM Global Growth Fund the fund, please see the appropriate prospectus.
AIM Global Value Fund
AIM International Core Equity Fund (2) Effective April 29, 2005, AIM Aggressive Allocation Fund was
AIM International Growth Fund renamed AIM Growth Allocation Fund.
AIM International Small Company Fund(1)
AIM Trimark Fund If used after December 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 $129 billion in assets. AIM
is a subsidiary of AMVESCAP PLC, one of the world's largest
independent financial services companies with $381 billion in assets
under management. Data as of September 30, 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-SAR-1 A I M Distributors, Inc.
</Table>
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ------------------------------------------------------------------------
</Table>
AIM TAX-FREE INTERMEDIATE FUND
Semiannual Report to Shareholders o September 30, 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 THE PRESERVATION OF \
CAPITAL.
o Unless otherwise stated, information presented in this report is as of September 30, 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 As of close of business October 30, o Revenue bonds are issued to finance at the quarter-ends. For the second and
2002, Class A shares were closed to new public-works projects and are supported fourth quarters, the lists appear in the
investors. directly by the project's revenues. Fund's semiannual and annual reports to
General obligation (GO) bonds are backed shareholders. For the first and third
PRINCIPAL RISKS OF INVESTING IN THE FUND by the full faith and credit (including quarters, the Fund files the lists with
the taxing and further borrowing power) the Securities and Exchange Commission
o U.S. Treasury securities such as of a state or municipality. Revenue (SEC) on Form N-Q. The most recent list
bills, notes and bonds offer a high bonds often are considered more of portfolio holdings is available at
degree of safety, and they guarantee the attractive, since many public-works AIMinvestments.com. From our home page,
payment of principal and any applicable projects (water and sewer improvements, click on Products & Performance, then
interest if held to maturity. Fund for example) are necessities, and demand Mutual Funds, then Fund Overview. Select
shares are not insured, and their value for them remains constant regardless of your Fund from the drop-down menu and
and yield will vary with market economic conditions. Shareholders may click on Complete Quarterly Holdings.
conditions. benefit from their consistent income in Shareholders can also look up the Fund's
the event of an economic slowdown. Forms N-Q on the SEC's Web site at
ABOUT INDEXES USED IN THIS REPORT Advanced refunded securities sec.gov. And copies of the Fund's Forms
(escrowed-to-maturity or pre-refunded) N-Q may be reviewed and copied at the
o The unmanaged LIPPER INTERMEDIATE are secured by an escrow fund of U.S. SEC's Public Reference Room at 450 Fifth
MUNI-DEBT FUND INDEX represents an Treasury obligations or other high Street, N.W., Washington, D.C.
average of the 30 largest quality debt securities; the escrow fund 20549-0102. You can obtain information
intermediate-term municipal-bond funds is used to pay principal and interest on on the operation of the Public Reference
tracked by Lipper, Inc., an independent the refunded bond, as well as retire it Room, including information about
mutual fund performance monitor. in full on the date indicated. duplicating fee charges, by calling
202-942-8090 or 800-732-0330, or by
o The unmanaged LEHMAN BROTHERS o The average credit quality of the electronic request at the following
MUNICIPAL BOND INDEX, which represents Fund's holdings as of the close of the e-mail address: publicinfo@sec.gov. The
the performance of investment-grade reporting period represents the weighted SEC file numbers for the Fund are
municipal bonds, is compiled by Lehman average quality rating of the securities 811-07890 and 33-66242.
Brothers, a global investment bank. in the portfolio as assigned by
Nationally Recognized Statistical Rating A description of the policies and
o The MERRILL LYNCH 3-7 YEAR MUNICIPAL Organizations based on assessment of the procedures that the Fund uses to
INDEX is a domestic bond index that credit quality of the individual determine how to vote proxies relating
holds investment-grade municipal bonds securities. to portfolio securities is available
with maturities that range between 3 and without charge, upon request, from our
7 years. o The returns shown in management's Client Services department at 800-959-
discussion of Fund performance are based 4246 or on the AIM Web site,
o The Fund is not managed to track the on net asset values calculated for AIMinvestments.com. On the home page,
performance of any particular index, shareholder transactions. Generally scroll down and click on AIM Funds Proxy
including the indexes defined here, and accepted accounting principles require Policy. The information is also
consequently, the performance of the adjustments to be made to the net assets available on the Securities and Exchange
Fund may deviate significantly from the of the Fund at period end for financial Commission's Web site, sec.gov.
performance of the indexes. reporting purposes, and as such, the net
asset values for shareholder Information regarding how the Fund voted
o A direct investment cannot be made in transactions and the returns based on proxies related to its portfolio
an index. Unless otherwise indicated, those net asset values may differ from securities during the 12 months ended
index results include reinvested the net asset values and returns June 30, 2005, is available at our Web
dividends, and they do not reflect sales reported in the Financial Highlights. site. Go to AIMinvestments.com, access
charges. Performance of an index of the About Us tab, click on Required
funds reflects fund expenses; Notices and then click on Proxy Voting
performance of a market index does not. Activity. Next, select the Fund from the
drop-down menu. The information is also
available on the Securities and Exchange
Commission's Web site, sec.gov.
========================================
FUND NASDAQ SYMBOLS
Class A Shares AITFX
Class A3 Shares ATFAX
========================================
</Table>
==========================================================================
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
AIM TAX-FREE INTERMEDIATE FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The six-month period covered by this report was a good
one for the vast majority of investors. Equity and
fixed-income indexes, including municipal bond indexes,
delivered positive total returns. Solid economic growth and
[GRAHAM generally impressive company earnings offset concerns about
PHOTO] rising oil prices and the Federal Reserve's repeated
increases in short-term interest rates. In the short run, it
appeared that hurricanes Katrina and Rita, which heavily
damaged parts of the Gulf Coast as the reporting period was
ending, had inflicted little damage on the U.S. economy,
though it may take some time before the full impact of the
storms is known.
For a discussion of how market conditions affected your
ROBERT H. GRAHAM Fund and how the Fund was managed during the reporting
period, please turn to Page 3.
ADDITIONAL INFORMATION IN THIS REPORT
We would like to call your attention to two new elements
in this report on your Fund. First, on Page 2, is a letter
from Bruce Crockett, the independent Chair of the Board of
Trustees of the AIM Funds. We first introduced you to Mr.
[WILLIAMSON Crockett in the semiannual report on your Fund dated one year
PHOTO] ago. Mr. Crockett has been on our Funds' Board since 1992; he
assumed his responsibilities as Chair last October.
Mr. Crockett has expressed an interest in keeping
shareholders informed of the work of the Board regularly via
letters in the Fund reports. We certainly consider this a
valuable addition to the reports. The Board is charged with
MARK H. WILLIAMSON looking out for the interests of shareholders, and Mr.
Crockett's letter provides insight into some of the many
issues the Board addresses in governing your Fund.
One of the most important decisions the Board makes each
year is whether to approve the advisory agreement your Fund
has with AIM. Essentially, this agreement hires AIM to manage
the assets in your Fund. A discussion of the factors the
Board considered in reviewing the agreement is the second new
element in the report, and we encourage you to read it. It
appears on Pages 7 and 8.
Further information about the markets, your Fund, and
investing in general is always available on our widely
acclaimed Web site, AIMinvestments.com. We invite you to
visit it frequently.
We at AIM remain committed 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 happy to be of help.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, President, A I M
AIM Funds Advisors, Inc.
November 14, 2005
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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM TAX-FREE INTERMEDIATE FUND
DEAR AIM FUNDS SHAREHOLDERS:
As independent Chair of the Board of Trustees of the AIM
Funds, I'm writing to report on the work being done by your
Board.
At our most recent meeting in June 2005, your Board
approved voluntary fee reductions from A I M Advisors, Inc.
[CROCKETT (AIM) that save shareholders approximately $20.8 million
PHOTO] annually, based on asset levels as of March 31, 2005. The
majority of these expense reductions, which took effect July
1, 2005, will be achieved by a permanent reduction to 0.25%
of the Rule 12b-1 fees on Class A and Class A3 shares of
those AIM Funds that previously charged these fees at a
higher rate.
Our June meeting, which was the culmination of more than
two and one-half months of review and discussions, took place
BRUCE L. CROCKETT over a three-day period. The meeting included your Board's
annual comprehensive evaluation of each fund's advisory
agreement with AIM. After this evaluation, in which questions
about fees, performance and operations were addressed by AIM,
your Board approved all advisory agreements for the year
beginning July 1, 2005. You can find information on the
factors considered and conclusions reached by your Board in
its evaluation of each fund's advisory agreement at
AIMinvestments.com. (Go to "Products & Performance" and click
on "Investment Advisory Agreement Renewals.") The advisory
agreement information about your Fund is also included in
this semiannual report on Pages 7 and 8. I encourage you to
review it.
Together with monitoring fund expenses, fund performance
is your Board's priority. Our initial goal is to work with
AIM to bring about improvement in every AIM Fund that has
been underperforming its category.
Your Board has a well-defined process and structure for
monitoring all funds and identifying and assisting AIM in
improving underperforming funds. Our Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of these
five standing committees to include all 13 independent Board
members. Further, our Investments Committee is divided into
three underlying subcommittees, each responsible for, among
other things, reviewing the performance, fees and expenses of
the funds that have been assigned to it.
At subcommittee meetings, held throughout the year, the
performance of every AIM Fund is evaluated. If a fund has
underperformed its peer group for a meaningful period, we
work closely with AIM to discover the causes and help develop
the right responses. In some cases, AIM may determine that a
change in portfolio management strategy or portfolio managers
is required. In other cases, where a fund no longer seems
viable, it may be merged with a similar fund, being careful
to consider the needs of all shareholders affected by the
decision. Following AIM's recommendation and your Board's
approval, eight funds were recently merged.
Be assured that your Board is working closely with the
management of AIM to help you reach your investment goals.
Should you or your advisor have questions or comments about
the governance of AIM Funds, I invite you to write to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston, TX 77046. Your Board looks forward to
keeping you informed about the governance of your funds.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
November 14, 2005
2
AIM TAX-FREE INTERMEDIATE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
<Caption>
===================================================================================== invest primarily in insured municipal
PERFORMANCE SUMMARY FUND VS. INDEXES bonds, which offer competitive yields
with greater safety and liquidity than
AIM Tax-Free Intermediate Fund continued TOTAL RETURNS, 3/31/05-9/30/05, similar uninsured municipal bonds.
to provide attractive current income free EXCLUDING APPLICABLE SALES
of federal taxes for the six-month CHARGES. IF SALES CHARGES We intend to purchase and hold
reporting period ended September 30, WERE INCLUDED, RETURNS municipal bonds to maturity to avoid
2005. Your Fund's 30-day distribution WOULD BE LOWER. selling-related capital gains. However,
rates of 4.36% for Class A shares and there are times when we will sell
4.04% for Class A3 shares were higher Class A Shares 1.47% securities based on the following
than those of the Fund's peers. Please factors:
turn to Page 5 for long-term performance Class A3 Shares 1.30
results. o down-grading in credit quality
Lehman Brothers
Your Fund's heavier weighting in bonds Municipal Bond Index o a decision to shorten or lengthen the
with short maturities (one to five years) (Broad Market Index) 2.80 Fund's duration
hindered total return in comparison with
the Fund's benchmarks. It should be Merrill Lynch 3-7 Year o to limit or reduce exposure to a
noted, however, that we manage the Fund Municipal Index particular sector or issuer
for current income rather than total (Style-specific Index) 1.95
return. o shareholder redemptions
Lipper Intermediate
Muni-Debt Fund Index MARKET CONDITIONS AND YOUR FUND
(Peer Group Index) 2.19
The municipal bond market underperformed
SOURCE: LIPPER,INC. the broad U.S. stock market during the
period, despite investor concerns about
===================================================================================== high energy prices, inflation and the
economic impact of Hurricane Katrina. We
HOW WE INVEST with more than 10 1/2 years to maturity, observed that most municipal bond funds
which helps to modestly preserve capital were hurt late in the period as interest
We believe that an actively managed in a rising interest rate environment. In rates rose on short- and
portfolio of municipal bonds can provide addition, we invest only in bonds rated A intermediate-maturity bonds, and airline
a steady stream of tax-exempt income or better by nationally recognized bond prices fell sharply in the wake of
while providing protection of principal. statistical rating organizations, which bankruptcy filings by Northwest Airlines
Through active management we strive to provides protection against credit risk. and Delta Airlines in September 2005.
avoid capital gains and ordinary income, Finally, the Fund does not invest in
which are taxable to shareholders, while bonds that pay interest subject to the The volume of municipal bond issuance
providing competitive income in all alternative minimum tax (AMT). through September was on pace to set an
market environments. all-time record high. We observed that a
We invest mostly in revenue bonds as weaker-than-expected economic recovery
We invest primarily in municipal bonds, proceeds for specific projects are used resulted in states issuing more debt to
which include revenue and general to pay interest and principal on those finance projects. In addition, borrowers
obligation bonds. The Fund may not bonds. We also wanted to issue bonds prior to an
purchase bonds anticipated rise in yields. The emergence
(continued)
====================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE FIXED-INCOME HOLDINGS
% OF NET
By credit quality as of 9/30/05 COUPON MATURITY ASSETS
[PIE CHART] 1. District of Columbia 5.50% 06/01/2009 4.0%
AA 17.6%
2. New Jersey (State of)
A 4.5% Transportation Trust Fund
Authority 5.50 06/15/2010 2.3
AAA 77.9%
3. Chicago (City of) 6.50 12/01/2008 2.3
Sources for Credit Quality Ratings:
Moody's, Standard & Poor's and Fitch 4. Energy Northwest 5.50 07/01/2011 2.2
The Fund's holdings are subject to 5. San Antonio (City of) 5.25 02/01/2010 1.6
change, and there is no assurance that
the Fund will continue to hold any
particular security. TOTAL NET ASSETS $378.0 MILLION
NUMBER OF BOND HOLDINGS 207
AVERAGE QUALITY RATING AA+
WEIGHTED AVERAGE MATURITY 3.88 YEARS
AVERAGE DURATION 3.20 YEARS
====================================================================================================================================
</Table>
3
AIM TAX-FREE INTERMEDIATE FUND
<Table>
of large, non-traditional buyers (mainly Your Fund's sector allocations remained RICHARD A. BERRY,
hedge funds) aided distribution and relatively constant, with two-thirds of Chartered Financial
liquidity within the market. However, holdings in insured bonds. Insured [BERRY Analyst, senior
increased demand for municipal bonds has municipal bonds generally offer PHOTO] portfolio manager, is
not greatly boosted return ratios in competitive yields with greater safety co-manager of AIM
comparison with taxable bonds. The ratio and liquidity than similar uninsured Tax-Free Intermediate
of the 10-year municipal bond yield to municipal bonds. Prospectus guidelines Fund. Mr. Berry
comparable maturity Treasury securities prohibit us from purchasing municipal joined AIM in 1987 and has been in the
rose only slightly. Municipal bond credit bonds with lower ratings than A, which investment industry since 1968. He has
ratings remained strong. protects the portfolio from adverse served as president and director of the
credit risk. As of September 30, 2005, Dallas Association of Investment
THE VOLUME OF approximately 78% of Fund assets were Analysts, chairman of the board of
MUNICIPAL BOND invested in AAA-rated securities. regents of the Financial Analysts Seminar
ISSUANCE THROUGH and a trustee of Lancaster Independent
SEPTEMBER WAS ON IN CLOSING School District. He received his B.B.A.
PACE TO SET AN ALL-TIME and M.B.A. from Texas Christian
RECORD HIGH. Many economists expect economic growth to University.
moderate during the remaining quarter of
In an effort to stem inflation, the 2005 into early 2006. Interestingly, STEPHEN D. TURMAN,
Federal Reserve (the Fed) continued its however, they also predict the Fed will Chartered Financial
quarter-point (0.25%) increases of the continue to raise the federal funds [TURMAN Analyst, is
federal funds target rate. During the target rate during this same period to PHOTO] co-manager of AIM
period, the Fed increased the federal 4.25% or 4.50% in an effort to ward off Tax-Free Intermediate
funds rate four times to end at 3.75% on potential inflation. Higher short-term Fund. Mr. Turman has
September 25, 2005. The central bank interest rates, along with higher been in the
acknowledged some short-term economic resource and commodity prices (especially investment
weakness associated with Hurricane petroleum), may combine to slow near-term business since 1983 and joined AIM as a
Katrina, but said that the economy U.S. economic growth prospects. trader in 1985. He was named to his
continued to be poised for robust growth current position in 1992. Prior to
in the longer term. Amid this scenario, we will continue to joining the company, he worked in
manage the Fund in a conservative manner institutional sales. A native of Tyler,
As the Fed raised the federal funds with a duration that is likely to be near Texas, Mr. Turman received a B.B.A. in
rate, short-term interest rates also rose or possibly lower than the duration of finance from The University of Texas at
during the period. Surprisingly, our peers. We continue to take steps to Arlington.
long-term rates did not keep pace, protect investor principal in the face of
creating a "flattening" of the yield rising interest rates while seeking to Assisted by Municipal Bond Team
curve. These developments had a negative provide attractive tax-free income.
effect on your Fund because we focused on
shorter-maturity bonds, which typically As always, we thank you for your
have less price volatility and are less investment in AIM Tax-Free Intermediate
risky than their longer-maturity Fund.
counterparts. With the flattening of the
yield curve, prices rose on THE VIEWS AND OPINIONS EXPRESSED IN
longer-maturity bonds during the period. MANAGEMENT'S DISCUSSION OF FUND
PERFORMANCE ARE THOSE OF A I M ADVISORS,
Although damage from Hurricane Katrina INC. THESE VIEWS AND OPINIONS ARE SUBJECT
was devastating, the storm had minimal TO CHANGE AT ANY TIME BASED ON FACTORS
impact on your Fund's performance. The SUCH AS MARKET AND ECONOMIC CONDITIONS.
majority of our holdings in Mississippi, THESE VIEWS AND OPINIONS MAY NOT BE
Louisiana and Alabama municipalities were RELIED UPON AS INVESTMENT ADVICE OR
geographically far enough north not to be RECOMMENDATIONS, OR AS AN OFFER FOR A
affected by the storm. PARTICULAR SECURITY. THE INFORMATION IS
NOT A COMPLETE ANALYSIS OF EVERY ASPECT
OF ANY MARKET, COUNTRY, INDUSTRY,
SECURITY OR THE FUND. 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.
[RIGHT ARROW GRAPHIC]
See important Fund and index
disclosures inside front cover. FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE,PLEASE SEE PAGE 5.
</Table>
4
AIM TAX-FREE INTERMEDIATE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Below you will find a presentation of your Fund's performance record for periods
ended September 30, 2005, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how Fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
<Table>
<Caption>
=========================================
AVERAGE ANNUAL TOTAL RETURNS INCEPTION AND THE RESTATED HISTORICAL CANNOT GUARANTEE COMPARABLE FUTURE
As of 9/30/05, including applicable PERFORMANCE OF THE FUND'S CLASS A SHARES RESULTS; CURRENT PERFORMANCE MAY BE LOWER
sales charges (FOR PERIODS PRIOR TO THE INCEPTION OF OR HIGHER. PLEASE VISIT
CLASS A3 SHARES) AT NET ASSET VALUE, AIMINVESTMENTS.COM FOR THE MOST RECENT
CLASS A SHARES ADJUSTED TO REFLECT THE HIGHER RULE 12b-1 MONTH-END PERFORMANCE. PERFORMANCE
Inception (5/11/87) 5.56% FEES APPLICABLE TO CLASS A3 SHARES. FIGURES REFLECT REINVESTED DISTRIBUTIONS,
10 Years 4.61 CHANGES IN NET ASSET VALUE AND THE EFFECT
5 Years 4.51 CLASS A SHARE PERFORMANCE REFLECTS THE OF THE MAXIMUM APPLICABLE SALES CHARGE
1 Year -0.10 MAXIMUM 1.00% SALES CHARGE. CLASS A3 UNLESS OTHERWISE STATED. INVESTMENT
SHARES DO NOT HAVE A FRONT-END SALES RETURN AND PRINCIPAL VALUE WILL FLUCTUATE
CLASS A3 SHARES CHARGE OR A CDSC; THEREFORE, PERFORMANCE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN
10 Years 4.34% QUOTED IS AT NET ASSET VALUE. THE YOU SELL SHARES.
5 Years 4.34 PERFORMANCE OF THE FUND'S SHARE CLASSES
1 Year 0.58 WILL DIFFER DUE TO DIFFERENT SALES CHARGE HAD THE ADVISOR NOT WAIVED FEES AND/OR
STRUCTURES AND CLASS EXPENSES. REIMBURSED EXPENSES FOR CLASS A SHARES IN
========================================= THE PAST, PERFORMANCE WOULD HAVE BEEN
THE PERFORMANCE DATA QUOTED REPRESENT LOWER.
THE INCEPTION DATE OF CLASS A3 SHARES IS PAST PERFORMANCE AND
OCTOBER 31, 2002. RETURNS SINCE THAT DATE
ARE HISTORICAL RETURNS. ALL OTHER RETURNS
ARE THE BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF THE FUND'S CLASS A3 SHARES
SINCE THEIR
====================================================================================================================================
FUND PROVIDES CURRENT INCOME
30-DAY TAXABLE
DISTRIBUTION EQUIVALENT 30-DAY 30-DAY TAXABLE EQUIVALENT
RATE DISTRIBUTION RATE SEC YIELD 30-DAY SEC YIELD
Class A Shares 4.36% 6.71% 2.82% 4.34%
Class A3 Shares 4.04 6.22 2.60 4.00
</Table>
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 offering
price.
o The Fund's 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 35% tax rate, the highest marginal federal income tax rate in effect on
September 30, 2005.
o The Fund's 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 Fund's 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 35% tax
rate, the highest marginal federal income tax rate in effect on September 30,
2005.
================================================================================
5
AIM TAX-FREE INTERMEDIATE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, to The hypothetical account values and
estimate the expenses that you paid over expenses may not be used to estimate the
As a shareholder of the Fund, you incur the period. Simply divide your account actual ending account balance or expenses
two types of costs: (1) transaction value by $1,000 (for example, an $8,600 you paid for the period. You may use this
costs, which may include sales charges account value divided by $1,000 = 8.6), information to compare the ongoing costs
(loads) on purchase payments; contingent then multiply the result by the number in of investing in the Fund and other funds.
deferred sales charges on redemptions; the table under the heading entitled To do so, compare this 5% hypothetical
and redemption fees, if any; and (2) "Actual Expenses Paid During Period" to example with the 5% hypothetical examples
ongoing costs, including management fees; estimate the expenses you paid on your that appear in the shareholder reports of
distribution and/or service fees (12b-1); account during this period. the other funds.
and other Fund expenses. This example is
intended to help you understand your HYPOTHETICAL EXAMPLE FOR Please note that the expenses shown in
ongoing costs (in dollars) of investing COMPARISON PURPOSES the table are meant to highlight your
in the Fund and to compare these costs ongoing costs only and do not reflect any
with ongoing costs of investing in other The table below also provides information transactional costs, such as sales
mutual funds. The example is based on an about hypothetical account values and charges (loads) on purchase payments,
investment of $1,000 invested at the hypothetical expenses based on the Fund's contingent deferred sales charges on
beginning of the period and held for the actual expense ratio and an assumed rate redemptions, and redemption fees, if any.
entire period April 1, 2005, through of return of 5% per year before expenses, Therefore, the hypothetical information
September 30, 2005. which is not the Fund's actual return. is useful in comparing ongoing costs
The Fund's actual cumulative total only, and will not help you determine the
ACTUAL EXPENSES returns at net asset value after expenses relative total costs of owning different
for the six months ended September 30, funds. In addition, if these
The table below provides information 2005, appear in the table "Fund vs. transactional costs were included, your
about actual account values and actual Indexes" on Page 3. costs would have been higher.
expenses. You may use the information in
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (04/01/05) (9/30/05)(1) PERIOD(2,3) (9/30/05) PERIOD(2,4) RATIO
A $1,000.00 $1,014.70 $2.27 $1,022.81 $2.28 0.45%
A3 1,000.00 1,013.00 3.78 1,021.31 3.80 0.75
(1) The actual ending account value is based on the actual total return of the Fund for the period, April 1, 2005, through September
30, 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 September 30, 2005, appear in the table "Fund vs. Indexes" on Page 3.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 183/365 to reflect the most recent fiscal half-year. Effective on July 1, 2005, the distributor
contractually agreed to reduce rule 12B-1 plan fees for Class A3 shares to 0.25%. The annualized expense ratio restated as if
the agreement had been in effect throughout the entire most recent fiscal half year is 0.70% for the Class A3 shares.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal half
year are $3.53 for the Class A3 shares.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal
half year are $3.55 for the Class A3 shares.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
6
AIM TAX-FREE INTERMEDIATE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
<Table>
The Board of Trustees of AIM Tax-Exempt o The quality of services to be provided o Overall performance of AIM. The Board
Funds (the "Board") oversees the by AIM. The Board reviewed the considered the overall performance of AIM
management of AIM Tax-Free Intermediate credentials and experience of the in providing investment advisory and
Fund (the "Fund") and, as required by officers and employees of AIM who will portfolio administrative services to the
law, determines annually whether to provide investment advisory services to Fund and concluded that such performance
approve the continuance of the Fund's the Fund. In reviewing the qualifications was satisfactory.
advisory agreement with AIM. Based upon of AIM to provide investment advisory
the recommendation of the Investments services, the Board reviewed the o Fees relative to those of clients of
Committee of the Board, which is qualifications of AIM's investment AIM with comparable investment
comprised solely of independent trustees, personnel and considered such issues as strategies. The Board noted that AIM does
at a meeting held on June 30, 2005, the AIM's portfolio and product review not serve as an advisor to other mutual
Board, including all of the independent process, various back office support funds or other clients with investment
trustees, approved the continuance of the functions provided by AIM and AIM's strategies comparable to those of the
advisory agreement (the "Advisory equity and fixed income trading Fund.
Agreement") between the Fund and AIM for operations. Based on the review of these
another year, effective July 1, 2005. and other factors, the Board concluded o Fees relative to those of comparable
that the quality of services to be funds with other advisors. The Board
The Board considered the factors provided by AIM was appropriate and that reviewed the advisory fee rate for the
discussed below in evaluating the AIM currently is providing satisfactory Fund under the Advisory Agreement. The
fairness and reasonableness of the services in accordance with the terms of Board compared effective contractual
Advisory Agreement at the meeting on June the Advisory Agreement. advisory fee rates at a common asset
30, 2005 and as part of the Board's level and noted that the Fund's rate was
ongoing oversight of the Fund. In their o The performance of the Fund relative to below the median rate of the funds
deliberations, the Board and the comparable funds. The Board reviewed the advised by other advisors with investment
independent trustees did not identify any performance of the Fund during the past strategies comparable to those of the
particular factor that was controlling, one, three and five calendar years Fund that the Board reviewed. Based on
and each trustee attributed different against the performance of funds advised this review, the Board concluded that the
weights to the various factors. by other advisors with investment advisory fee rate for the Fund under the
strategies comparable to those of the Advisory Agreement was fair and
One of the responsibilities of the Fund. The Board noted that the Fund's reasonable.
Senior Officer of the Fund, who is performance in such periods was below the
independent of AIM and AIM's affiliates, median performance of such comparable o Expense limitations and fee waivers.
is to manage the process by which the funds. The Board noted that AIM has The Board noted that there were no fee
Fund's proposed management fees are acknowledged that the Fund continues to waivers or expense limitations currently
negotiated to ensure that they are require a long-term solution to its in effect for the Fund. The Board
negotiated in a manner which is at arm's under-performance, and that management is concluded that no such waivers or
length and reasonable. To that end, the continuing to closely monitor the limitations were necessary at this time
Senior Officer must either supervise a performance of the Fund and analyze because the Fund's overall expense ratio
competitive bidding process or prepare an various possible long-term solutions. was below the median expense ratio of the
independent written evaluation. The Based on this review, the Board concluded funds advised by other advisors with
Senior Officer has recommended an that no changes should be made to the investment strategies comparable to those
independent written evaluation in lieu of Fund and that it was not necessary to of the Fund that the Board reviewed.
a competitive bidding process and, upon change the Fund's portfolio management
the direction of the Board, has prepared team at this time. o Breakpoints and economies of scale. The
such an independent written evaluation. Board reviewed the structure of the
Such written evaluation also considered o The performance of the Fund relative to Fund's advisory fee under the Advisory
certain of the factors discussed below. indices. The Board reviewed the Agreement, noting that it includes two
In addition, as discussed below, the performance of the Fund during the past breakpoints. The Board reviewed the level
Senior Officer made certain one, three and five calendar years of the Fund's advisory fees, and noted
recommendations to the Board in against the performance of the Lipper that such fees, as a percentage of the
connection with such written evaluation. Intermediate Municipal Fund Index. The Fund's net assets, would decrease as net
Board noted that the Fund's performance assets increase because the Advisory
The discussion below serves as a for the three and five year periods was Agreement includes breakpoints. The Board
summary of the Senior Officer's comparable to the performance of such noted that, due to the Fund's current
independent written evaluation and Index and below such Index for the one asset levels and the way in which the
recommendations to the Board in year period. The Board noted that AIM has advisory fee breakpoints have been
connection therewith, as well as a acknowledged that the Fund continues to structured, the Fund has yet to benefit
discussion of the material factors and require a long-term solution to its from the breakpoints. The Board concluded
the conclusions with respect thereto that under-performance, and that management is that the Fund's fee levels under the
formed the basis for the Board's approval continuing to closely monitor the Advisory Agreement therefore would
of the Advisory Agreement. After performance of the Fund and analyze reflect economies of scale at higher
consideration of all of the factors below various possible long-term solutions. asset levels and that it was not
and based on its informed business Based on this review, the Board concluded necessary to change the advisory fee
judgment, the Board determined that the that no changes should be made to the breakpoints in the Fund's advisory fee
Advisory Agreement is in the best Fund and that it was not necessary to schedule.
interests of the Fund and its change the Fund's portfolio management
shareholders and that the compensation to team at this time. o Investments in affiliated money market
AIM under the Advisory Agreement is fair funds. The Board also took into account
and reasonable and would have been o Meeting with the Fund's portfolio the fact that uninvested cash and cash
obtained through arm's length managers and investment personnel. With collateral from securities lending
negotiations. respect to the Fund, the Board is meeting arrangements (collectively, "cash
periodically with such Fund's portfolio balances") of the Fund may be invested in
o The nature and extent of the advisory managers and/or other investment money market funds advised by AIM
services to be provided by AIM. The Board personnel and believes that such pursuant to the terms of an SEC exemptive
reviewed the services to be provided by individuals are competent and able to order. The Board found that the Fund may
AIM under the Advisory Agreement. Based continue to carry out their realize certain benefits upon investing
on such review, the Board concluded that responsibilities under the Advisory cash balances in AIM advised money market
the range of services to be provided by Agreement. funds, including a higher net return,
AIM under the Advisory Agreement was increased liquidity, increased
appropriate and that AIM currently is diversification or decreased transaction
providing services in accordance with the costs. The Board also found that the Fund
terms of the Advisory Agreement. will not receive reduced services if it
</Table>
7
AIM TAX-FREE INTERMEDIATE FUND
<Table>
invests its cash balances in such money o Benefits of soft dollars to AIM. The o Other factors and current trends. In
market funds. The Board noted that, to Board considered the benefits realized by determining whether to continue the
the extent the Fund invests in affiliated AIM as a result of brokerage transactions Advisory Agreement for the Fund, the
money market funds, AIM has voluntarily executed through "soft dollar" Board considered the fact that AIM, along
agreed to waive a portion of the advisory arrangements. Under these arrangements, with others in the mutual fund industry,
fees it receives from the Fund brokerage commissions paid by the Fund is subject to regulatory inquiries and
attributable to such investment. The and/or other funds advised by AIM are litigation related to a wide range of
Board further determined that the used to pay for research and execution issues. The Board also considered the
proposed securities lending program and services. This research is used by AIM in governance and compliance reforms being
related procedures with respect to the making investment decisions for the Fund. undertaken by AIM and its affiliates,
lending Fund is in the best interests of The Board concluded that such including maintaining an internal
the lending Fund and its respective arrangements were appropriate. controls committee and retaining an
shareholders. The Board therefore independent compliance consultant, and
concluded that the investment of cash o AIM's financial soundness in light of the fact that AIM has undertaken to cause
collateral received in connection with the Fund's needs. The Board considered the Fund to operate in accordance with
the securities lending program in the whether AIM is financially sound and has certain governance policies and
money market funds according to the the resources necessary to perform its practices. The Board concluded that these
procedures is in the best interests of obligations under the Advisory Agreement, actions indicated a good faith effort on
the lending Fund and its respective and concluded that AIM has the financial the part of AIM to adhere to the highest
shareholders. resources necessary to fulfill its ethical standards, and determined that
obligations under the Advisory Agreement. the current regulatory and litigation
o Independent written evaluation and environment to which AIM is subject
recommendations of the Fund's Senior o Historical relationship between the should not prevent the Board from
Officer. The Board noted that, upon their Fund and AIM. In determining whether to continuing the Advisory Agreement for the
direction, the Senior Officer of the continue the Advisory Agreement for the Fund.
Fund, who is independent of AIM and AIM's Fund, the Board also considered the prior
affiliates, had prepared an independent relationship between AIM and the Fund, as
written evaluation in order to assist the well as the Board's knowledge of AIM's
Board in determining the reasonableness operations, and concluded that it was
of the proposed management fees of the beneficial to maintain the current
AIM Funds, including the Fund. The Board relationship, in part, because of such
noted that the Senior Officer's written knowledge. The Board also reviewed the
evaluation had been relied upon by the general nature of the non-investment
Board in this regard in lieu of a advisory services currently performed by
competitive bidding process. In AIM and its affiliates, such as
determining whether to continue the administrative, transfer agency and
Advisory Agreement for the Fund, the distribution services, and the fees
Board considered the Senior Officer's received by AIM and its affiliates for
written evaluation and the recommendation performing such services. In addition to
made by the Senior Officer to the Board reviewing such services, the trustees
that the Board consider implementing a also considered the organizational
process to assist them in more closely structure employed by AIM and its
monitoring the performance of the AIM affiliates to provide those services.
Funds. The Board concluded that it would Based on the review of these and other
be advisable to implement such a process factors, the Board concluded that AIM and
as soon as reasonably practicable. its affiliates were qualified to continue
to provide non-investment advisory
o Profitability of AIM and its services to the Fund, including
affiliates. The Board reviewed administrative, transfer agency and
information concerning the profitability distribution services, and that AIM and
of AIM's (and its affiliates') investment its affiliates currently are providing
advisory and other activities and its satisfactory non-investment advisory
financial condition. The Board considered services.
the overall profitability of AIM, as well
as the profitability of AIM in connection
with managing the Fund. The Board noted
that AIM's operations remain profitable,
although increased expenses in recent
years have reduced AIM's profitability.
Based on the review of the profitability
of AIM's and its affiliates' investment
advisory and other activities and its
financial condition, the Board concluded
that the compensation to be paid by the
Fund to AIM under its Advisory Agreement
was not excessive.
</Table>
8
SUPPLEMENT TO SEMIANNUAL REPORT DATED 9/30/05
AIM TAX-FREE INTERMEDIATE FUND
<Table>
=========================================
INSTITUTIONAL CLASS SHARES PLEASE NOTE THAT PAST PERFORMANCE IS
AVERAGE ANNUAL TOTAL RETURNS NOT INDICATIVE OF FUTURE RESULTS. MORE
The following information has been For periods ended 9/30/05 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 4.72% REINVESTMENT OF DISTRIBUTIONS AT NET
specific to their holdings. Institutional 5 Years 4.72 ASSET VALUE. INVESTMENT RETURN AND
Class shares are offered exclusively to 1 Year 0.95 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
institutional investors, including 6 Months* 1.49 SHARES, WHEN REDEEMED, MAY BE WORTH MORE
defined contribution plans that meet OR LESS THAN THEIR ORIGINAL COST. SEE
certain criteria. *Cumulative total return that has not FULL REPORT FOR INFORMATION ON
been annualized COMPARATIVE BENCHMARKS. PLEASE CONSULT
YOUR FUND PROSPECTUS FOR MORE
========================================= INFORMATION. FOR THE MOST CURRENT
MONTH-END PERFORMANCE, PLEASE CALL
INSTITUTIONAL CLASS SHARES HAVE NO SALES 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
CHARGE; THEREFORE, PERFORMANCE IS AT NAV.
INSTITUTIONAL CLASS SHARES WOULD HAVE HAD
DIFFERENT RETURNS DUE TO DIFFERENCES IN
THE EXPENSE STRUCTURE OF THE
INSTITUTIONAL CLASS.
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.
=========================================
NASDAQ SYMBOL ATFIX
=========================================
</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.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com TFI-INS-2
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE divide your account value by $1,000 (for The hypothetical account values and
example, an $8,600 account value divided expenses may not be used to estimate the
As a shareholder of the Fund, you incur by $1,000 = 8.6), then multiply the actual ending account balance or expenses
ongoing costs, including management fees result by the number in the table under you paid for the period. You may use this
and other Fund expenses. This example is the heading entitled "Actual Expenses information to compare the ongoing costs
intended to help you understand your Paid During Period" to estimate the of investing in the Fund and other funds.
ongoing costs (in dollars) of investing expenses you paid on your account during To do so, compare this 5% hypothetical
in the Fund and to compare these costs this period. example with the 5% hypothetical examples
with ongoing costs of investing in other that appear in the shareholder reports of
mutual funds. The example is based on an HYPOTHETICAL EXAMPLE FOR the other funds.
investment of $1,000 invested at the COMPARISON PURPOSES
beginning of the period and held for the Please note that the expenses shown in
entire period April 1, 2005, through The table below also provides information the table are meant to highlight your
September 30, 2005. about hypothetical account values and ongoing costs only. Therefore, the
hypothetical expenses based on the Fund's hypothetical information is useful in
ACTUAL EXPENSES actual expense ratio and an assumed rate comparing ongoing costs only, and will
of return of 5% per year before expenses, not help you determine the relative total
The table below provides information which is not the Fund's actual return. costs of owning different funds.
about actual account values and actual The Fund's actual cumulative total return
expenses. You may use the information in after expenses for the six months ended
this table, together with the amount you September 30, 2005, appears in the table
invested, to estimate the expenses that on the front of this supplement.
you paid over the period. Simply
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (4/1/05) (9/30/05)(1) PERIOD(2) (9/30/05) PERIOD(2) RATIO
Institutional $1,000.00 $1,014.90 $2.07 $1,023.01 $2.08 0.41%
(1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2005, through September
30, 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 September 30, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 183/365 to reflect the most recent fiscal half-year.
====================================================================================================================================
</Table>
AIMinvestments.com TFI-INS-2
FINANCIALS
SCHEDULE OF INVESTMENTS
September 30, 2005
(Unaudited)
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-98.26%
ALABAMA-2.23%
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 $ 690,734
- ---------------------------------------------------------------------------------------
Birmingham (City of); Refunding Unlimited Tax
Series 2001 B GO Wts.
(INS-Financial Security
Assurance Inc.)
5.25%, 07/01/10(d)(e) AAA Aaa 1,950 2,113,663
- ---------------------------------------------------------------------------------------
Jefferson (County of); School Limited Tax
Series 2000 GO Wts.
(INS-Financial Security
Assurance Inc.) 5.05%, 02/15/09(d)(e) AAA Aaa 1,000 1,058,140
- ---------------------------------------------------------------------------------------
Unlimited Tax Series 2001 A GO Wts.
(INS-Ambac Assurance Corp.) 5.00%,
04/01/10(d)(e) AAA Aaa 2,925 3,128,346
- ---------------------------------------------------------------------------------------
Lauderdale (County of) & Florence (City of)
Health Care Authority (Coffee Health Group
Project);
Series 1999 A RB (INS-MBIA Insurance Corp.)
5.00%, 07/01/07(d)(e) AAA Aaa 1,000 1,031,360
- ---------------------------------------------------------------------------------------
Series 2000 A RB (INS-MBIA Insurance Corp.)
5.50%, 07/01/08(d)(e) AAA Aaa 385 407,607
=======================================================================================
8,429,850
=======================================================================================
ALASKA-0.28%
Anchorage (City of); Correctional Facilities
Lease Series 2000 RB
(INS-Financial Security Assurance Inc.)
5.13%, 02/01/09(d)(e) AAA Aaa 1,000 1,058,550
=======================================================================================
AMERICAN SAMOA-0.74%
American Samoa (Territory of); Refunding
Unlimited Tax Series 2000 GO (INS-ACA
Financial Guaranty Corp.)
6.00%, 09/01/06(d)(e) A -- 1,585 1,614,116
- ---------------------------------------------------------------------------------------
6.00%, 09/01/07(d)(e) A -- 1,150 1,197,115
=======================================================================================
2,811,231
=======================================================================================
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
ARIZONA-1.90%
Arizona (State of) Transportation Board;
Refunding Highway Sub. Series 1993 A RB
6.00%, 07/01/08(d) AA Aa2 $ 800 $ 860,864
- ---------------------------------------------------------------------------------------
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 1,996,558
- ---------------------------------------------------------------------------------------
Phoenix (City of) Civic Improvement Corp.;
Refunding Wastewater System Jr. Lien Series
2001 RB (INS-Financial Guaranty Insurance
Co.)
5.25%, 07/01/11(d)(e) AAA Aaa 3,000 3,291,900
- ---------------------------------------------------------------------------------------
Yuma (City of) Industrial Development
Authority (Yuma Regional Medical Center
Project); Refunding Hospital Series 1997 RB
(INS-MBIA Insurance Corp.)
5.70%, 08/01/06(d)(e) AAA Aaa 1,000 1,022,130
=======================================================================================
7,171,452
=======================================================================================
ARKANSAS-0.75%
Little Rock (City of) School District;
Limited Tax Series 2001 C GO (INS-Financial
Security Assurance Inc.)
5.00%, 02/01/10(d)(e) -- Aaa 1,695 1,808,701
- ---------------------------------------------------------------------------------------
Sebastian (County of) Community Junior
College District; Refunding & Improvement
Limited Tax
Series 1997 GO
5.20%, 04/01/07(b)(d) NRR Aaa 1,000 1,033,570
=======================================================================================
2,842,271
=======================================================================================
COLORADO-0.56%
Boulder (County of) Open Space Capital
Improvement Trust Fund;
Series 1998 RB
5.25%, 12/15/09(d) AA- -- 1,000 1,052,820
- ---------------------------------------------------------------------------------------
Northwest Parkway Public Highway Authority;
Sr. Series 2001 A RB (INS-Financial
Security Assurance Inc.)
5.00%, 06/15/11(d)(e) AAA Aaa 1,000 1,081,080
=======================================================================================
2,133,900
=======================================================================================
</Table>
F-1
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
CONNECTICUT-0.83%
Connecticut (State of) Resources Recovery
Authority (Bridgeport Resco Co. L.P.
Project); Refunding Series 1999 RB
(INS-MBIA Insurance Corp.)
5.13%, 01/01/09(d)(e) AAA Aaa $ 1,000 $ 1,057,150
- ---------------------------------------------------------------------------------------
New Haven (City of); Unlimited Tax Series
1997 GO (INS-Financial Guaranty Insurance
Co.)
6.00%, 02/15/06(d)(e) AAA Aaa 2,050 2,073,513
=======================================================================================
3,130,663
=======================================================================================
DISTRICT OF COLUMBIA-7.15%
District of Columbia (Gonzaga College High
School); Series 1999 RB (INS-Financial
Security Assurance Inc.)
5.25%, 07/01/09(d)(e) AAA Aaa 510 544,129
- ---------------------------------------------------------------------------------------
District of Columbia (Medlantic Healthcare
Group);
Refunding Hospital
Series 1993 A RB
5.50%, 08/15/06(b)(d) AAA Aaa 500 511,215
- ---------------------------------------------------------------------------------------
Refunding Hospital Series 1996 A RB
6.00%, 08/15/06(b)(d) AAA Aaa 1,550 1,591,307
- ---------------------------------------------------------------------------------------
Refunding Hospital Series 1997 A RB
6.00%, 08/15/07(b)(d) AAA Aaa 500 527,680
- ---------------------------------------------------------------------------------------
District of Columbia;
Refunding Unlimited Tax Series 1993 B-1 GO
(INS-Ambac Assurance Corp.)
5.50%, 06/01/09(d)(e) AAA Aaa 1,250 1,343,462
- ---------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 1993 B-2 GO
(INS-Financial Security Assurance Inc.)
5.50%, 06/01/07(d)(e) AAA Aaa 3,000 3,120,120
- ---------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 1999 B GO
(INS-Financial Security Assurance Inc.)
5.50%, 06/01/10(d)(e) AAA Aaa 1,415 1,541,246
- ---------------------------------------------------------------------------------------
Prerefunded Unlimited Tax Series 1999 B GO
5.50%, 06/01/09(b)(d) AAA Aaa 950 1,027,501
- ---------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1999 B GO
(INS-Financial Security Assurance Inc.)
5.50%, 06/01/09(d)(e) AAA Aaa 14,160 15,218,743
- ---------------------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
DISTRICT OF COLUMBIA-(CONTINUED)
Washington Convention Center Authority; Sr.
Lien Dedicated Tax Series 1998 RB
(INS-Ambac Assurance Corp.)
5.25%, 10/01/09(d)(e) AAA Aaa $ 1,500 $ 1,617,120
=======================================================================================
27,042,523
=======================================================================================
FLORIDA-2.67%
Broward (County of) (Wheelabrator South
Broward Inc.); Refunding Resource Recovery
Series 2001 A RB
5.00%, 12/01/07(d) AA A3 2,800 2,898,140
- ---------------------------------------------------------------------------------------
5.50%, 12/01/08(d) AA A3 1,700 1,803,275
- ---------------------------------------------------------------------------------------
Florida (State of) Board of Education;
Lottery Series 2000 B RB (INS-Financial
Guaranty Insurance Co.) 5.75%,
07/01/10(d)(e) AAA Aaa 1,000 1,107,070
- ---------------------------------------------------------------------------------------
Palm Beach (County of) Solid Waste Authority;
Refunding Series 1997 A RB (INS-Ambac
Assurance Corp.) 5.50%, 10/01/06(d)(e) AAA Aaa 3,000 3,074,310
- ---------------------------------------------------------------------------------------
Village Center Community Development
District; Refunding Recreational Series
1998 A RB (INS-MBIA Insurance Corp.)
5.50%, 11/01/10(d)(e) AAA Aaa 1,105 1,215,489
=======================================================================================
10,098,284
=======================================================================================
GEORGIA-1.01%
Dalton (City of); Combined Utilities Series
1999 RB
(INS-Financial Security
Assurance Inc.)
5.75%, 01/01/10(d)(e) AAA Aaa 1,015 1,112,988
- ---------------------------------------------------------------------------------------
Georgia (State of);
Unlimited Tax
Series 1992 B GO
6.30%, 03/01/09(d) AAA Aaa 1,425 1,565,932
- ---------------------------------------------------------------------------------------
6.30%, 03/01/10(d) AAA Aaa 1,000 1,124,650
=======================================================================================
3,803,570
=======================================================================================
HAWAII-0.29%
Hawaii (State of); Unlimited Tax Series 1993
CA GO
(INS-MBIA Insurance Corp.)
5.75%, 01/01/10(d)(e) AAA Aaa 1,000 1,095,710
=======================================================================================
IDAHO-0.01%
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 40 40,362
=======================================================================================
</Table>
F-2
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
ILLINOIS-6.80%
Chicago (City of) (Central Loop
Redevelopment); Tax Increment Allocation
Sub. Series 2000 A RB (INS-ACA Financial
Guaranty Corp.)
6.50%, 12/01/08(d)(e) A -- $ 8,000 $ 8,569,680
- ---------------------------------------------------------------------------------------
Chicago (City of) Midway Airport; Series 1996
A RB (INS-MBIA Insurance Corp.)
5.30%, 01/01/08(d)(e) AAA Aaa 1,000 1,036,110
- ---------------------------------------------------------------------------------------
Chicago (City of) Park District; Corporate
Purpose Tax Anticipation
Series 2005 A RB Wts.
4.00%, 05/01/06(d) SP-1+ MIG1 2,000 2,012,180
- ---------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 1995 GO
(INS-Financial Guaranty Insurance Co.)
6.00%, 01/01/07(d)(e) AAA Aaa 2,000 2,072,320
- ---------------------------------------------------------------------------------------
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 -- 960 964,138
- ---------------------------------------------------------------------------------------
Illinois (State of) (Department of Central
Management Services); Series 1999 COP
(INS-Ambac Assurance Corp.)
4.90%, 07/01/08(d)(e) AAA Aaa 1,000 1,043,390
- ---------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Children's Memorial Hospital);
Series 1999 A RB (INS-Ambac Assurance
Corp.)
5.50%, 08/15/07(d)(e) AAA Aaa 1,580 1,647,118
- ---------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Edward Hospital Obligated
Group); Series 2001 A RB (INS-Financial
Security Assurance Inc.)
5.00%, 02/15/09(d)(e) AAA Aaa 1,000 1,052,000
- ---------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Highland Park Hospital); Series
1991 B RB
5.55%, 10/01/06(b)(d) AAA Aaa 500 513,120
- ---------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (The Carle Foundation);
Prerefunded Series 1998 A RB
5.25%, 07/01/08(b)(c)(d) AAA Aaa 585 623,926
- ---------------------------------------------------------------------------------------
Unrefunded Series 1998 A RB (INS-Ambac
Assurance Corp.)
5.25%, 07/01/09(d)(e) AAA Aaa 415 440,925
- ---------------------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
ILLINOIS-(CONTINUED)
Illinois (State of); Refunding First
Unlimited Tax Series 2001 GO (INS-Financial
Security Assurance Inc.)
5.25%, 10/01/11(d)(e) AAA Aaa $ 1,790 $ 1,956,900
- ---------------------------------------------------------------------------------------
Madison & Saint Clair (Counties of) School
District #10 (Collinsville School
Building); Unlimited Tax Series 2001 GO
(INS-Financial Guaranty Insurance Co.)
5.00%, 02/01/11(d)(e) AAA Aaa 1,150 1,234,778
- ---------------------------------------------------------------------------------------
McHenry (County of) Consolidated School
District #47 (Crystal Lake); Unlimited Tax
Series 1999 GO (INS-Financial Security
Assurance Inc.)
5.13%, 02/01/10(d)(e) -- Aaa 1,250 1,321,162
- ---------------------------------------------------------------------------------------
Warrenville (City of); Tax Increment Series
2000 RB (INS-Financial Security Assurance
Inc.)
5.25%, 05/01/07(d)(e) AAA Aaa 1,170 1,209,745
=======================================================================================
25,697,492
=======================================================================================
INDIANA-2.69%
Concord (City of) Community Schools Building
Corp.; Refunding First Mortgage Series 2005
RB (INS-Financial Security Assurance Inc.)
5.00%, 01/10/13(d)(e) AAA -- 1,520 1,645,780
- ---------------------------------------------------------------------------------------
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 2,986,337
- ---------------------------------------------------------------------------------------
Indiana (State of) Transportation Finance
Authority; Unrefunded Highway Series 1993 A
RB (INS-Ambac Assurance Corp.)
5.50%, 06/01/07(d)(e) AAA Aaa 855 888,815
- ---------------------------------------------------------------------------------------
Indianapolis (City of) Local Public
Improvement Bond Bank; Series 1999 D RB
5.10%, 01/01/09(d) AAA Aaa 425 448,966
- ---------------------------------------------------------------------------------------
New Prairie United School Building Corp.;
Refunding First Mortgage Series 2005 RB
(INS-Financial Security Assurance Inc.)
4.50%, 07/05/15(d)(e) AAA -- 1,480 1,553,822
- ---------------------------------------------------------------------------------------
Richland-Bean Blossom School Building Corp.;
First Mortgage Series 2001 RB
5.00%, 07/15/10(b)(d) AAA Aaa 1,045 1,111,723
- ---------------------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
INDIANA-(CONTINUED)
Zionsville (City of) Community Schools
Building Corp.; First Mortgage Series 2002
RB
5.00%, 07/15/11(b)(d) AAA Aaa $ 1,420 $ 1,532,010
=======================================================================================
10,167,453
=======================================================================================
KANSAS-1.54%
Johnson (County of) Water District #1; Series
2001 RB
5.00%, 06/01/11(d) AAA Aaa 1,770 1,914,521
- ---------------------------------------------------------------------------------------
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 150 160,482
- ---------------------------------------------------------------------------------------
5.00%, 12/01/10(b)(d) AAA Aaa 130 140,329
- ---------------------------------------------------------------------------------------
Wyandotte (County of) & Kansas City (City of)
Unified Government (Redevelopment
Project-Area B); Unrefunded Special
Obligation Series 2001 RB (INS-Ambac
Assurance Corp.)
5.00%, 12/01/09(d)(e) AAA Aaa 930 991,631
- ---------------------------------------------------------------------------------------
5.00%, 12/01/10(d)(e) AAA Aaa 620 666,829
- ---------------------------------------------------------------------------------------
Wyandotte (County of) School District #500;
Unlimited Tax Series 2001 GO (INS-Financial
Security Assurance Inc.)
5.50%, 09/01/11(d)(e) AAA Aaa 1,750 1,938,160
=======================================================================================
5,811,952
=======================================================================================
KENTUCKY-0.29%
Kentucky (State of) Turnpike Authority
(Revitalization Project); Refunding
Economic Development Road Series 2001 A RB
(INS-Ambac Assurance Corp.)
5.50%, 07/01/11(d)(e) AAA Aaa 1,000 1,105,850
=======================================================================================
LOUISIANA-3.88%
England (District of) Sub-District #1; Series
2005 RB (INS-Financial Guaranty Insurance
Co.)
5.00%, 08/15/10(d)(e) AAA Aaa 1,000 1,069,710
- ---------------------------------------------------------------------------------------
Louisiana (State of) Energy & Power Authority
(Power Project); Refunding Series 2000 RB
(INS-Financial Security Assurance Inc.)
5.75%, 01/01/11(d)(e) AAA Aaa 2,500 2,759,425
- ---------------------------------------------------------------------------------------
Louisiana (State of) Transportation
Authority; Sub. Lien Toll Series 2005 RB
BAN
5.00%, 09/01/09(d) AA Aa3 2,000 2,122,060
- ---------------------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
<Caption>
- ---------------------------------------------------------------------------------------
LOUISIANA-(CONTINUED)
Louisiana (State of); Unlimited Tax Series
1997 A GO (INS-Financial Guaranty Insurance
Co.)
6.00%, 04/15/07(d)(e) AAA Aaa $ 5,000 $ 5,217,750
- ---------------------------------------------------------------------------------------
New Orleans (City of); Certificates of
Indebtedness Series 2000 RB (INS-Financial
Security Assurance Inc.)
5.50%, 12/01/09(d)(e) AAA Aaa 1,000 1,073,870
- ---------------------------------------------------------------------------------------
Tangipahoa (Parish of) Hospital Service
District #1 (North Oaks Medical Center
Project); Refunding Hospital Series 2003 A
RB
5.38%, 02/01/15(d) A -- 2,275 2,440,779
=======================================================================================
14,683,594
=======================================================================================
MARYLAND-0.53%
Prince Georges (County of) (Equipment
Acquisition Project); Series 2005 COP
(INS-MBIA Insurance Corp.)
4.00%, 09/01/06(d)(e) AAA Aaa 2,000 2,020,200
=======================================================================================
MASSACHUSETTS-2.84%
Massachusetts (State of); Consumer Lien
Limited Tax Series 2000 A GO
5.75%, 02/01/09(d) AA Aa2 5,000 5,390,400
- ---------------------------------------------------------------------------------------
Refunding Limited Tax Series 1997 A GO
(INS-Financial Guaranty Insurance Co.)
5.75%, 08/01/08(d)(e) AAA Aaa 5,000 5,357,950
=======================================================================================
10,748,350
=======================================================================================
MICHIGAN-1.53%
Detroit (City of); Refunding Unlimited Tax
Series 1997 B GO (INS-MBIA Insurance Corp.)
5.38%, 04/01/10(d)(e) AAA Aaa 1,630 1,728,012
- ---------------------------------------------------------------------------------------
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 1,100,960
- ---------------------------------------------------------------------------------------
Michigan (State of) Strategic Fund (Detroit
Edison Co.); Refunding Limited Obligation
Series 1995 CC RB (INS-Ambac Assurance
Corp.)
4.85%, 09/01/11(c)(d)(e) -- Aaa 1,000 1,050,720
- ---------------------------------------------------------------------------------------
Taylor (City of); Series 2001 COP (INS-Ambac
Assurance Corp.)
5.00%, 02/01/11(d)(e) AAA Aaa 495 532,739
- ---------------------------------------------------------------------------------------
</Table>
F-4
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
MICHIGAN-(CONTINUED)
Troy (City of) Downtown Development
Authority; Refunding & Development Tax
Allocation Series 2001 RB (INS-MBIA
Insurance Corp.)
5.00%, 11/01/10(d)(e) AAA Aaa $ 1,265 $ 1,362,810
=======================================================================================
5,775,241
=======================================================================================
MINNESOTA-1.18%
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 1,062,520
- ---------------------------------------------------------------------------------------
Saint Cloud (City of) (Saint Cloud Hospital
Obligated Group); Health Care Series 2000 A
RB (INS-Financial Security Assurance Inc.)
5.50%, 05/01/06(d)(e) -- Aaa 600 607,848
- ---------------------------------------------------------------------------------------
Western Minnesota Municipal Power Agency;
Refunding Series 2001 A RB (INS-Ambac
Assurance Corp.)
5.50%, 01/01/10(d)(e) -- Aaa 1,245 1,352,966
- ---------------------------------------------------------------------------------------
5.50%, 01/01/11(d)(e) -- Aaa 1,300 1,428,622
=======================================================================================
4,451,956
=======================================================================================
MISSISSIPPI-0.46%
Rankin (County of) School District; Unlimited
Tax Series 2001 GO (INS-Financial Security
Assurance Inc.)
5.00%, 10/01/11(d)(e) AAA Aaa 1,625 1,753,846
=======================================================================================
MISSOURI-1.00%
Missouri (State of) Health & Educational
Facilities Authority (Freeman Health
Systems Project); Health Facilities Series
1998 RB (INS-ACA Financial Guaranty Corp.)
4.85%, 02/15/07(d)(e) A -- 1,000 1,016,420
- ---------------------------------------------------------------------------------------
5.00%, 02/15/08(d)(e) A -- 515 529,157
- ---------------------------------------------------------------------------------------
Missouri (State of) Health & Educational
Facilities Authority (Saint Luke's
Episcopal-Presbyterian Hospital); Health
Facilities Series 2001 RB (INS-Financial
Security Assurance Inc.)
5.25%, 12/01/09(d)(e) AAA Aaa 1,000 1,075,100
- ---------------------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
<Caption>
- ---------------------------------------------------------------------------------------
MISSOURI-(CONTINUED)
Missouri (State of) Health & Educational
Facilities Authority (Webster University);
Educational Facilities Series 2001 RB
(INS-MBIA Insurance Corp.)
5.00%, 04/01/11(d)(e) -- Aaa $ 1,075 $ 1,159,345
=======================================================================================
3,780,022
=======================================================================================
NEVADA-0.42%
Nevada (State of); Capital Improvement &
Cultural Affairs Limited Tax Series 1999 A
GO
5.00%, 02/01/10(d) AA Aa1 1,500 1,587,165
=======================================================================================
NEW JERSEY-2.31%
New Jersey (State of) Transportation Trust
Fund Authority; Transportation System
Series 1999 A RB
5.50%, 06/15/10(d) AA- A1 8,020 8,712,046
=======================================================================================
NEW YORK-4.92%
Nassau (County of); General Improvements
Unlimited Tax Series 1997 V GO (INS-Ambac
Assurance Corp.)
5.15%, 03/01/07(d)(e) AAA Aaa 2,500 2,577,200
- ---------------------------------------------------------------------------------------
New York (City of) Metropolitan
Transportation Authority (Triborough Bridge
& Tunnel); Series 1999 A COP (INS-Ambac
Assurance Corp.)
5.00%, 01/01/08(d)(e) AAA Aaa 1,000 1,041,630
- ---------------------------------------------------------------------------------------
New York (State of) Dormitory Authority
(Frances Schervier Obligated Group); Series
1997 RB (INS-Financial Security Assurance
Inc.)
5.50%, 07/01/10(d)(e) AAA Aaa 1,205 1,317,029
- ---------------------------------------------------------------------------------------
New York (State of) Dormitory Authority
(Mental Health Services);
Series 1997 A RB
6.00%, 02/15/07(b)(c)(d) NRR NRR 5 5,299
- ---------------------------------------------------------------------------------------
Unrefunded Series 1997 A RB
6.00%, 08/15/07(b)(d) NRR NRR 1,770 1,857,137
- ---------------------------------------------------------------------------------------
New York (State of) Dormitory Authority (Pace
University); Series 1997 RB
6.00%, 07/01/07(b)(d) AAA Aaa 1,275 1,341,045
- ---------------------------------------------------------------------------------------
New York (State of) Local Government
Assistance Corp.; Refunding Series 1996 A
RB (INS-Ambac Assurance Corp.)
5.13%, 04/01/10(d)(e) AAA Aaa 5,000 5,193,200
- ---------------------------------------------------------------------------------------
</Table>
F-5
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
NEW YORK-(CONTINUED)
New York (State of) Thruway Authority; Series
1997 D RB
5.40%, 01/01/07(b)(c)(d) NRR NRR $ 5,000 $ 5,248,550
=======================================================================================
18,581,090
=======================================================================================
NORTH CAROLINA-4.51%
Charlotte (City of); Refunding Unlimited Tax
Series 1998 GO
5.25%, 02/01/10(d) AAA Aaa 5,000 5,288,850
- ---------------------------------------------------------------------------------------
North Carolina (State of) Eastern Municipal
Power Agency; Refunding Power System Series
1993 B RB (INS-MBIA Insurance Corp.)
7.00%, 01/01/08(d)(e) AAA Aaa 1,000 1,082,530
- ---------------------------------------------------------------------------------------
North Carolina (State of) Municipal Power
Agency #1 (Catawba); Electric Series 1999 A
RB (INS-MBIA Insurance Corp.)
6.00%, 01/01/07(d)(e) AAA Aaa 4,330 4,477,999
- ---------------------------------------------------------------------------------------
North Carolina (State of); Public
Improvements Unlimited Tax Series 1999 A GO
5.25%, 03/01/09(b)(c)(d) AAA NRR 5,000 5,355,550
- ---------------------------------------------------------------------------------------
Winston-Salem (City of); Series 2001 C COP
4.75%, 06/01/11(d) AA+ Aa2 795 845,554
=======================================================================================
17,050,483
=======================================================================================
NORTH DAKOTA-0.48%
Burleigh (County of) (Medcenter One, Inc.);
Refunding Health Care Series 1999 RB
(INS-MBIA Insurance Corp.)
5.25%, 05/01/09(d)(e) AAA Aaa 1,695 1,802,531
=======================================================================================
OHIO-0.29%
Greene (County of) Water System; Series 1996
A RB
5.45%, 12/01/06(b)(d) AAA Aaa 585 601,474
- ---------------------------------------------------------------------------------------
Portage (County of) (Robinson Memorial
Hospital); Hospital Series 1999 RB
(INS-Ambac Assurance Corp.)
5.15%, 11/15/08(d)(e) AAA Aaa 465 491,631
=======================================================================================
1,093,105
=======================================================================================
OKLAHOMA-1.72%
Grady (County of) Industrial Authority;
Correctional Facilities Lease Series 1999
RB (INS-MBIA Insurance Corp.)
5.38%, 11/01/09(d)(e) AAA Aaa 360 373,036
- ---------------------------------------------------------------------------------------
Grand River Dam Authority; Refunding Series
1993 RB (INS-Ambac Assurance Corp.)
5.50%, 06/01/09(d)(e) AAA Aaa 2,000 2,157,420
- ---------------------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
<Caption>
- ---------------------------------------------------------------------------------------
OKLAHOMA-(CONTINUED)
Mustang (City of) Improvement Authority;
Utility Series 1999 RB (INS-Financial
Security Assurance Inc.)
5.25%, 10/01/09(d)(e) -- Aaa $ 950 $ 1,022,381
- ---------------------------------------------------------------------------------------
Norman (City of) Regional Hospital Authority;
Refunding Hospital Series 1996 A RB
(INS-MBIA Insurance Corp.)
5.30%, 09/01/07(d)(e) AAA Aaa 1,090 1,133,622
- ---------------------------------------------------------------------------------------
Oklahoma (State of) Development Finance
Authority (Oklahoma Hospital Association);
Pooled Health Facilities Series 2000 A RB
(INS-Ambac Assurance Corp.)
5.25%, 06/01/06(d)(e) AAA Aaa 575 583,763
- ---------------------------------------------------------------------------------------
5.25%, 06/01/08(d)(e) AAA Aaa 640 673,120
- ---------------------------------------------------------------------------------------
Okmulgee (County of) Governmental Building
Authority; First Mortgage Sales Tax Series
2000 RB (INS-MBIA Insurance Corp.)
5.60%, 03/01/10(d)(e) -- Aaa 545 573,051
=======================================================================================
6,516,393
=======================================================================================
OREGON-1.18%
Grand Ronde Community Confederated Tribes;
Governmental Facilities & Infrastructure
Unlimited Tax Series 1997 GO (INS-Ambac
Assurance Corp.) (Acquired 12/22/97; Cost
$1,145,000)
5.00%, 12/01/07(d)(e)(f) AAA -- 1,145 1,191,682
- ---------------------------------------------------------------------------------------
Multnomah (County of); Limited Tax Series
2000 A GO
5.00%, 04/01/10(d) -- Aa2 1,000 1,068,660
- ---------------------------------------------------------------------------------------
Portland (City of) Community College
District; Unlimited Tax Series 2001 B GO
5.25%, 06/01/11(d) AA Aa2 2,000 2,181,300
=======================================================================================
4,441,642
=======================================================================================
PENNSYLVANIA-1.63%
Allegheny (County of) Sanitation Authority;
Refunding Sewer Series 2005 A RB (INS-MBIA
Insurance Corp.)
5.00%, 12/01/14(d)(e) AAA Aaa 1,000 1,092,820
- ---------------------------------------------------------------------------------------
Pennsylvania (State of); First Unlimited Tax
Series 2000 GO (INS-MBIA Insurance Corp.)
5.50%, 01/15/08(d)(e) AAA Aaa 1,000 1,053,690
- ---------------------------------------------------------------------------------------
</Table>
F-6
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
PENNSYLVANIA-(CONTINUED)
Philadelphia (City of) School District;
Refunding Unlimited Tax Series 1999 D GO
(INS-MBIA Insurance Corp.)
5.50%, 03/01/08(d)(e) AAA Aaa $ 2,000 $ 2,110,380
- ---------------------------------------------------------------------------------------
Pittsburgh (City of) Public Parking
Authority; Refunding Series 2005 A RB
(INS-Financial Guaranty Insurance Co.)
5.00%, 12/01/14(d)(e) AAA Aaa 1,000 1,076,780
- ---------------------------------------------------------------------------------------
State Public School Building Authority
(Chester Upland School District Project);
Series 2001 RB (INS-Financial Security
Assurance Inc.)
4.80%, 11/15/10(d)(e) AAA Aaa 785 838,796
=======================================================================================
6,172,466
=======================================================================================
PUERTO RICO-0.14%
Children's Trust Fund; Tobacco Settlement
Series 2000 RB
5.00%, 07/01/08(b)(d) AAA NRR 500 524,740
=======================================================================================
RHODE ISLAND-0.24%
Woonsocket (City of); Unlimited Tax Series
2000 GO
(INS-Financial Guaranty Insurance Co.)
5.25%, 10/01/10(d)(e) -- Aaa 840 913,567
=======================================================================================
SOUTH CAROLINA-2.52%
Berkeley (County of) School District
(Berkeley School Facilities Group Inc.);
Series 1995 COP
5.05%, 02/01/07(b)(d) AAA Aaa 1,835 1,866,158
- ---------------------------------------------------------------------------------------
Piedmont (City of) Municipal Power Agency;
Refunding Electric Series 1996 B RB
(INS-Financial Guaranty Insurance Co.)
5.25%, 01/01/08(d)(e) AAA Aaa 4,000 4,167,800
- ---------------------------------------------------------------------------------------
South Carolina (State of) Public Service
Authority; Series 1999 A RB (INS-MBIA
Insurance Corp.)
5.50%, 01/01/10(d)(e) AAA Aaa 1,000 1,091,270
- ---------------------------------------------------------------------------------------
South Carolina (State of) Transportation
Infrastructure Bank; Series 1999 A RB
(INS-Ambac Assurance Corp.)
5.50%, 10/01/09(d)(e) AAA Aaa 1,180 1,283,179
- ---------------------------------------------------------------------------------------
South Carolina (State of); Capital
Improvements Unlimited Tax Series 2001 B GO
5.50%, 04/01/11(d) AA+ Aaa 1,000 1,106,980
=======================================================================================
9,515,387
=======================================================================================
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
<Caption>
- ---------------------------------------------------------------------------------------
SOUTH DAKOTA-1.13%
South Dakota (State of) Building Authority;
Refunding Series 2005 C RB (INS-Financial
Security Assurance Inc.)
5.00%, 09/01/15(d)(e) AAA Aaa $ 1,085 $ 1,185,981
- ---------------------------------------------------------------------------------------
South Dakota (State of) Health & Educational
Facilities Authority (McKennan Hospital);
Refunding Series 1996 RB (INS-MBIA
Insurance Corp.)
5.40%, 07/01/06(d)(e) AAA Aaa 1,680 1,709,652
- ---------------------------------------------------------------------------------------
South Dakota (State of) Health & Educational
Facilities Authority (Rapid City Regional
Hospital); Series 2001 RB (INS-MBIA
Insurance Corp.)
5.00%, 09/01/09(d)(e) AAA Aaa 1,290 1,367,271
=======================================================================================
4,262,904
=======================================================================================
TENNESSEE-1.02%
Clarksville (City of) Public Building
Authority (Tennessee Municipal Bond Fund);
Pooled Financing VRD Series 1999 RB
(LOC-Bank of America, N.A.) (Acquired
09/21/05-09/29/05; Cost $1,190,000)
2.75%, 06/01/29(f)(g)(h) -- VMIG-1 1,190 1,190,000
- ---------------------------------------------------------------------------------------
Memphis (City of) Sanitation; Sewer System
Series 2000 RB
5.35%, 05/01/09(d) AA A2 525 556,280
- ---------------------------------------------------------------------------------------
Tennergy Corp.; Gas Series 1999 RB (INS-MBIA
Insurance Corp.)
4.13%, 06/01/09(d)(e) AAA Aaa 1,000 1,028,160
- ---------------------------------------------------------------------------------------
Tennessee (State of) School Bond Authority;
Higher Educational Facilities Second
Program Series 2002 A RB (INS-Financial
Security Assurance Inc.)
5.00%, 05/01/11(d)(e) AAA Aaa 1,000 1,079,520
=======================================================================================
3,853,960
=======================================================================================
TEXAS-19.94%
Amarillo (City of) Health Facilities Corp.
(Baptist Saint Anthony's Hospital Corp.);
Series 1998 RB (INS-Financial Security
Assurance Inc.)
5.50%, 01/01/10(d)(e) -- Aaa 1,275 1,380,838
- ---------------------------------------------------------------------------------------
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 1,047,150
- ---------------------------------------------------------------------------------------
</Table>
F-7
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Austin (City of); Limited Tax Certificates
Series 2001 GO
5.00%, 09/01/11(d) AA+ Aa2 $ 1,900 $ 2,041,360
- ---------------------------------------------------------------------------------------
Brownsville (City of); Limited Tax
Certificates Series 2001 GO (INS-Financial
Guaranty Insurance Co.)
5.25%, 02/15/10(d)(e) AAA Aaa 1,055 1,134,769
- ---------------------------------------------------------------------------------------
Canadian River Municipal Water Authority
(Conjunctive Use Groundwater Project);
Refunding Contract Series 1999 RB (INS-MBIA
Insurance Corp.)
5.00%, 02/15/10(d)(e) AAA Aaa 2,655 2,789,609
- ---------------------------------------------------------------------------------------
Dallas (City of) Waterworks & Sewer System;
Refunding Series 1999 RB
5.50%, 10/01/09(d) AA+ Aa2 1,500 1,624,140
- ---------------------------------------------------------------------------------------
Garland (City of); Limited Tax Certificates
Series 2001 GO (INS-MBIA Insurance Corp.)
5.25%, 02/15/11(d)(e) AAA Aaa 2,435 2,641,537
- ---------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (CHRISTUS Health); Series
1999 A RB (INS-MBIA Insurance Corp.)
5.38%, 07/01/08(d)(e) AAA Aaa 1,000 1,049,840
- ---------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Memorial Hermann
Hospital System Project); Hospital Series
1998 RB (INS-Financial Security Assurance
Inc.)
5.50%, 06/01/09(d)(e) AAA Aaa 5,500 5,903,425
- ---------------------------------------------------------------------------------------
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 2,008,877
- ---------------------------------------------------------------------------------------
Harris (County of)-Houston Sports Authority;
Refunding Sr. Lien Series 2001 A RB
(INS-MBIA Insurance Corp.)
5.50%, 11/15/09(d)(e) AAA Aaa 1,670 1,813,453
- ---------------------------------------------------------------------------------------
Houston (City of) Convention & Entertainment
Facilities Department; Hotel Occupancy Tax
& Special Revenue Series 2001 B RB
(INS-Ambac Assurance Corp.)
5.25%, 09/01/10(d)(e) AAA Aaa 2,865 3,111,963
- ---------------------------------------------------------------------------------------
5.25%, 09/01/11(d)(e) AAA Aaa 2,360 2,582,501
- ---------------------------------------------------------------------------------------
5.50%, 09/01/11(d)(e) AAA Aaa 2,460 2,724,499
- ---------------------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
<Caption>
- ---------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Houston (City of) Convention & Entertainment
Facilities Department; Refunding Hotel
Occupancy Tax & Special Revenue Series 2001
A RB (INS-Ambac Assurance Corp.)
5.50%, 09/01/10(d)(e) AAA Aaa $ 3,000 $ 3,292,290
- ---------------------------------------------------------------------------------------
5.50%, 09/01/11(d)(e) AAA Aaa 4,000 4,430,080
- ---------------------------------------------------------------------------------------
Houston (City of); Refunding Public
Improvements Limited Tax Series 2000 GO
(INS-Financial Security Assurance Inc.)
5.50%, 03/01/09(d)(e) AAA Aaa 1,000 1,071,280
- ---------------------------------------------------------------------------------------
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 1,361,175
- ---------------------------------------------------------------------------------------
La Joya (City of) Independent School
District; Unlimited Tax Series 1998 GO
(CEP-Texas Permanent School Fund)
5.38%, 02/15/08(b)(c)(d) AAA Aaa 1,535 1,616,723
- ---------------------------------------------------------------------------------------
Lower Colorado River Authority; Refunding
Series 1999 B RB (INS-Financial Security
Assurance Inc.)
6.00%, 05/15/10(d)(e) AAA Aaa 1,470 1,617,074
- ---------------------------------------------------------------------------------------
Lubbock (City of) Health Facilities
Development Corp. (Methodist Hospital);
Hospital Series 1993 B RB
5.40%, 12/01/05(b)(d) AAA Aaa 500 502,130
- ---------------------------------------------------------------------------------------
Lubbock (City of); Limited Tax Certificates
Series 1999 GO
5.00%, 02/15/09(b)(c)(d) NRR NRR 680 720,467
- ---------------------------------------------------------------------------------------
Lubbock (City of); Refunding Limited Tax
Series 2005 GO (INS-MBIA Insurance Corp.)
5.00%, 02/15/10(d)(e) AAA Aaa 1,000 1,065,560
- ---------------------------------------------------------------------------------------
McKinney (City of);
Limited Tax Series 2000 GO (INS-Financial
Guaranty Insurance Co.)
5.25%, 08/15/10(d)(e) AAA Aaa 500 534,120
- ---------------------------------------------------------------------------------------
Waterworks & Sewer Series 2000 RB
(INS-Financial Guaranty Insurance Co.)
5.25%, 03/15/09(d)(e) AAA Aaa 685 729,292
- ---------------------------------------------------------------------------------------
5.25%, 03/15/10(d)(e) AAA Aaa 725 770,661
- ---------------------------------------------------------------------------------------
North Texas Municipal Water District;
Regional Wastewater Series 2001 RB
(INS-Financial Guaranty Insurance Co.)
5.00%, 06/01/12(d)(e) AAA Aaa 825 885,398
- ---------------------------------------------------------------------------------------
</Table>
F-8
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
North Texas Municipal Water District; Water
System Series 2001 RB (INS-MBIA Insurance
Corp.)
5.00%, 09/01/11(d)(e) AAA Aaa $ 1,040 $ 1,120,818
- ---------------------------------------------------------------------------------------
Plano (City of); Limited Tax Series 2000 GO
5.13%, 09/01/07(d) AAA Aaa 535 555,485
- ---------------------------------------------------------------------------------------
San Antonio (City of);
Prerefunded Electric & Gas Series 1998 A RB
5.25%, 02/01/09(b)(c)(d) AAA NRR 3,575 3,845,628
- ---------------------------------------------------------------------------------------
Refunding Limited Tax Series 1998 A GO
5.00%, 02/01/09(b)(c)(d) NRR NRR 10 10,589
- ---------------------------------------------------------------------------------------
5.00%, 02/01/11(d) AA+ Aa2 1,490 1,565,185
- ---------------------------------------------------------------------------------------
Unrefunded Electric & Gas Series 1994 RB
5.00%, 02/01/12(b)(d) NRR NRR 2,375 2,566,971
- ---------------------------------------------------------------------------------------
Unrefunded Electric & Gas Series 1998 A RB
5.25%, 02/01/10(d) AA Aa1 5,540 5,943,035
- ---------------------------------------------------------------------------------------
Southlake (City of);
Limited Tax Increment Certificates Series
2000 E GO (INS-Ambac Assurance Corp.)
5.00%, 02/15/11(d)(e) AAA Aaa 635 667,195
- ---------------------------------------------------------------------------------------
Waterworks & Sewer Limited Tax Certificates
Series 2000 A GO (INS-Ambac Assurance
Corp.)
5.40%, 02/15/09(d)(e) AAA Aaa 250 266,808
- ---------------------------------------------------------------------------------------
5.45%, 02/15/10(d)(e) AAA Aaa 235 250,785
- ---------------------------------------------------------------------------------------
Tarrant (County of) Junior College District;
Limited Tax Series 1994 GO
5.05%, 02/15/07(b)(c)(d) AAA Aaa 1,425 1,465,940
- ---------------------------------------------------------------------------------------
Texas A&M University Financing System; Series
2001 B RB
5.38%, 05/15/09(d) AA+ Aa1 1,260 1,349,599
- ---------------------------------------------------------------------------------------
Texas Tech University Financing System;
Refunding & Improvement Series 1999 6 RB
(INS-Ambac Assurance Corp.)
5.25%, 02/15/11(d)(e) AAA Aaa 5,000 5,296,150
=======================================================================================
75,354,399
=======================================================================================
UTAH-1.77%
Salt Lake (County of) (IHC Health Services
Inc.); Hospital Series 2001 RB (INS-Ambac
Assurance Corp.)
5.50%, 05/15/08(d)(e) AAA Aaa 2,000 2,111,700
- ---------------------------------------------------------------------------------------
5.50%, 05/15/09(d)(e) AAA Aaa 1,000 1,072,520
- ---------------------------------------------------------------------------------------
Salt Lake City (City of); Unlimited Tax
Series 1999 GO
5.25%, 06/15/09(d) -- Aaa 900 963,765
- ---------------------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
<Caption>
- ---------------------------------------------------------------------------------------
UTAH-(CONTINUED)
Spanish Fork (City of); Electric Series 2000
RB (INS-Ambac Assurance Corp.)
5.00%, 08/15/09(d)(e) -- Aaa $ 630 $ 669,677
- ---------------------------------------------------------------------------------------
5.00%, 08/15/10(d)(e) -- Aaa 660 709,064
- ---------------------------------------------------------------------------------------
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 1,129,116
- ---------------------------------------------------------------------------------------
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) AA Aaa 30 30,110
=======================================================================================
6,685,952
=======================================================================================
VIRGINIA-1.04%
Norfolk (City of) Redevelopment & Housing
Authority (Tidewater Community College
Campus); Educational Facilities Series 1995
RB
5.40%, 11/01/05(b)(d) NRR NRR 500 500,960
- ---------------------------------------------------------------------------------------
Norton (City of) Industrial Development
Authority (Norton Community Hospital);
Refunding & Improvement Hospital Series
2001 RB (INS-ACA Financial Guaranty Corp.)
5.13%, 12/01/10(d)(e) A -- 1,315 1,368,310
- ---------------------------------------------------------------------------------------
Peninsula Ports Authority (Riverside Health
System Project); Refunding Health System
Series 1998 RB
5.00%, 07/01/06(d) AA Aa3 1,000 1,015,050
- ---------------------------------------------------------------------------------------
Virginia (State of) Public School Authority;
Refunding School Financing Series 1997 I RB
5.25%, 08/01/07(b)(d) NRR NRR 10 10,410
- ---------------------------------------------------------------------------------------
Refunding School Financing Series 1997 I RB
5.25%, 08/01/07(d) AA+ Aa1 990 1,029,353
=======================================================================================
3,924,083
=======================================================================================
WASHINGTON-9.46%
Energy Northwest (Project #3); Refunding
Electric Series 2001 A RB (INS-Financial
Security Assurance Inc.)
5.50%, 07/01/10(d)(e) AAA Aaa 2,000 2,184,120
- ---------------------------------------------------------------------------------------
5.50%, 07/01/11(d)(e) AAA Aaa 7,500 8,265,150
- ---------------------------------------------------------------------------------------
</Table>
F-9
<Table>
<Caption>
PRINCIPAL
RATINGS(a) AMOUNT MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
WASHINGTON-(CONTINUED)
Mason (County of) School District #309
(Shelton); Unlimited Tax Series 2001 GO
(INS-Financial Guaranty Insurance Co.)
5.00%, 12/01/09(d)(e) -- Aaa $ 675 $ 720,542
- ---------------------------------------------------------------------------------------
Seattle (City of); Refunding Municipal Light
& Power Improvements Series 2001 RB
(INS-Financial Security Assurance Inc.)
5.25%, 03/01/11(d)(e) AAA Aaa 3,000 3,261,030
- ---------------------------------------------------------------------------------------
Snohomish (County of) School District #16
(Arlington); Unlimited Tax Series 2000 GO
(INS-Financial Guaranty Insurance Co.)
5.40%, 12/01/08(d)(e) -- Aaa 915 974,923
- ---------------------------------------------------------------------------------------
Snohomish (County of); Limited Tax Series
2001 GO
5.25%, 12/01/11(d) AA Aa3 2,685 2,918,246
- ---------------------------------------------------------------------------------------
Spokane (City of); Unlimited Tax Series 1999
B GO
5.40%, 01/01/10(d) AA- A2 2,075 2,171,384
- ---------------------------------------------------------------------------------------
Washington (State of) (Department of
Ecology); Refunding Series 2001 COP
(INS-Ambac Assurance Corp.)
4.75%, 04/01/11(d)(e) AAA Aaa 5,310 5,567,747
- ---------------------------------------------------------------------------------------
Washington (State of) Public Power Supply
System (Nuclear Project #1); Refunding
Series 1996 C RB
(INS-Ambac Assurance Corp.)
6.00%, 07/01/09(d)(e) AAA Aaa 5,100 5,570,934
- ---------------------------------------------------------------------------------------
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 1,051,800
- ---------------------------------------------------------------------------------------
Washington (State of); Refunding Unlimited
Tax Series 1999 R-2000A GO
5.50%, 01/01/08(d) AA Aa1 1,135 1,191,659
- ---------------------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
RATINGS(a) AMOUNT 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 $ 1,866,051
=======================================================================================
35,743,586
=======================================================================================
WISCONSIN-2.38%
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 1,083,340
- ---------------------------------------------------------------------------------------
Two Rivers (City of) Public School District;
Refunding Unlimited Tax Series 2000 GO
(INS-Financial Security Assurance Inc.)
5.50%, 03/01/08(d)(e) -- Aaa 680 716,720
- ---------------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Marshfield Clinic);
Series 1997 RB (INS-MBIA Insurance Corp.)
5.20%, 02/15/07(d)(e) AAA Aaa 2,210 2,271,305
- ---------------------------------------------------------------------------------------
Wisconsin (State of);
Refunding Unlimited Tax Series 1993 2 GO
5.13%, 11/01/11(d) AA- Aa3 2,000 2,169,520
- ---------------------------------------------------------------------------------------
Unlimited Tax Series 1999 C GO
5.75%, 05/01/10(d) AA- Aa3 2,500 2,747,875
=======================================================================================
8,988,760
=======================================================================================
TOTAL INVESTMENTS-98.26% (Cost $355,012,147) 371,378,581
=======================================================================================
OTHER ASSETS LESS LIABILITIES-1.74% 6,588,225
=======================================================================================
NET ASSETS-100.00% $377,966,806
_______________________________________________________________________________________
=======================================================================================
</Table>
Investment Abbreviations:
<Table>
BAN - Bond Anticipation Note
CEP - Credit Enhancement Provider
COP - Certificate of Participation
FHA - Federal Housing Administration
FmHA - Farmers Home Administration
GO - General Obligation Bonds
INS - Insurance
Jr. - Junior
LOC - Letter of Credit
NRR - Not Re-Rated
RB - Revenue Bonds
Sr. - Senior
Sub. - Subordinated
VA - Department of Veterans Affairs
VRD - Variable Rate Demand
Wts. - Warrants
</Table>
F-10
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 or other highly rated collateral).
(b) Advance refunded; secured by an escrow fund of U.S. Treasury obligations or
other highly rated collateral.
(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 September
30, 2005 was $370,188,581, which represented 97.94% of the Fund's Net
Assets. See Note 1A.
(e) Principal and/or interest payments are secured by bond insurance company
listed.
(f) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at September 30, 2005 was
$2,381,682, which represented 0.63% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(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) 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 September 30, 2005.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-11
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$355,012,147) $371,378,581
- -----------------------------------------------------------
Receivables for:
Investments sold 1,980,000
- -----------------------------------------------------------
Fund shares sold 738,256
- -----------------------------------------------------------
Interest 4,945,125
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 53,985
- -----------------------------------------------------------
Other assets 37,920
===========================================================
Total assets 379,133,867
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 489,955
- -----------------------------------------------------------
Dividends 540,753
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 80,682
- -----------------------------------------------------------
Accrued distribution fees -- Class A3 21,436
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,061
- -----------------------------------------------------------
Accrued transfer agent fees 10,686
- -----------------------------------------------------------
Accrued operating expenses 19,488
===========================================================
Total liabilities 1,167,061
===========================================================
Net assets applicable to shares outstanding $377,966,806
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $360,177,530
- -----------------------------------------------------------
Undistributed net investment income 1,377,672
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities 45,170
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 16,366,434
===========================================================
$377,966,806
___________________________________________________________
===========================================================
NET ASSETS:
Class A $227,385,551
___________________________________________________________
===========================================================
Class A3 $109,272,454
___________________________________________________________
===========================================================
Institutional Class $ 41,308,801
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 20,429,464
___________________________________________________________
===========================================================
Class A3 9,816,361
___________________________________________________________
===========================================================
Institutional Class 3,712,586
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.13
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.13 divided
by 99.00%) $ 11.24
___________________________________________________________
===========================================================
Class A3:
Net asset value and offering price per
share $ 11.13
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 11.13
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-12
STATEMENT OF OPERATIONS
For the six months ended September 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 8,729,229
=========================================================================
EXPENSES:
Advisory fees 573,466
- -------------------------------------------------------------------------
Administrative services fees 53,993
- -------------------------------------------------------------------------
Custodian fees 8,001
- -------------------------------------------------------------------------
Distribution fees -- Class A3 155,414
- -------------------------------------------------------------------------
Transfer agent fees -- Class A and A3 78,423
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 573
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 13,870
- -------------------------------------------------------------------------
Registration and filing fees 51,194
- -------------------------------------------------------------------------
Other 77,736
=========================================================================
Total expenses 1,012,670
=========================================================================
Less: Expenses reimbursed and expense offset arrangement (6,460)
=========================================================================
Net expenses 1,006,210
=========================================================================
Net investment income 7,723,019
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 45,268
- -------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (2,494,855)
=========================================================================
Net gain (loss) from investment securities (2,449,587)
=========================================================================
Net increase in net assets resulting from operations $ 5,273,432
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-13
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended September 30, 2005 and the year ended March 31, 2005
(Unaudited)
<Table>
<Caption>
SEPTEMBER 30, MARCH 31,
2005 2005
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 7,723,019 $ 16,685,135
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities 45,268 1,705,196
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (2,494,855) (19,461,479)
============================================================================================
Net increase (decrease) in net assets resulting from
operations 5,273,432 (1,071,148)
============================================================================================
Distributions to shareholders from net investment income:
Class A (5,219,565) (12,789,127)
- --------------------------------------------------------------------------------------------
Class A3 (2,078,186) (3,993,534)
- --------------------------------------------------------------------------------------------
Institutional Class (834,487) (229,601)
============================================================================================
Decrease in net assets resulting from distributions (8,132,238) (17,012,262)
============================================================================================
Share transactions-net:
Class A (17,857,080) (130,756,619)
- --------------------------------------------------------------------------------------------
Class A3 12,453,352 865,686
- --------------------------------------------------------------------------------------------
Institutional Class 8,853,629 33,135,524
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 3,449,901 (96,755,409)
============================================================================================
Net increase (decrease) in net assets 591,095 (114,838,819)
============================================================================================
NET ASSETS:
Beginning of period 377,375,711 492,214,530
============================================================================================
End of period (including undistributed net investment
income of $1,377,672 and $1,786,891, respectively) $377,966,806 $ 377,375,711
____________________________________________________________________________________________
============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-14
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Tax-Free Intermediate Fund (the "Fund") is a series portfolio of AIM
Tax-Exempt Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of three
separate portfolios, each authorized to issue an unlimited number of shares of
beneficial interest. The Fund currently consists of multiple classes of shares.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The Fund's investment objective is to generate as high a level of tax-exempt
income as is consistent with preservation of capital.
Under the Trust's organizational documents, 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 including estimates
and assumptions related to taxation. 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 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 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gain, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
F-15
E. 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. 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>
At the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to reimburse expenses incurred by the Fund in connection with market
timing matters in the AIM Funds, which may include legal, audit, shareholder
reporting, communications and trustee expenses. These expenses along with the
related expense reimbursement, are included in the Statement of Operations. For
the six months ended September 30, 2005, AMVESCAP reimbursed expenses of the
Fund in the amount of $314.
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 six months
ended September 30, 2005, AIM was paid $53,993.
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 six months ended September 30,
2005, the Fund paid AISI $78,423 for Class A and Class A3 share classes and $573
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 0.25% of the Fund's average daily net assets of Class A3
shares. Prior to July 1, 2005, the Fund paid ADI 0.35% of the average daily net
assets of Class A3 shares. Of this amount, up to 0.25% of the average daily net
assets of the Class A3 shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own Class A3 shares of the
Fund. Any amounts not paid as a service fee under the Plan would constitute an
asset-based sales charge. National Association of Securities Dealers ("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 six months ended September 30, 2005, the Class A3 shares paid
$155,414.
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 six
months ended September 30, 2005, ADI advised the Fund that it retained $1,199 in
front-end sales commissions from the sale of Class A shares and $0 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 six months ended September 30,
2005, the Fund received credits from this arrangement, which resulted in the
reduction of the Fund's total expenses of $6,146.
F-16
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
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 who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the six months ended September 30, 2005, the Fund paid legal fees of
$1,969 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 six months ended September 30, 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 as a compensating balance in the account so the custodian
can be compensated by earning the additional interest; or (ii) compensate by
paying the custodian bank at a rate agreed upon by the custodian bank and AIM,
not to exceed the rate contractually agreed upon.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
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 had 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-17
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended September 30, 2005 was $20,800,566 and $9,781,830, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $16,444,754
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (78,320)
===============================================================================
Net unrealized appreciation of investment securities $16,366,434
_______________________________________________________________________________
===============================================================================
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
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31,
2005(A) 2005
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 417,989 $ 4,696,423 1,022,058 $ 11,670,866
- -------------------------------------------------------------------------------------------------------------------------
Class A3 3,261,823 36,581,159 6,308,499 72,009,554
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 943,462 10,591,712 2,935,137 33,260,815
=========================================================================================================================
Issued as reinvestment of dividends:
Class A 272,485 3,056,827 688,784 7,856,509
- -------------------------------------------------------------------------------------------------------------------------
Class A3 161,958 1,816,291 253,758 2,891,752
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 164 1,832 25 288
=========================================================================================================================
Reacquired:
Class A (2,282,062) (25,610,330) (13,126,884) (150,283,994)
- -------------------------------------------------------------------------------------------------------------------------
Class A3 (2,316,575) (25,944,098) (6,521,503) (74,035,620)
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (155,104) (1,739,915) (11,098) (125,579)
=========================================================================================================================
304,140 $ 3,449,901 (8,451,224) $ (96,755,409)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are two entities that are each a record owner of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 15% of
the outstanding shares of the Fund. ADI 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 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 are also owned beneficially.
(b) Institutional Class shares commenced sales on July 30, 2004.
F-18
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, --------------------------------------------------------
2005 2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.21 $ 11.69 $ 11.70 $ 11.06 $ 11.17 $ 10.71
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24 0.49 0.47(a) 0.48 0.45 0.49
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.08) (0.49) (0.01) 0.60 (0.12) 0.46
=================================================================================================================================
Total from investment operations 0.16 (0.00) 0.46 1.08 0.33 0.95
=================================================================================================================================
Less distributions from net investment income (0.24) (0.48) (0.47) (0.44) (0.44) (0.49)
=================================================================================================================================
Net asset value, end of period $ 11.13 $ 11.21 $ 11.69 $ 11.70 $ 11.06 $ 11.17
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.47% (0.01)% 4.04% 9.86% 2.99% 9.11%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $227,386 $246,946 $390,903 $539,679 $678,800 $608,393
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.45%(c) 0.43% 0.42% 0.38% 0.38% 0.41%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.45%(c) 0.44% 0.42% 0.38% 0.38% 0.41%
=================================================================================================================================
Ratio of net investment income to average net
assets 4.12%(c) 4.09% 3.98% 4.10% 4.00% 4.48%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 3% 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 and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$239,287,916.
(d) Not annualized for periods less than one year.
F-19
NOTE 9--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS A3
-----------------------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER 31, 2002
ENDED MARCH 31, (DATE SALES
SEPTEMBER 30, ------------------- COMMENCED) TO
2005 2005 2004 MARCH 31, 2003
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.21 $ 11.69 $ 11.70 $ 11.59
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.21 0.43 0.43(a) 0.18
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.06) (0.47) (0.01) 0.10
=========================================================================================================================
Total from investment operations 0.15 (0.04) 0.42 0.28
=========================================================================================================================
Less distributions from net investment income (0.23) (0.44) (0.43) (0.17)
=========================================================================================================================
Net asset value, end of period $ 11.13 $ 11.21 $ 11.69 $ 11.70
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 1.30% (0.37)% 3.67% 2.47%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $109,272 $97,651 $101,312 $29,320
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.75%(c) 0.78% 0.77% 0.73%(d)
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.75%(c) 0.79% 0.77% 0.73%(d)
=========================================================================================================================
Ratio of net investment income to average net assets 3.82%(c) 3.74% 3.63% 3.75%(d)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(e) 3% 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 annualized and based on average daily net assets of
$103,906,221.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-20
NOTE 9--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------
JULY 30, 2004
(DATE SALES
SIX MONTHS COMMENCED)
ENDED TO
SEPTEMBER 30, MARCH 31,
2005 2005
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.21 $ 11.40
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.22 0.32
- -----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.05) (0.19)
===============================================================================================
Total from investment operations 0.17 0.13
===============================================================================================
Less distributions from net investment income (0.25) (0.32)
===============================================================================================
Net asset value, end of period $ 11.13 $ 11.21
_______________________________________________________________________________________________
===============================================================================================
Total return(a) 1.49% 1.13%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $41,309 $32,779
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.41%(b) 0.42%(c)
- -----------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.41%(b) 0.43%(c)
===============================================================================================
Ratio of net investment income to average net assets 4.16%(b) 4.10%(c)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(d) 3% 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
$38,071,978.
(c) Annualized.
(d) Not annualized for periods less than one year.
NOTE 10--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On March 23, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") 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. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior reporting period, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained 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 E&Y to make reference to that matter in connection with such reports.
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), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
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 that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent
F-21
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC. As the methodology is
unknown at the present time, management of AIM and the Fund are unable to
estimate the impact, if any, that the distribution of these two fair funds may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
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
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators 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. IFG,
AIM and ADI are providing full cooperation with respect to these inquiries. As
described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities
and individuals are defendants in numerous civil lawsuits related to one or more
of these issues. Regulatory actions and/or additional civil lawsuits related to
these or other issues may be filed against the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed a civil lawsuit 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 this lawsuit. 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, among other things, injunctive relief, civil monetary penalties and a
writ of quo warranto against the defendants. If AIM is unsuccessful in its
defense of the WVAG lawsuit, it could be barred from serving as an investment
advisor 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 the Fund. The 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 the Fund's investment advisor. There is no assurance
that such exemptive relief will be granted. On July 7, 2005, the Supreme Court
of West Virginia ruled in the context of a separate lawsuit that the WVAG does
not have authority pursuant to W. Va. Code Section 46A-6-104 of the West
Virginia Consumer Credit and Protection Act to bring an action based upon
conduct that is ancillary to the purchase or sale of securities. AIM intends to
seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this
ruling.
On June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. On July 7, 2005, the Supreme
Court of West Virginia ruled in the context of a separate lawsuit that the WVAG
does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West
Virginia Consumer Credit and Protection Act to bring an action based upon
conduct that is ancillary to the purchase or sale of securities. AIM intends to
seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this
ruling.
On August 30, 2005, the West Virginia Office of the State Auditor-Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of law
to the effect that AIM and ADI violated the West Virginia securities laws. The
WVASC orders AIM and ADI to cease any further violations and seeks to impose
monetary sanctions to be determined by the Commissioner. AIM and ADI have the
right to contest the WVASC's findings and conclusions, which they intend to do.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- 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 and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while AIM Funds and/or specific share classes were closed generally to
new investors and/or while other share classes of the same AIM Fund were not
charged the same distribution fees;
- 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; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which they
were eligible to participate (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
F-22
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the Court issued rulings on the common
issues of law presented in defendants' motions to dismiss the shareholder class
and derivative complaints. These rulings were issued in the context of the Janus
lawsuits, but the Court's legal determinations apply at the omnibus level to all
cases within his track, including the AIM and IFG cases. The Court dismissed for
failure to make pre-suit demand on the fund board all derivative causes of
action but one: the excessive fee claim under Section 36(b) of the Investment
Company Act of 1940 (the "1940 Act"), as to which the demand requirement does
not apply. The Court dismissed all claims asserted in the class complaint but
two: (i) the securities fraud claims under Section 10(b) of the Securities
Exchange Act of 1934, and (ii) the excessive fee claim under Section 36(b) of
the 1940 Act. In addition, the Court limited plaintiffs' potential recovery on
the 36(b) claim to fees attributable to timing assets, as opposed to all fees on
funds in which any timing occurred. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date. The Court will subsequently issue an
order applying his legal rulings to the allegations in the AIM and IFG
complaints.
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 above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-23
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Edward K. Dunn Jr. 11 Greenway Plaza
Jack M. Fields Lisa O. Brinkley Suite 100
Carl Frischling Senior Vice President and Chief Compliance Houston, TX 77046-1173
Robert H. Graham Officer
Vice Chair TRANSFER AGENT
Gerald J. Lewis Russell C. Burk AIM Investment Services, Inc.
Prema Mathai-Davis Senior Vice President and Senior Officer P.O. Box 4739
Lewis F. Pennock Houston, TX 77210-4739
Ruth H. Quigley Kevin M. Carome
Larry Soll Senior Vice President, Secretary and Chief CUSTODIAN
Raymond Stickel, Jr. Legal Officer The Bank of New York
Mark H. Williamson 2 Hanson Place
Sidney M. Dilgren Brooklyn, NY 11217-1431
Vice President, Treasurer
and Principal Financial Officer
Robert G. Alley
Vice President
J. Philip Ferguson
Vice President
Karen Dunn Kelley
Vice President
COUNSEL TO THE FUND
Ballard Spahr
Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
COUNSEL TO THE INDEPENDENT TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, NY 10036-2714
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(1) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Core Equity Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(1) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S. Government Money Portfolio
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund SECTOR EQUITY TAX-FREE
AIM Opportunities I Fund
AIM Opportunities II Fund AIM Advantage Health Sciences Fund AIM High Income Municipal Fund(1)
AIM Opportunities III Fund AIM Energy Fund AIM Municipal Bond Fund
AIM Premier Equity Fund AIM Financial Services Fund AIM Tax-Exempt Cash Fund
AIM S&P 500 Index Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Select Equity Fund AIM Global Real Estate Fund Premier Tax-Exempt Portfolio
AIM Small Cap Equity Fund AIM Gold & Precious Metals Fund
AIM Small Cap Growth Fund(1) AIM Leisure Fund AIM ALLOCATION SOLUTIONS
AIM Small Company Growth Fund AIM Multi-Sector Fund
AIM Trimark Endeavor Fund AIM Real Estate Fund(1) AIM Conservative Allocation Fund
AIM Trimark Small Companies Fund AIM Technology Fund AIM Growth Allocation Fund(2)
AIM Weingarten Fund AIM Utilities Fund AIM Moderate Allocation Fund
AIM Moderate Growth Allocation Fund
*Domestic equity and income fund AIM Moderately Conservative Allocation Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International Allocation Fund
=======================================================================================
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.
=======================================================================================
</Table>
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus. (2) Effective April 29, 2005, AIM Aggressive Allocation
Fund was renamed AIM Growth Allocation Fund.
If used after December 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 $129 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $381 billion in assets under management. Data as of September 30,
2005.
AIMinvestments.com TFI-SAR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ------------------------------------------------------------------------
</Table>
ITEM 2. CODE OF ETHICS.
There were no amendments to the Code of Ethics (the "Code") that
applies to the Registrant's Principal Executive Officer ("PEO") and
Principal Financial Officer ("PFO") 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.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
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 INVESTMENT 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 September 15, 2005, an evaluation was performed under the
supervision and with the participation of the officers of the
Registrant, including the Principal Executive Officer ("PEO") and
Principal Financial Officer ("PFO"), to assess the effectiveness of
the Registrant's disclosure controls and procedures, as that term is
defined in Rule 30a-3(c) under the Investment Company Act of 1940
(the "Act"), as amended. Based on that evaluation, the Registrant's
officers, including the PEO and PFO, concluded that, as of September
15, 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 has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
12(a)(1) Not applicable.
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: November 29, 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: November 29, 2005
By: /s/ Sidney M. Dilgren
----------------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: November 29, 2005
EXHIBIT INDEX
12(a)(1) Not applicable.
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.