As filed with the Securities and Exchange Commission on December 21, 2001
1933 Act Reg. No. 33-39519
1940 Act Reg. No. 811-5686
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 17 X
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 21 X
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(Check appropriate box or boxes.)
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Registrant's Telephone Number, including Area Code (713) 626-1919
Copy to:
Renee A. Friedli, Esquire Martha J. Hays, Esquire
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza, Suite 100 1735 Market Street, 51st Floor
Houston, Texas 77046 Philadelphia, Pennsylvania 19103-7599
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Amendment
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It is proposed that this filing will become effective (check appropriate box)
If appropriate, check the following box:
this post-effective amendment designates a new effective date
---- for a previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest
AIM Total Return Bond Fund seeks to achieve maximum total return consistent with preservation of capital.
AIM--Registered Trademark--
PROSPECTUS
DECEMBER 31, 2001
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
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INVESTMENT OBJECTIVE AND STRATEGIES 1 - - - - - - - - - - - - - - - - - - - - - - - - PRINCIPAL RISKS OF INVESTING IN THE FUND 1 - - - - - - - - - - - - - - - - - - - - - - - - FEE TABLE AND EXPENSE EXAMPLE 2 - - - - - - - - - - - - - - - - - - - - - - - - Fee Table 2 Expense Example 2 FUND MANAGEMENT 3 - - - - - - - - - - - - - - - - - - - - - - - - The Advisor 3 Advisor Compensation 3 Portfolio Managers 3 OTHER INFORMATION 3 - - - - - - - - - - - - - - - - - - - - - - - - Sales Charges 3 Dividends and Distributions 3 SHAREHOLDER INFORMATION A-1 - - - - - - - - - - - - - - - - - - - - - - - - Choosing a Share Class A-1 Purchasing Shares A-3 Redeeming Shares A-4 Exchanging Shares A-7 Pricing of Shares A-9 Taxes A-9 OBTAINING ADDITIONAL INFORMATION Back Cover - - - - - - - - - - - - - - - - - - - - - - - - |
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with DISCIPLINE are registered service marks and AIM Bank Connection and AIM Internet Connect are service marks of A I M Management Group Inc.
No dealer, sales person or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus, and you should not rely on such other information or representations.
The fund's investment objective is to achieve maximum total return consistent with preservation of capital. The fund's investment objective may be changed by the Board of Trustees without shareholder approval.
The fund will attempt to achieve its objective by investing, normally, at least 80% of its net assets in a diversified portfolio of investment-grade fixed income securities generally represented by the sector categories within the Lehman Brothers Aggregate Bond Index. These securities may include U.S. Treasury and agency securities, mortgage-backed and asset-backed securities and corporate bonds of varying maturities. A fixed income security is considered investment grade if it is either rated at least investment grade by Moody's Investors Service, Inc. or Standard & Poor's (rated in the four highest ratings categories by Moody's or S&P), or the fund's portfolio managers believe it to be of comparable credit quality. Under normal market conditions the fund's average portfolio duration will be within +/-1.5 years of that of the Lehman Brothers Aggregate Bond Index and the fund will generally maintain an average portfolio maturity of between six and ten years.
The fund may invest up to 25% of its total assets in foreign securities. The fund may invest up to 5% of its total assets in non-U.S. dollar denominated securities. Any percentage limitations with respect to assets of the fund are applied at the time of purchase.
The portfolio managers focus on securities that they believe have favorable prospects for maximum total return, consistent with their concern for preservation of capital. In analyzing securities for possible investment, the portfolio managers ordinarily look for improving industry and company specific fundamentals, such as cash flow coverage, revenue growth, stable or improving credit ratings and business margin improvement, among other factors. The portfolio managers consider whether to sell a particular security when either of those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, the fund may temporarily hold all or a portion of its assets in cash, money market instruments, shares of affiliated money market funds, bonds or other debt securities. As a result, the fund may not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to achieve its investment objective. If the fund does trade in this way, it may incur increased transaction costs, which can lower the actual return on your investment. Active trading may also increase short-term gains and losses, which may affect the taxes you have to pay.
There is a risk that you could lose all or a portion of your investment in the fund and that the income you may receive from your investment may vary. The value of your investment in the fund will go up and down with the prices of the securities in which the fund invests. Fixed income securities are particularly vulnerable to credit risk and interest rate fluctuations. Interest rate increases can cause the price of a fixed income security to decrease. The longer a fixed income security's duration, the more sensitive it is to this risk. The issuer of a security may default or otherwise be unable to honor a financial obligation.
Mortgage-backed and asset-backed securities are subject to different risks from bonds and, as a result, may respond to changes in interest rates differently. If interest rates fall, people refinance or pay off their mortgages ahead of time, which may cause mortgage-backed securities to lose value. If interest rates rise, many people may refinance or prepay their mortgages at a slower-than-expected rate. This may effectively lengthen the life of mortgage-backed securities, which may cause the securities to be more sensitive to changes in interest rates.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, the relative lack of information about these companies, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold shares of the fund.
SHAREHOLDER FEES - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (fees paid directly from your investment) CLASS A CLASS B CLASS C --------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.75% None None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, whichever is less) None(1) 5.00% 1.00% -------------------------------------------------------- |
ANNUAL FUND OPERATING EXPENSES(2) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (fees paid directly from your investment) CLASS A CLASS B CLASS C --------------------------------------------------------- Management Fees 0.50% 0.50% 0.50% Distribution and/or Service (12b-1) Fees 0.35 1.00 1.00 Other Expenses(3) 0.62 0.62 0.62 Total Annual Fund Operating Expenses 1.47 2.12 2.12 Waiver(4) 0.47 0.37 0.37 Net Expenses 1.00 1.75 1.75 --------------------------------------------------------- |
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) There is no guarantee that actual expenses will be the same as those shown
in the table.
(3) Other Expenses are based on estimated amounts for the current fiscal year.
(4) The distributor has contractually agreed to limit Class A shares Rule 12b-1 distribution plan payments to 0.25%. Further, the investment advisor has contractually agreed to waive fees and/or reimburse expenses (excluding interest, taxes, dividends on short sales, extraordinary items and increases in expenses due to expense offset arrangements, if any) for Class A, Class B and Class C shares to the extent necessary to limit the total operating expenses of Class A shares to 1.00% (e.g. if AIM waives 0.37% of Class A expenses, AIM will also waive 0.37% of Class B and Class C expenses).
You may also be charged a transaction or other fee by the financial institution managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the fund's gross operating expenses remain the same. To the extent that fund expenses are waived and/or reimbursed your expenses would be lower. Although your actual returns and costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
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Class A $617 $918
Class B 715 964
Class C 315 664
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You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS
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Class A $617 $918
Class B 215 664
Class C 215 664
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THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and is responsible for its day-to-day management. The advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all aspects of the fund's operations and provides investment advisory services to the fund, including obtaining and evaluating economic, statistical and financial information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976. Today, the advisor, together with its subsidiaries, advises or manages over 135 investment portfolios, including the fund, encompassing a broad range of investment objectives.
ADVISOR COMPENSATION
The advisor is to receive a fee from the fund calculated at the annual rate of 0.50% of the first $500 million of average daily net assets, 0.45% of the next $500 million of average daily net assets, and 0.40% of average daily net assets over $1 billion.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual members of the team who are primarily responsible for the day-to-day management of the fund's portfolio are
- Robert G. Alley, Senior Portfolio Manager, who has been responsible for the fund since 2001 and has been associated with the advisor and/or its affiliates since 1992.
- Jan H. Friedli, Senior Portfolio Manager, who has been responsible for the fund since 2001 and has been associated with the advisor and/or its affiliates since 1999. From 1997 to 1999, he was global fixed-income portfolio manager for Nicholas-Applegate Capital Management.
- Scot W. Johnson, Senior Portfolio Manager, who has been responsible for the fund since 2001 and has been associated with the advisor and/or its affiliates since 1994.
SALES CHARGES
Purchases of Class A shares of AIM Total Return Bond Fund are subject to the maximum 4.75% initial sales charge as listed under the heading "CATEGORY II Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class" section of this prospectus. Purchases of Class B and Class C shares are subject to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of ordinary income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any, annually.
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to many other mutual funds (the AIM Funds). The following information is about all the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing an interest in the same portfolio of investments. When choosing a share class, you should consider the factors below:
CLASS A CLASS B CLASS C
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- Initial sales charge - No initial sales charge - No initial sales charge
- Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases(1) charge on redemptions within six charge on redemptions within
years one year
- Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares at - Does not convert to Class A
the end of the month which is shares
eight years after the date on
which shares were purchased
along with a pro rata portion
of its reinvested dividends and
distributions(2)
- Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
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(1) A contingent deferred sales charge may apply in some cases.
(2) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and continue to hold them, those shares will convert to Class A shares of that fund at the end of the month which is seven years after the date on which shares were purchased. If you exchange those shares for Class B shares of another AIM Fund, the shares into which you exchanged will not convert to Class A shares until the end of the month which is eight years after the date on which you purchased your original shares.
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc. (the distributor) for the sale and distribution of its shares and fees for services provided to shareholders, all or a substantial portion of which are paid to the dealer of record. Because the AIM Fund pays these fees out of its assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Sales charges on the AIM Funds and classes of those Funds are detailed below. As used below, the term "offering price" with respect to all categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales charges. The "Other Information" section of your prospectus will tell you in what category your particular AIM Fund is classified.
CATEGORY I INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
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AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
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Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
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A-1 MCF--11/15
CATEGORY II INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
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AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
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CATEGORY III INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
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AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
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Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
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SHARES SOLD WITHOUT AN INITIAL SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a
contingent deferred sales charge (CDSC) of 1%.
You can also make a Large Purchase of Class A shares of Category III Funds at
net asset value. If your purchase occurs on or after November 15, 2001, the
shares will be subject to a 0.25% CDSC if you redeem them prior to 12 months
after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and make
additional purchases at net asset value that result in account balances of
$1,000,000 or more, the additional shares purchased will be subject to a CDSC
(an 18-month, 1.0% CDSC for Category I and II Fund shares, and a 12-month, 0.25%
CDSC for Category III Fund shares.) The CDSC for Category III Fund shares will
not apply to additional purchases made prior to November 15, 2001.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM Money
Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired those
shares through an exchange, and the shares originally purchased were subject to
a CDSC.
The distributor may pay a dealer concession and/or a service fee for Large
Purchases.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share. However, when you redeem them, they are subject to a CDSC in the following percentages:
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
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First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
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COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their original purchase price or current market value, net of reinvested dividends and capital gains distributions. In determining whether to charge a CDSC, we will assume that you have redeemed shares on which there is no CDSC first and, then, shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify for these reductions or exceptions, you or your financial consultant must provide sufficient information at the time of purchase to verify that your purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with shares currently owned (Class A, B or C) for the purpose of qualifying for the lower initial sales charge rates that apply to larger purchases. The applicable initial sales charge for the new purchase is based on the total of your current purchase and the current value of all other shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount of Class A shares of AIM Funds during a
13-month period. The amount you agree to purchase determines the initial sales charge you pay. If the full face amount of the LOI is not invested by the end of the 13-month period, your account will be adjusted to the higher initial sales charge level for the amount actually invested.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of AIM Floating Rate Fund will not be taken into account in determining whether a purchase qualifies for a reduction in initial sales charges.
MCF--11/15 A-2
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM Funds;
- when using the reinstatement privileges; and
- when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem shares acquired through reinvestment of dividends and distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares at reduced or without sales charges. Consult the fund's Statement of Additional Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM Large Cap Opportunities Fund, AIM Mid Cap Opportunities Fund and AIM Small Cap Opportunities Fund) are as follows:
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
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Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 25
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
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HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not be processed unless the account application and purchase payment are received in good order.
PURCHASE OPTIONS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and check to the transfer agent, slip from your confirmation
A I M Fund Services, Inc., statement to the transfer agent.
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Select the AIM Bank Connection
methods described above. option on your completed account
application or complete an AIM Bank
Connection form. Mail the
application or form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
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A-3 MCF--11/15
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
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SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing the AIM Fund to withdraw the amount of your investment from your bank account on a day or dates you specify and in an amount of at least $25. You may stop the Automatic Investment Plan at any time by giving the transfer agent notice ten days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund accounts with the identical registration. The account from which exchanges are to be made must have a minimum balance of $5,000 before you can use this option. Exchanges will occur on (or about) the 10th or 25th day of the month, whichever you specify, in the amount you specify. The minimum amount you can exchange to another AIM Fund is $25.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any AIM Fund at net asset value. Unless you specify otherwise, your dividends and distributions will automatically be reinvested in the same AIM Fund. You may invest your dividends and distributions (1) into another AIM Fund in the same class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at least $5,000; or (b) in the AIM Fund receiving the dividend must be at least $500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the Portfolio Rebalancing Program. Under this Program, you can designate how the total value of your AIM Fund holdings should be rebalanced, on a percentage basis, between two and ten of your AIM Funds on a quarterly, semiannual or annual basis. Your portfolio will be rebalanced through the exchange of shares in one or more of your AIM Funds for shares of the same class of one or more other AIM Funds in your portfolio. If you wish to participate in the Program, make changes or cancel the Program, the transfer agent must receive your request to participate, changes, or cancellation in good order at least five business days prior to the next rebalancing date, which is normally the 28th day of the last month of the period you choose. You may realize taxable gains from these exchanges. We may modify, suspend or terminate the Program at any time on 60 days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered retirement plans made available to corporations, individuals and employees of non-profit organizations and public schools. A plan document must be adopted to establish a retirement plan. You may use AIM sponsored retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or another sponsor's retirement plan. The plan custodian of the AIM sponsored retirement plan assesses an annual maintenance fee of $10. Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker or financial consultant may charge service fees for handling redemption transactions. Your shares also may be subject to a contingent deferred sales charge (CDSC).
MCF--11/15 A-4
REDEMPTION OF CLASS A SHARES AND AIM CASH
RESERVE SHARES ACQUIRED BY EXCHANGE FOR
PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund or AIM Cash Reserve Shares of AIM Money Market Fund at net asset value prior to November 15, 2001, or entered into a Letter of Intent prior to November 15, 2001 to purchase $1,000,000 or more of Class A shares of a Category I, II or III Fund at net asset value, your shares may be subject to a contingent deferred sales charge (CDSC) upon redemption, as described below.
SHARES
INITIALLY SHARES HELD AFTER AN CDSC APPLICABLE UPON
PURCHASED EXCHANGE REDEMPTION OF SHARES
------------ --------------------- ---------------------
- Class A -Class A shares of - 1% if shares are
shares of Category I or II redeemed within 18
Category I Fund months of initial
or II Fund -Class A shares of purchase of Category
Category III Fund I or II Fund shares
-AIM Cash Reserve
Shares of AIM Money
Market Fund
- Class A -Class A shares of - No CDSC
shares of Category III Fund
Category -Class A shares of
III Fund AIM Tax-Exempt Cash
Fund
-AIM Cash Reserve
Shares of AIM Money
Market Fund
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REDEMPTION OF CLASS A SHARES AND AIM CASH
RESERVE SHARES ACQUIRED BY EXCHANGE FOR
PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund or AIM Cash Reserve Shares of AIM Money Market Fund on and after November 15, 2001, or if you make additional purchases of Class A shares or AIM Cash Reserve Shares on and after November 15, 2001 at net asset value, your shares may be subject to a CDSC upon redemption, as described below.
SHARES
INITIALLY SHARES HELD AFTER AN CDSC APPLICABLE UPON
PURCHASED EXCHANGE REDEMPTION OF SHARES
------------ --------------------- ---------------------
- Class A -Class A shares of - 1% if shares are
shares of Category I or II redeemed within 18
Category I Fund months of initial
or II Fund -Class A shares of purchase of Category
Category III Fund I or II Fund shares
-AIM Cash Reserve
Shares of AIM Money
Market Fund
- Class A -Class A shares of - 1% if shares are
shares of Category I or II redeemed within 18
Category Fund months of initial
III Fund purchase of
Category III Fund
shares
- Class A -Class A shares of - 0.25% if shares are
shares of Category III Fund redeemed within 12
Category -Class A shares of months of initial
III Fund AIM Tax-Exempt Cash purchase of Category
Fund III Fund shares
-AIM Cash Reserve
Shares of AIM Money
Market Fund
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REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM Floating Rate Fund, the early withdrawal charge applicable to shares of AIM Floating Rate Fund will be applied instead of the CDSC normally applicable to Class B shares.
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
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A-5 MCF--11/15
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $250,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
You may, with limited exceptions, redeem from an IRA account
by telephone. Redemptions from other types of retirement
accounts must be requested in writing.
By AIM Internet Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $250,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet. The
transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
------------------------------------------------------------------------------------------
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TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no more than seven days, after we accept your request to redeem. If you redeem shares recently purchased by check, you will be required to wait up to ten business days before we will send your redemption proceeds. This delay is necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a check in the amount of the redemption proceeds to the address on record with us. If your request is not in good order, you may have to provide us with additional documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the redemption proceeds to your address of record (if there has been no change communicated to the transfer agent within the previous 30 days) or transmit them electronically to your pre-authorized bank account. We use reasonable procedures to confirm that instructions communicated by telephone are genuine and are not liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds electronically to your pre-authorized bank account. We use reasonable procedures to confirm that instructions communicated by internet are genuine and are not liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account of at least $50. You also may make annual withdrawals if you own Class A shares. We will redeem enough shares from your account to cover the amount withdrawn. You must have an account balance of at least $5,000 to establish a Systematic Withdrawal Plan. You can stop this plan at any time by giving ten days prior notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try to transmit payment of redemption proceeds on that same day. If we receive your redemption order after 11:30 a.m. Eastern Time and before the close of the customary trading session of the NYSE, we generally will transmit payment on the next business day.
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or more if you have completed an authorization form. Redemption by check is not available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered on the account;
(3) you request that payment be sent somewhere other than the bank of record on the account; or
(4) you request that payment be sent to a new address or an address that changed in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of financial institutions. Call the transfer agent for additional information. Some institutions have transaction amount maximums for these guarantees. Please check with the guarantor institution.
MCF--11/15 A-6
REINSTATEMENT PRIVILEGES
You may, within 120 days after you sell shares (except Class A shares of AIM
Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class
A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund), reinvest all or part of your redemption proceeds in Class A shares of any
AIM Fund at net asset value in an identically registered account.
You may, within 120 days after you sell Class A shares of a Category III Fund,
reinvest all or part of your redemption proceeds in Class A shares of that same
Category III Fund at net asset value in an identically registered account.
If you paid a contingent deferred sales charge (CDSC) on any reinstated
amount, you will not be subject to a CDSC if you later redeem that amount.
You must notify the transfer agent in writing at the time you reinstate that you are exercising your reinstatement privilege.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those of another AIM Fund. Before requesting an exchange, review the prospectus of the AIM Fund you wish to acquire. Exchange privileges also apply to holders of the Connecticut General Guaranteed Account, established for tax-qualified group annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the same class of another AIM Fund. You may also exchange Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money Market Fund. You may be required to pay an initial sales charge when exchanging from a Fund with a lower initial sales charge than the one into which you are exchanging. If you exchange into shares that are subject to a CDSC, we will begin the holding period for purposes of calculating the CDSC on the date you made your initial purchase.
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (except for Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund with an initial sales charge for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except for Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund), but only if you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to an initial sales charge (except for Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, but only if you acquired the original shares by exchange from Class A shares subject to an initial sales charge.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares, and Class C shares for other Class C shares; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class C shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
For shares purchased prior to November 15, 2001, you may not exchange:
- Class A shares of Category I or II Funds purchased at net asset value and subject to a contingent deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
- Class A shares of Category III Funds purchased at net asset value for Class A shares of a Category I or II Fund;
A-7 MCF--11/15
- AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C shares of any AIM Fund;
- AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are subject to a CDSC; or
- on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of Category III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
- Class A shares of Category I or II Funds purchased at net asset value and subject to a CDSC for Class A shares of AIM Tax-Exempt Cash Fund;
- Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other AIM Fund that are subject to a CDSC or for AIM Cash Reserve Shares of AIM Money Market Fund; or
- AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C shares of any AIM Fund or for Class A shares of any AIM Fund that are subject to a CDSC, however, if you originally purchased Class A shares of a Category I or II Fund, and exchanged those shares for AIM Cash Reserve Shares of AIM Money Market Fund, you may further exchange the AIM Cash Reserve Shares for Class A shares of a Category I or II Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM Fund into which you are exchanging;
- Shares of the AIM Fund you wish to acquire must be available for sale in your state of residence;
- Exchanges must be made between accounts with identical registration information;
- The account you wish to exchange from must have a certified tax identification number (or the Fund has received an appropriate Form W-8 or W-9);
- Shares must have been held for at least one day prior to the exchange;
- If you have physical share certificates, you must return them to the transfer agent prior to the exchange; and
- You are limited to a maximum of 10 exchanges per calendar year, because excessive short-term trading or market-timing activity can hurt fund performance. If you exceed that limit, or if an AIM Fund or the distributor determines, in its sole discretion, that your short-term trading is excessive or that you are engaging in market-timing activity, it may reject any additional exchange orders. An exchange is the movement out of (redemption) one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares being acquired in an exchange for up to five business days if it determines that it would be materially disadvantaged by the immediate transfer of exchange proceeds. There is no fee for exchanges. The exchange privilege is not an option or right to purchase shares. Any of the participating AIM Funds or the distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of each registered owner exactly as the shares are registered, the account registration and account number, the dollar amount or number of shares to be exchanged and the names of the AIM Funds from which and into which the exchange is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by telephone, including that the transfer agent must receive exchange requests during the hours of the customary trading session of the NYSE; however, you still will be allowed to exchange by telephone even if you have changed your address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time you held the original shares will be added to the holding period of the Class B or Class C shares, respectively, into which you exchanged for the purpose of calculating contingent deferred sales charges (CDSC) if you later redeem the exchanged shares. If you redeem Class B shares acquired by exchange via a tender offer by AIM Floating Rate Fund, you will be credited with the time period you held the shares of AIM Floating Rate Fund for the purpose of computing the early withdrawal charge applicable to those shares.
MCF--11/15 A-8
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and AIM
Tax-Free Intermediate Fund value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges that trade on days when the AIM Funds do not price their
shares, the value of those funds' assets may change on days when you will not be
able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day the NYSE is open for business, as of the close of the customary trading session, or any earlier NYSE closing time that day. AIM Money Market Fund also determines its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary trading session of the NYSE. The AIM Funds price purchase, exchange and redemption orders at the net asset value calculated after the transfer agent receives an order in good order. An AIM Fund may postpone the right of redemption only under unusual circumstances, as allowed by the Securities and Exchange Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary income or long-term capital gains for federal income tax purposes, whether you reinvest them in additional shares or take them in cash. Distributions are generally taxable to you at different rates depending on the length of time the fund holds its assets. Different tax rates may apply to ordinary income and long-term capital gain distributions, regardless of how long you have held your shares. Every year, you will be sent information showing the amount of dividends and distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM Fund shares will be subject to federal income tax. Exchanges of shares for shares of another AIM Fund are treated as a sale, and any gain realized on the transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING "OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares may differ materially from the federal income tax consequences described above. You should consult your tax advisor before investing.
A-9 MCF--11/15
More information may be obtained free of charge upon request. The Statement of Additional Information (SAI), a current version of which is on file with the Securities and Exchange Commission (SEC), contains more details about the fund and is incorporated by reference into the prospectus (is legally a part of this prospectus). Annual and semiannual reports to shareholders contain additional information about the fund's investments. The fund's annual report also discusses the market conditions and investment strategies that significantly affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of Funds--Registered Trademark-- or your account, or wish to obtain free copies of the fund's current SAI or annual or semiannual reports, please contact us
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a
request by e-mail or
download prospectuses,
annual or semiannual
reports via our website:
http://www.aimfunds.com
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You also can review and obtain copies of the fund's SAI, reports and other information at the SEC's Public Reference Room in Washington, DC; on the EDGAR database on the SEC's Internet website (http://www.sec.gov); or, after paying a duplication fee, by sending a letter to the SEC's Public Reference Section, Washington, DC 20549-0102 or by sending an electronic mail request to publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about the Public Reference Room.
[AIM LOGO APPEARS HERE] www.aimfunds.com TRB-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT SECURITIES FUNDS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO EACH PORTFOLIO OF AIM INVESTMENT SECURITIES FUNDS LISTED BELOW. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, AND IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUSES FOR THE FUNDS LISTED BELOW. YOU MAY OBTAIN A COPY OF ANY PROSPECTUS FOR ANY FUND LISTED BELOW FROM AN AUTHORIZED DEALER OR BY WRITING TO:
A I M FUND SERVICES, INC.
P.O. BOX 4739
HOUSTON, TEXAS 77210-4739
OR BY CALLING
(800) 347-4246
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED DECEMBER 31, 2001, RELATES TO THE FOLLOWING PROSPECTUSES:
FUND DATED
---- -----
AIM HIGH YIELD FUND NOVEMBER 28, 2001
AIM HIGH YIELD FUND II NOVEMBER 28, 2001
AIM INCOME FUND NOVEMBER 28, 2001
AIM INTERMEDIATE GOVERNMENT FUND NOVEMBER 28, 2001
AIM LIMITED MATURITY TREASURY FUND - CLASS A SHARES NOVEMBER 28, 2001
AIM MONEY MARKET FUND NOVEMBER 28, 2001
AIM MUNICIPAL BOND FUND NOVEMBER 28, 2001
AIM TOTAL RETURN BOND FUND DECEMBER 31, 2001
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AIM INVESTMENT SECURITIES FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 31, 2001
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION ABOUT THE TRUST...............................................................................1
Fund History.............................................................................................1
Shares of Beneficial Interest............................................................................1
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS..........................................................3
Classification...........................................................................................3
Investment Strategies and Risks..........................................................................3
Equity Investments............................................................................6
Foreign Investments...........................................................................6
Debt Investments..............................................................................8
Other Investments............................................................................15
Investment Techniques........................................................................16
Derivatives..................................................................................20
Fund Policies...........................................................................................26
Temporary Defensive Positions...........................................................................28
MANAGEMENT OF THE TRUST..........................................................................................29
Board of Trustees.......................................................................................29
Management Information..................................................................................29
Compensation............................................................................................30
Retirement Plan For Trustees.................................................................31
Deferred Compensation Agreements.............................................................31
Codes of Ethics.........................................................................................32
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..............................................................32
INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................32
Investment Advisor......................................................................................32
Service Agreements......................................................................................34
Other Service Providers.................................................................................34
BROKERAGE ALLOCATION AND OTHER PRACTICES.........................................................................35
Brokerage Transactions..................................................................................35
Commissions.............................................................................................36
Brokerage Selection.....................................................................................36
Directed Brokerage (Research Services)..................................................................37
Regular Brokers or Dealers..............................................................................37
Allocation of Portfolio Transactions....................................................................38
PURCHASE, REDEMPTION AND PRICING OF SHARES.......................................................................39
Purchase and Redemption of Shares.......................................................................39
Offering Price..........................................................................................54
Redemption In Kind......................................................................................56
Backup Withholding......................................................................................57
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................58
Dividends and Distributions.............................................................................58
Tax Matters.............................................................................................58
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DISTRIBUTION OF SECURITIES.......................................................................................66
Distribution Plans......................................................................................66
Distributor.............................................................................................68
CALCULATION OF PERFORMANCE DATA..................................................................................69
APPENDICIES:
RATINGS OF DEBT SECURITIES......................................................................................A-1
TRUSTEES AND OFFICERS...........................................................................................B-1
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.............................................................C-1
MANAGEMENT FEES.................................................................................................D-1
ADMINISTRATIVE SERVICES FEES....................................................................................E-1
BROKERAGE COMMISSIONS...........................................................................................F-1
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS.........................................G-1
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS...................................................H-1
TOTAL SALES CHARGES.............................................................................................I-1
PERFORMANCE DATA................................................................................................J-1
FINANCIAL STATEMENTS.............................................................................................FS
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GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Investment Securities Fund (the "Trust") is a Delaware business trust which is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company. The Trust currently consists of eight separate portfolios: AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund, AIM Intermediate Government Fund, AIM Limited Maturity Treasury Fund, AIM Money Market Fund, AIM Municipal Bond Fund and AIM Total Return Bond Fund (each a "Fund" and collectively, the "Funds"). Under the Amended and Restated Agreement and Declaration of Trust, dated November 5, 1998, as amended (the "Trust Agreement"), the Board of Trustees is authorized to create new series of shares without the necessity of a vote of shareholders of the Trust.
The Trust was previously organized as a Maryland corporation on November 4, 1988. Pursuant to an Agreement and Plan of Reorganization, AIM Limited Maturity Treasury Fund was reorganized on October 15, 1993, as a series portfolio of the Trust. Pursuant to another Agreement and Plan of Reorganization, AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund were reorganized on June 1, 2000, as series portfolios of the Trust. In connection with their reorganization as series portfolios of the Trust, the fiscal year end of each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund changed from December 31 to July 31.
AIM High Yield Fund II commenced operations on September 30, 1998. AIM Limited Maturity Treasury Fund succeeded to the assets and assumed the liabilities of a series portfolio with a corresponding name (the "Predecessor Fund") of Short-Term Investments Co., a Massachusetts business trust, on October 15, 1993. All historical financial information and other information contained in this Statement of Additional Information for periods prior to October 15, 1993, relating to AIM Limited Maturity Treasury Fund (or a class thereof) is that of the Predecessor Fund (or a corresponding class thereof). AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund succeeded to the assets and assumed the liabilities of series portfolios with corresponding names (the "Predecessor Funds") of AIM Funds Group, a Delaware business trust, on June 1, 2000. All historical financial information and other information contained in this Statement of Additional Information for periods prior to June 1, 2000, relating to AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund or AIM Municipal Bond Fund (or any classes thereof) is that of the Predecessor Funds (or the corresponding classes thereof).
SHARES OF BENEFICIAL INTEREST
Shares of beneficial interest of the Trust are redeemable at their net asset value (subject, in certain circumstances, to a contingent deferred sales charge) at the option of the shareholder or at the option of the Trust in certain circumstances.
The Trust allocates moneys and other property it receives from the issue or sale of shares of each of its series of shares, and all income, earnings and profits from such issuance and sales, subject only to the rights of creditors, to the appropriate Fund. These assets constitute the underlying assets of each Fund, are segregated on the Trust's books of account, and are charged with the expenses of such Fund and its respective classes. The Trust allocates any general expenses of the Trust not readily identifiable as belonging to a particular Fund by or under the direction of the Board of Trustees, primarily on the basis of relative net assets, or other relevant factors.
Each share of each Fund represents an equal proportionate interest in that Fund with each other share and is entitled to such dividends and distributions out of the income belonging to such Fund as are declared by the Board. Each Fund, other than AIM Money Market Fund and AIM Limited Maturity Treasury Fund, offers three separate classes of shares: Class A shares, Class B shares and Class C shares. AIM Money Market Fund offers AIM Cash Reserve Shares, Class B shares and Class C shares.
AIM Limited Maturity Treasury Fund offers Class A shares and Institutional Class shares, which are discussed in a separate Statement of Additional Information. Each such class represents an interest in the same portfolio of investments. Differing sales charges and expenses will result in differing net asset values and dividends and distributions. Upon any liquidation of the Trust, shareholders of each class are entitled to share pro rata in the net assets belonging to the applicable Fund allocable to such class available for distribution after satisfaction of outstanding liabilities of the Fund allocable to such class.
Each share of a fund has the same voting, dividend, liquidation and other rights, however, each class of shares of a fund is subject to different sales loads, conversion features, exchange privileges and class-specific expenses. Only shareholders of a specific class may vote on matters relating to that class' distribution plan. Because Class B shares automatically convert to Class A or Cash Reserve shares at month-end eight years after the date of purchase, the fund's distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act requires that Class B shareholders must also approve any material increase in distribution fees submitted to Class A or Cash Reserves shareholders of that fund. A pro rata portion of shares from reinvested dividends and distributions convert along with the Class B shares.
Except as specifically noted above, shareholders of each Fund are entitled to one vote per share (with proportionate voting for fractional shares), irrespective of the relative net asset value of the shares of a Fund. However, on matters affecting an individual Fund or class of shares, a separate vote of shareholders of that Fund or class is required. Shareholders of a Fund or class are not entitled to vote on any matter which does not affect that Fund or class but that requires a separate vote of another Fund or class. An example of a matter that would be voted on separately by shareholders of each Fund is the approval of the advisory agreement with A I M Advisors, Inc. ("AIM"), and an example of a matter that would be voted on separately by shareholders of each class of shares is approval of the distribution plans. When issued, shares of each Fund are fully paid and nonassessable, have no preemptive or subscription rights, and are freely transferable. Other than the automatic conversion of Class B shares to Class A shares, there are no conversion rights. Shares do not have cumulative voting rights, which means that in situations in which shareholders elect trustees, holders of more than 50% of the shares voting for the election of trustees can elect all of the trustees of the Trust, and the holders of less than 50% of the shares voting for the election of trustees will not be able to elect any trustees.
Under Delaware law, shareholders of a Delaware business trust shall be entitled to the same limitations of liability extended to shareholders of private for-profit corporations. There is a remote possibility, however, that shareholders could, under certain circumstances, be held liable for the obligations of the Trust to the extent the courts of another state which does not recognize such limited liability were to apply the laws of such state to a controversy involving such obligations. The Trust Agreement disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the trustees to all parties, and each party thereto must expressly waive all rights of action directly against shareholders of the Trust. The Trust Agreement provides for indemnification out of the property of a Fund for all losses and expenses of any shareholder of such Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss due to shareholder liability is limited to circumstances in which a Fund is unable to meet its obligations and the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act, omission or obligation of the Trust or any Trustee or officer; however, a trustee or officer is not protected against any liability to the Trust or to the shareholders to which a trustee or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office with the Trust ("Disabling Conduct"). The Trust Agreement provides for indemnification by the Trust of the trustees, the officers and employees or agents of the Trust, provided that such persons have not engaged in Disabling Conduct. The Trust Agreement also authorizes the purchase of liability insurance on behalf of trustees and officers.
SHARE CERTIFICATES. Each Fund will issue share certificates upon written request to A I M Fund Services, Inc. ("AFS"). AFS will not issue certificates for shares held in prototype retirement plans sponsored by AMVESCAP National Trust Company, an affiliate of AIM.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. Each of the Funds is "diversified" for purposes of the 1940 Act.
INVESTMENT STRATEGIES AND RISKS
The table on the following pages identifies various securities and investment techniques used by AIM in managing The AIM Family of Funds(R). The table has been marked to indicate those securities and investment techniques that AIM may use to manage a Fund. A Fund may not use all of these techniques at any one time. A Fund's transactions in a particular security or use of a particular technique is subject to limitations imposed by a Fund's investment objective, policies and restrictions described in that Fund's Prospectus and/or this Statement of Additional Information, as well as federal securities laws. The Funds' investment objectives, policies, strategies and practices are non-fundamental. A more detailed description of the securities and investment techniques, as well as the risks associated with those securities and investment techniques that the Funds utilize, follows the table. The descriptions of the securities and investment techniques in this section supplement the discussion of principal investment strategies contained in each Fund's Prospectus; where a particular type of security or investment technique is not discussed in a Fund's Prospectus, that security or investment technique is not a principal investment strategy.
AIM INVESTMENT SECURITIES FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM
AIM LIMITED
SECURITY/ AIM HIGH AIM INTERMEDIATE MATURITY AIM AIM TOTAL
INVESTMENT AIM HIGH YIELD INCOME GOVERNMENT TREASURY AIM MONEY MUNICIPAL RETURN
TECHNIQUE YIELD FUND FUND II FUND FUND FUND MARKET FUND BOND FUND BOND FUND
--------- ---------- -------- ------ ------------ -------- ----------- --------- ---------
EQUITY INVESTMENTS
Common Stock X
Preferred Stock X X X X
Convertible Securities X X X X
Alternative Entity
Securities
FOREIGN INVESTMENTS
Foreign Securities X X X X X
Foreign Exchange X X X X
Transactions
DEBT INVESTMENTS
U.S. Government X X X X X X X X
Obligations
Money Market Instruments X X X X X X X X
and Maturities
Mortgage-Backed and X X X X X X
Asset-Backed Securities
Collateralized Mortgage X
Obligations
Foreign Government X X
Obligations
Bank Instruments X X
Commercial Instruments X
Participation Interests X
Other Debt Obligations X X X X X X X
Junk Bonds X X X X
Municipal Securities X X X X X X
Municipal Lease X
Obligations
OTHER INVESTMENTS
REITs X X X X X X X X
Other Investment X X X X X X X X
Companies
Defaulted Securities X X X X
Municipal Forward
Contracts
Variable or Floating X
Rate Instruments
Indexed Securities
Zero-Coupon and X
Pay-in-Kind Securities
Synthetic Municipal
Instruments
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AIM INVESTMENT SECURITIES FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM
AIM LIMITED
SECURITY/ AIM HIGH AIM INTERMEDIATE MATURITY AIM AIM TOTAL
INVESTMENT AIM HIGH YIELD INCOME GOVERNMENT TREASURY AIM MONEY MUNICIPAL RETURN
TECHNIQUE YIELD FUND FUND II FUND FUND FUND MARKET FUND BOND FUND BOND FUND
--------- ---------- -------- ------ ------------ -------- ----------- --------- ---------
INVESTMENT TECHNIQUES
Delayed Delivery X X X X X X X X
Transactions
When-Issued Securities X X X X X X X X
Short Sales X X X X X X
Margin Transactions
Swap Agreements X X
Interfund Loans X X X X X X X X
Borrowing X X X X X X X X
Lending Portfolio X X X X X X X X
Securities
Repurchase Agreements X X X X X X X X
Reverse Repurchase X X X X X X X X
Agreements
Dollar Rolls X X X
Illiquid Securities X X X X X X X X
Rule 144A Securities X X X X X X X
Unseasoned Issuers X
Portfolio Transactions X
Standby Commitments
DERIVATIVES
Equity-Linked
Derivatives
Put Options X X X X X
Call Options X X X X X X
Straddles X X X X X
Warrants X X X X
Futures Contracts and X X X X X X
Options on Futures
Contracts
Forward Contracts X X X X
Cover X X X X X X
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Equity Investments
COMMON STOCK. Common stock is issued by companies principally to raise cash for business purposes and represents a residual interest in the issuing company. A Fund participates in the success or failure of any company in which it holds stock. The prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
PREFERRED STOCK. Preferred stock, unlike common stock, often offers a stated dividend rate payable from a corporation's earnings. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as call/redemption provisions prior to maturity, a negative feature when interest rates decline. Dividends on some preferred stock may be "cumulative," requiring all or a portion of prior unpaid dividends to be paid before dividends are paid on the issuer's common stock. Preferred stock also generally has a preference over common stock on the distribution of a corporation's assets in the event of liquidation of the corporation, and may be "participating," which means that it may be entitled to a dividend exceeding the stated dividend in certain cases. In some cases an issuer may offer auction rate preferred stock, which means that the interest to be paid is set by auction and will often be reset at stated intervals. The rights of preferred stocks on the distribution of a corporation's assets in the event of a liquidation are generally subordinate to the rights associated with a corporation's debt securities.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures, notes, preferred stocks and other securities that may be converted into a prescribed amount of common stock or other equity securities at a specified price and time. The holder of convertible securities is entitled to receive interest paid or accrued on debt, or dividends paid or accrued on preferred stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer and the seniority of the security in the issuer's capital structure. Convertible securities may be illiquid, and may be required to convert at a time and at a price that is unfavorable to the Fund.
The Funds will invest in a convertible debt security based primarily on the characteristics of the equity security into which it converts, and without regard to the credit rating of the convertible security (even if the credit rating is below investment grade). To the extent that a Fund invests in convertible debt securities with credit ratings below investment grade, such securities may have a higher likelihood of default, although this may be somewhat offset by the convertibility feature. See also "Junk Bonds" below.
Foreign Investments
FOREIGN SECURITIES. Foreign securities are equity or debt securities issued by issuers outside the United States, and include securities in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), or other securities representing underlying securities of foreign issuers.
AIM High Yield Fund, AIM High Yield Fund II and AIM Total Return Bond Fund may invest up to 25% of their total assets, AIM Income Fund may invest up to 40% of its total assets, and AIM Money Market Fund may invest up to 50% of its total assets in foreign securities; however, AIM Money Market Fund may only invest in foreign securities denominated in U.S. dollars and AIM Total Return Bond Fund may only invest up to 5% of its total assets in foreign securities that are non-U.S. dollar denominated.
Investments by a Fund in foreign securities, whether denominated in U.S. dollars or foreign currencies, may entail all of the risks set forth below. Investments by a Fund in ADRs, EDRs or similar securities also may entail some or all of the risks described below.
Currency Risk. The value of the Funds' foreign investments will be affected by changes in currency exchange rates. The U.S. dollar value of a foreign security decreases when the value of the U.S. dollar rises against the foreign currency in which the security is denominated, and increases when the value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in which the Funds may invest may not be as developed as the United States' economy and may be subject to significantly different forces. Political or social instability, expropriation or confiscatory taxation, and limitations on the removal of funds or other assets could also adversely affect the value of the Funds' investments.
Regulatory Risk. Foreign companies are not registered with the Securities and Exchange Commission ("SEC") and are generally not subject to the regulatory controls imposed on United States issuers and, as a consequence, there is generally less publicly available information about foreign securities than is available about domestic securities. Foreign companies are not subject to uniform accounting, auditing and financial reporting standards, corporate governance practices and requirements comparable to those applicable to domestic companies. Income from foreign securities owned by the Funds may be reduced by a withholding tax at the source, which tax would reduce dividend income payable to the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which the Funds invest will have substantially less trading volume than the major United States markets. As a result, the securities of some foreign companies may be less liquid and experience more price volatility than comparable domestic securities. Increased custodian costs as well as administrative costs (such as the need to use foreign custodians) may be associated with the maintenance of assets in foreign jurisdictions. There is generally less government regulation and supervision of foreign stock exchanges, brokers and issuers which may make it difficult to enforce contractual obligations. In addition, transaction costs in foreign securities markets are likely to be higher, since brokerage commission rates in foreign countries are likely to be higher than in the United States.
On January 1, 1999, certain members of the European Economic and Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain, established a common European currency known as the "euro" and each member's local currency became a denomination of the euro. On January 2, 2001, Greece became a member of the EMU. It is anticipated that each participating country will replace its local currency with the euro on July 1, 2002. The anticipated replacement of existing currencies with the euro on July 1, 2002 could cause market disruptions before or after July 1, 2002 and could adversely affect the value of securities held by a Fund.
Emerging Markets and Developing Countries. AIM High Yield Fund II may invest in companies located within emerging markets or developing countries. Investments in emerging markets or developing countries involve exposure to economic structures that are generally less diverse and mature and to political systems which can be expected to have less stability than those of more developed countries. Developing countries may have relatively unstable governments, economies based on only a few industries, and securities markets which trade only a small number of securities. Historical experience indicates that emerging markets have been more volatile than the markets of more mature economies. Such markets have also from time to time provided higher rates of return and greater risks to investors. AIM believes that these characteristics of emerging markets can be expected to continue in the future.
FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include direct purchases of futures contracts with respect to foreign currency, and contractual agreements to purchase or sell a specified currency at a specified future date (up to one year) at a price set at the time of the contract. Such contractual commitments may be forward contracts entered into directly with another party or exchange traded futures contracts.
The Funds have authority to deal in foreign exchange between currencies of the different countries in which they will invest as a hedge against possible variations in the foreign exchange rates between those currencies. A Fund may commit the same percentage of its total assets to foreign exchange hedges as it can invest in foreign securities.
The Funds may utilize either specific transactions ("transaction hedging") or portfolio positions ("position hedging") to hedge foreign currency exposure through foreign exchange transactions. Transaction hedging is the purchase or sale of foreign currency with respect to specific receivables or payables of a Fund accruing in connection with the purchase or sale of its portfolio securities, the sale and redemption of shares of the Fund, or the payment of dividends and distributions by the Fund. Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions (or underlying portfolio security positions, such as in an ADR) denominated or quoted in a foreign currency. Additionally, foreign exchange transactions may involve some of the risks of investments in foreign securities.
Debt Investments
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities include bills, notes and bonds issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S. Treasury obligations representing future interest or principal payments on U.S. Treasury notes or bonds. Stripped securities are sold at a discount to their "face value," and may exhibit greater price volatility than interest-bearing securities since investors receive no payment until maturity. Obligations of certain agencies and instrumentalities of the U.S. Government, such as the Government National Mortgage Association ("GNMA"), are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal National Mortgage Association ("FNMA"), are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Student Loan Marketing Association ("SLMA"), are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, though issued by an instrumentality chartered by the U.S. Government, like the Federal Farm Credit Bureau ("FFCB"), are supported only by the credit of the instrumentality. The U.S. Government may choose not to provide financial support to U.S. Government-sponsored agencies or instrumentalities if it is not legally obligated to do so.
MONEY MARKET INSTRUMENTS AND MATURITIES. Money market instruments in which the Funds may invest will be "Eligible Securities" as defined in Rule 2a-7 under the 1940 Act, as such Rule may be amended from time to time. An Eligible Security is generally a rated security with a remaining maturity of 397 calendar days or less that has been rated by the Requisite NRSROs (as defined below) in one of the two highest short-term rating categories, or a security issued by an issuer that has received a rating by the Requisite NRSROs in one of the two highest short-term rating categories with respect to a class of debt obligations (or any debt obligation within that class). Eligible Securities may also include unrated securities determined by the Funds' investment advisor (under the supervision of and pursuant to guidelines established by the Board of Trustees) to be of comparable quality to such rated securities. If an unrated security is subject to a guarantee, to be an Eligible Security, the guarantee generally must have received a rating from a NRSRO in one of the two highest short-term rating categories or be issued by a guarantor that has received a rating from a NRSRO in one of the two highest short-term rating categories with respect to a class of debt obligations (or any debt obligation within that class). Since the Funds may invest in securities backed by banks and other financial institutions, changes in the credit quality of these institutions could cause losses to the Funds and affect their share price. The term "Requisite NRSRO" means (a) any two nationally recognized statistical rating organizations (NRSROs) that have issued a rating with respect to a security or class of debt obligations of an issuer, or (b) if only one NRSRO has issued a rating with respect to such security or issuer at the time a Fund acquires the security, that NRSRO.
AIM Money Market Fund will attempt to maintain a constant net asset value per share of $1.00 and, to this end, values its assets by the amortized cost method and rounds the per share net asset value of its shares in compliance with applicable rules and regulations. Accordingly, the Fund invests only in securities having remaining maturities of 397 days or less and maintains a dollar weighted average
portfolio maturity of 90 days or less. The maturity of a security held by the Fund is determined in compliance with applicable rules and regulations. Certain securities bearing interest at rates that are adjusted prior to the stated maturity of the instrument or that are subject to redemption or repurchase agreements are deemed to have maturities shorter than their stated maturities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Funds may invest in mortgage-backed and asset-backed securities. Mortgage-backed securities are mortgage-related securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, or issued by nongovernment entities. Mortgage-related securities represent pools of mortgage loans assembled for sale to investors by various government agencies such as GNMA and government-related organizations such as FNMA and the Federal Home Loan Mortgage Corporation ("FHLMC"), as well as by nongovernment issuers such as commercial banks, savings and loan institutions, mortgage bankers and private mortgage insurance companies. Although certain mortgage-related securities are guaranteed by a third party or otherwise similarly secured, the market value of the security, which may fluctuate, is not so secured.
There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities they issue. Mortgage-related securities issued by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as to the timely payment of principal and interest. That guarantee is backed by the full faith and credit of the U.S. Treasury. GNMA is a corporation wholly owned by the U.S. Government within the Department of Housing and Urban Development. Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") and are guaranteed as to payment of principal and interest by FNMA itself and backed by a line of credit with the U.S. Treasury. FNMA is a government-sponsored entity wholly owned by public stockholders. Mortgage-related securities issued by FHLMC include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs") guaranteed as to payment of principal and interest by FHLMC itself and backed by a line of credit with the U.S. Treasury. FHLMC is a government-sponsored entity wholly owned by public stockholders.
Other asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. Regular payments received in respect of such securities include both interest and principal. Asset-backed securities typically have no U.S. Government backing. Additionally, the ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited.
If a Fund purchases a mortgage-backed or other asset-backed security at a premium, that portion may be lost if there is a decline in the market value of the security whether resulting from changes in interest rates or prepayments in the underlying collateral. As with other interest-bearing securities, the prices of such securities are inversely affected by changes in interest rates. However, though the value of a mortgage-backed or other asset-backed security may decline when interest rates rise, the converse is not necessarily true, since in periods of declining interest rates the mortgages and loans underlying the securities are prone to prepayment, thereby shortening the average life of the security and shortening the period of time over which income at the higher rate is received. When interest rates are rising, though, the rate of prepayment tends to decrease, thereby lengthening the period of time over which income at the lower rate is received. For these and other reasons, a mortgage-backed or other asset-backed security's average maturity may be shortened or lengthened as a result of interest rate fluctuations and, therefore, it is not possible to predict accurately the security's return.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The AIM Total Return Bond Fund may invest in CMOs. The Fund can also invest in mortgage-backed bonds and asset-backed securities. A CMO is a hybrid between a mortgage-backed bond and a mortgage pass-through security. Similar to a bond, interest and prepaid principal is paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payment of principal received from the pool of underlying mortgages, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. An investor is partially guarded against a sooner than desired return of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase mortgages or mortgage pass-through certificates ("Collateral"). The Collateral is pledged to a third party trustee as security for the Bonds. Principal and interest payments from the Collateral are used to pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds all bear current interest. Interest on Series Z Bond is accrued and added to principal and a like amount is paid as principal on the Series A, B, or C Bond currently being paid off. When the Series A, B, and C Bonds are paid in full, interest and principal on the Series Z Bond begins to be paid currently. With some CMOs, the issuer serves as a conduit to allow loan originators (primarily builders or savings and loan associations) to borrow against their loan portfolios.
CMOs that are issued or guaranteed by the U.S. government or by any of its agencies or instrumentalities will be considered U.S. government securities by the Funds, while other CMOs, even if collateralized by U.S. government securities, will have the same status as other privately issued securities for purposes of applying the Fund's diversification tests.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple classes having different maturity dates which are secured by the pledge of a pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made semiannually, as opposed to monthly. The amount of principal payable on each semiannual payment date is determined in accordance with FHLMC's mandatory sinking fund schedule, which, in turn, is equal to approximately 100% of FHA prepayment experience applied to the mortgage collateral pool. All sinking fund payments in the CMOs are allocated to the retirement of the individual classes of bonds in the order of their stated maturities. Payment of principal on the mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum sinking fund obligation for any payment date are paid to the holders of the CMOs as additional sinking fund payments. Because of the "pass-through" nature of all principal payments received on the collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate at which principal of the CMOs is actually repaid is likely to be such that each class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans during any semiannual payment period is not sufficient to meet FHLMC's minimum sinking fund obligation on the next sinking fund payment date, FHLMC agrees to make up the deficiency from its general funds.
Risks of Mortgage-Related Securities. Investment in mortgage-backed securities poses several risks, including prepayment, market, and credit risk. Prepayment risk reflects the risk that borrowers may prepay their mortgages faster than expected, thereby affecting the investment's average life and perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely controlled by the borrower. Borrowers are most likely to exercise prepayment options at the time when it is least advantageous to investors, generally prepaying mortgages as interest rates fall, and slowing payments as interest rates rise. Besides the effect of prevailing interest rates, the rate of prepayment and refinancing of mortgages may also be affected by home value appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate over time. The price of mortgage-backed securities may be particularly sensitive to prevailing interest rates, the length of time the security is expected to be outstanding, and the liquidity of the issue. In a period of unstable interest rates,
there may be decreased demand for certain types of mortgage-backed securities, and the Fund invested in such securities wishing to sell them may find it difficult to find a buyer, which may in turn decrease the price at which they may be sold.
Credit risk reflects the risk that the Fund may not receive all or part of its principal because the issuer or credit enhancer has defaulted on its obligations. Obligations issued by U.S. government-related entities are guaranteed as to the payment of principal and interest, but are not backed by the full faith and credit of the U.S. government. The performance of private label mortgage-backed securities, issued by private institutions, is based on the financial health of those institutions. With respect to GNMA certificates, although GNMA guarantees timely payment even if homeowners delay or default, tracking the "pass-through" payments may, at times, be difficult.
FOREIGN GOVERNMENT OBLIGATIONS. These are U.S. dollar-denominated obligations issued or guaranteed by one or more foreign governments or any of their political subdivisions, agencies or instrumentalities that are determined by AIM to be of comparable quality to the other obligations in which AIM Money Market Fund may invest. These obligations are often, but not always, supported by the full faith and credit of the foreign governments, or their subdivisions, agencies, or instrumentalities, that issue them. Such securities also include debt obligations of supranational entities. Such debt obligations are ordinarily backed by the full faith and credit of the entities that issue them. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples of supranational entities include the Internal Bank for Reconstruction and Development (the World Bank), the European Coal and Steel Community, the Asian Development Bank and the InterAmerican Development Bank. The percentage of the Fund's assets invested in securities issued by foreign governments will vary depending on the relative yields of such securities, the economic and financial markets of the countries in which the investments are made and the interest rate climate of such countries.
BANK INSTRUMENTS. AIM Money Market Fund and AIM Total Return Bond Fund may invest in certificates of deposits, time deposits, and bankers' acceptances from U.S. or foreign banks. A bankers' acceptance is a bill of exchange or time draft drawn on and accepted by a commercial bank. A certificate of deposit is a negotiable interest-bearing instrument with a specific maturity. Certificates of deposit are issued by banks and savings and loan institutions in exchange for the deposit of funds, and normally can be traded in the secondary market prior to maturity. A time deposit is a non-negotiable receipt issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market.
AIM Money Market Fund may invest in certificates of deposit ("Eurodollar CDs") and time deposits ("Eurodollar time deposits") of foreign branches of domestic banks. Accordingly, an investment in the Fund may involve risks that are different in some respects from those incurred by an investment company which invests only in debt obligations of U.S. domestic issuers. Such risks include future political and economic developments, the possible seizure or nationalization of foreign deposits and the possible imposition of foreign country withholding taxes on interest income.
COMMERCIAL INSTRUMENTS. AIM Money Market Fund intends to invest in commercial instruments, including commercial paper, master notes and other short-term corporate instruments, that are denominated in U.S. dollars. Commercial paper consists of short-term promissory notes issued by corporations. Commercial paper may be traded in the secondary market after its issuance. Master notes are demand notes that permit the investment of fluctuating amounts of money at varying rates of interest pursuant to arrangements with issuers who meet the quality criteria of the Fund. The interest rate on a master note may fluctuate based upon changes in specified interest rates or be reset periodically according to a prescribed formula or may be a set rate. Although there is no secondary market in master demand notes, if such notes have a demand feature, the payee may demand payment of the principal amount of the note upon relatively short notice.
PARTICIPATION INTERESTS. AIM Money Market Fund may purchase participations in corporate loans. Participation interests generally will be acquired from a commercial bank or other financial institution (a "Lender") or from other holders of a participation interest (a "Participant"). The purchase of a participation interest either from a Lender or a Participant will not result in any direct contractual relationship with the borrowing company ("the Borrower"). Instead, the Fund will be required to rely on the Lender or the Participant that sold the participation interest both for the enforcement of the Fund's rights against the Borrower and for the receipt and processing of payments due to the Fund under the loans. The Fund is thus subject to the credit risk of both the Borrower and a Participant. Participation interests are generally subject to restrictions on resale. The Fund considers participation interests to be illiquid and therefore subject to the Fund's percentage limitation for investments in illiquid securities.
OTHER DEBT OBLIGATIONS. Each Fund (except AIM Limited Maturity Treasury Fund) may invest in U.S. dollar-denominated debt obligations issued or guaranteed by U.S. corporations or U.S. commercial banks, U.S. dollar-denominated obligations of foreign issuers and debt obligations of foreign issuers denominated in foreign currencies. Such debt obligations include, among others, bonds, notes, debentures and variable rate demand notes. In choosing corporate debt securities on behalf of a Fund, its investment adviser may consider (i) general economic and financial conditions; (ii) the specific issuer's (a) business and management, (b) cash flow, (c) earnings coverage of interest and dividends, (d) ability to operate under adverse economic conditions, (e) fair market value of assets, and (f) in the case of foreign issuers, unique political, economic or social conditions applicable to such issuer's country; and, (iii) other considerations deemed appropriate. A portion of each Fund's assets may be held in cash and high quality, short-term money market instruments such as certificates of deposit, commercial paper, bankers' acceptances, short-term U.S. Government obligations, taxable municipal securities, master notes, and repurchase agreements, pending investment in portfolio securities, to meet anticipated short-term cash needs such as dividend payments or redemptions of shares, or for temporary defensive purposes. The Funds, other than AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund and AIM Municipal Bond Fund, will purchase only investment grade corporate debt securities.
JUNK BONDS. Junk bonds are lower-rated or non-rated debt securities. Junk bonds are considered speculative with respect to their capacity to pay interest and repay principal in accordance with the terms of the obligation. While generally providing greater income and opportunity for gain, non-investment grade debt securities are subject to greater risks than higher-rated securities.
Companies that issue junk bonds are often highly leveraged, and may not have more traditional methods of financing available to them. During an economic downturn or recession, highly leveraged issuers of high yield securities may experience financial stress, and may not have sufficient revenues to meet their interest payment obligations. Economic downturns tend to disrupt the market for junk bonds, lowering their values, and increasing their price volatility. The risk of issuer default is higher with respect to junk bonds because such issues are generally unsecured and are often subordinated to other creditors of the issuer.
The credit rating of a junk bond does not necessarily address its market value risk, and ratings may from time to time change to reflect developments regarding the issuer's financial condition. The lower the rating of a junk bond, the more speculative its characteristics.
AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund and AIM Municipal Bond Fund may have difficulty selling certain junk bonds because they may have a thin trading market. The lack of a liquid secondary market may have an adverse effect on the market price and each Fund's ability to dispose of particular issues and may also make it more difficult for each Fund to obtain accurate market quotations of valuing these assets. In the event a Fund experiences an unexpected level of net redemptions, the Fund could be forced to sell its junk bonds at an unfavorable price. Prices of junk bonds have been found to be less sensitive to fluctuations in interest rates, and more sensitive to adverse economic changes and individual corporate developments than those of higher-rated debt securities.
Descriptions of debt securities ratings are found in Appendix A.
MUNICIPAL SECURITIES. "Municipal Securities" include debt obligations of states, territories or possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, that are issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include the refunding of outstanding obligations, obtaining funds for general operating expenses and lending such funds to other public institutions and facilities. In addition, certain types of industrial development bonds are issued by or on behalf of public authorities to obtain funds to provide for the construction, equipment, repair or improvement of privately operated housing facilities, airport, mass transit, industrial, port or parking facilities, air or water pollution control facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. The principal and interest payments for industrial development bonds or pollution control bonds are often the sole responsibility of the industrial user and therefore may not be backed by the taxing power of the issuing municipality. The interest paid on such bonds may be exempt from federal income tax, although current federal tax laws place substantial limitations on the purposes and size of such issues. Such obligations are considered to be Municipal Securities provided that the interest paid thereon, in the opinion of bond counsel, qualifies as exempt from federal income tax. However, interest on Municipal Securities may give rise to a federal alternative minimum tax liability and may have other collateral federal income tax consequences. See "Dividends, Distributions and Tax Matters - Tax Matters."
The two major classifications of Municipal Securities are bonds and notes. Bonds may be further classified as "general obligation" or "revenue" issues. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenues derived from a particular facility or class of facilities, and in some cases, from the proceeds of a special excise or other specific revenue source, but not from the general taxing power. Tax-exempt industrial development bonds are in most cases revenue bonds and do not generally carry the pledge of the credit of the issuing municipality. Notes are short-term instruments which usually mature in less than two years. Most notes are general obligations of the issuing municipalities or agencies and are sold in anticipation of a bond sale, collection of taxes or receipt of other revenues. There are, of course, variations in the risks associated with Municipal Securities, both within a particular classification and between classifications. The Funds' assets may consist of any combination of general obligation bonds, revenue bonds, industrial revenue bonds and notes. The percentage of such Municipal Securities held by a Fund will vary from time to time.
Municipal Securities also include the following securities:
o Bond Anticipation Notes usually are general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds.
o Tax Anticipation Notes are issued by state and local governments to finance the current operations of such governments. Repayment is generally to be derived from specific future tax revenues. Tax anticipation notes are usually general obligations of the issuer.
o Revenue Anticipation Notes are issued by governments or governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes. In general, they also constitute general obligations of the issuer.
o Tax-Exempt Commercial Paper (Municipal Paper) is identical to taxable commercial paper, except that tax-exempt commercial paper is issued by states, municipalities and their agencies.
The Funds also may purchase participation interests or custodial receipts from financial institutions. These participation interests give the purchaser an undivided interest in one or more underlying Municipal Securities.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease to be rated by Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's Ratings Services ("S&P"), or another nationally recognized statistical rating organization ("NRSRO"), or the rating of such a security may be reduced below the minimum rating required for purchase by a Fund. Neither event would require a Fund to dispose of the security, but AIM will consider such events to be relevant in determining whether the Fund should continue to hold the security. To the extent that the ratings applied by Moody's, S&P or another NRSRO to Municipal Securities may change as a result of changes in these rating systems, a Fund will attempt to use comparable ratings as standards for its investments in Municipal Securities in accordance with the investment policies described herein.
MUNICIPAL LEASE OBLIGATIONS. Municipal lease obligations, a type of Municipal Security, may take the form of a lease, an installment purchase or a conditional sales contract. Municipal lease obligations are issued by state and local governments and authorities to acquire land, equipment and facilities such as state and municipal vehicles, telecommunications and computer equipment, and other capital assets. Interest payments on qualifying municipal leases are exempt from federal income taxes. AIM Municipal Bond Fund may purchase these obligations directly, or it may purchase participation interests in such obligations. Municipal leases are generally subject to greater risks than general obligation or revenue bonds. State laws set forth requirements that states or municipalities must meet in order to issue municipal obligations, and such obligations may contain a covenant by the issuer to budget for, appropriate, and make payments due under the obligation. However, certain municipal lease obligations may contain "non-appropriation" clauses which provide that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated for this purpose each year. Accordingly, such obligations are subject to "non-appropriation" risk. While municipal leases are secured by the underlying capital asset, it may be difficult to dispose of such assets in the event of non-appropriation or other default. All direct investments by AIM Municipal Bond Fund in municipal lease obligations shall be deemed illiquid and shall be valued according to the Fund's Procedures for Valuing Securities current at the time of such valuation.
Quality Standards. The following quality standards apply at the time a security is purchased. Information concerning the ratings criteria of Moody's, S&P, and Fitch Investors Service, Inc. ("Fitch") appears herein under "Appendix A - Ratings of Debt Securities".
At least 80% of AIM Municipal Bond Fund's total assets will be invested in municipal securities rated within the four highest ratings for municipal obligations by Moody's (Aaa, Aa, A, or Baa), S&P (AAA, AA, A, or BBB), or have received a comparable rating from another NRSRO. The Fund may invest up to 20% of its total assets in municipal securities that are rated below Baa/BBB (or a comparable rating of any other NRSRO) or that are unrated. For purposes of the foregoing percentage limitations, municipal securities (i) which have been collateralized with U.S. Government obligations held in escrow until the municipal securities' scheduled redemption date or final maturity, but (ii) which have not been rated by a NRSRO subsequent to the date of escrow collateralization, will be treated by the Fund as the equivalent of Aaa/AAA rated securities.
Since AIM Municipal Bond Fund invests in securities backed by insurance companies and other financial institutions, changes in the financial condition of these institutions could cause losses to the Fund and affect its share price.
AIM Municipal Bond Fund may invest in securities which are insured by financial insurance companies. Since a limited number of entities provide such insurance, the Fund may invest more than 25% of its assets in securities insured by the same insurance company.
Other Considerations. The ability of AIM Municipal Bond Fund to achieve its investment objective depends upon the continuing ability of the issuers or guarantors of Municipal Securities held by the Fund
to meet their obligations for the payment of interest and principal when due. The securities in which the Fund invests may not yield as high a level of current income as longer term or lower grade securities, which generally have less liquidity and greater fluctuation in value.
There is a risk that some or all of the interest received by a Fund from Municipal Securities might become taxable as a result of tax law changes or determinations of the Internal Revenue Service ("IRS").
The yields on Municipal Securities are dependent on a variety of factors, including general economic and monetary conditions, money market factors, conditions of the Municipal Securities market, size of a particular offering, and maturity and rating of the obligation. Generally, the yield realized by a Fund's shareholders will be the yield realized by the Fund on its investments, reduced by the general expenses of the Fund and the Trust. The market values of the Municipal Securities held by a Fund will be affected by changes in the yields available on similar securities. If yields increase following the purchase of a Municipal Security, the market value of such Municipal Security will generally decrease. Conversely, if yields decrease, the market value of a Municipal Security will generally increase.
Other Investments
REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs are trusts that sell equity or debt securities to investors and use the proceeds to invest in real estate or interests therein. A REIT may focus on particular projects, such as apartment complexes, or geographic regions, such as the southeastern United States, or both.
To the extent consistent with their respective investment objectives and policies, each Fund may invest up to 15% of its total assets in equity and/or debt securities issued by REITs.
To the extent that a Fund has the ability to invest in REITs, the Fund could conceivably own real estate directly as a result of a default on the securities it owns. A Fund, therefore, may be subject to certain risks associated with the direct ownership of real estate including difficulties in valuing and trading real estate, declines in the value of real estate, risks related to general and local economic conditions, adverse changes in the climate for real estate, environmental liability risks, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, limitations on rents, changes in neighborhood values, the appeal of properties to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected by any changes in the value of the underlying property owned by the trusts, while mortgage REITs may be affected by the quality of any credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified, and are therefore subject to the risk of financing single or a limited number of projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the possibility of failing to maintain an exemption from the 1940 Act. Changes in interest rates may also affect the value of debt securities held by a Fund. By investing in REITs indirectly through a Fund, a shareholder will bear not only his/her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs.
OTHER INVESTMENT COMPANIES. With respect to a Fund's purchase of shares of another investment company, including Affiliated Money Market Funds (defined below), the Fund will indirectly bear its proportionate share of the advisory fees and other operating expenses of such investment company. The Funds have obtained an exemptive order from the SEC allowing them to invest in money market funds that have AIM or an affiliate of AIM as an investment advisor (the "Affiliated Money Market Funds"), provided that investments in Affiliated Money Market Funds do not exceed 25% of the total assets of the investing Fund.
DEFAULTED SECURITIES. The Funds may invest in defaulted securities. In order to enforce its rights in defaulted securities, the Funds may be required to participate in various legal proceedings or take possession of and manage assets securing the issuer's obligations on the defaulted securities. This could increase a Fund's operating expenses and adversely affect its net asset value. Any investments by
the Funds in defaulted securities will also be considered illiquid securities subject to the limitations described herein, unless AIM determines that such defaulted securities are liquid under guidelines adopted by the Board of Trustees.
VARIABLE OR FLOATING RATE INSTRUMENTS. AIM Money Market Fund may invest in Eligible Securities which have variable or floating interest rates which are readjusted on set dates (such as the last day of the month or calendar quarter) in the case of variable rates or whenever a specified interest rate change occurs in the case of a floating rate instrument. Variable or floating interest rates generally reduce changes in the market price of securities from their original purchase price because, upon readjustment, such rates approximate market rates. Accordingly, as interest rates decrease or increase, the potential for capital appreciation or depreciation is less for variable or floating rate securities than for fixed rate obligations.
ZERO-COUPON AND PAY-IN-KIND SECURITIES. AIM Total Return Bond Fund may invest in zero-coupon or pay-in-kind securities. These securities are debt securities that do not make regular cash interest payments. Zero-coupon securities are sold at a deep discount to their face value. Pay-in-kind securities pay interest through the issuance of additional securities. Because zero-coupon and pay-in-kind securities do not pay current cash income, the price of these securities can be volatile when interest rates fluctuate. While these securities do not pay current cash income, federal tax law requires the holders of zero-coupon and pay-in-kind securities to include in income each year the portion of the original issue discount (or deemed discount) and other non-cash income on such securities accrued during that year. In order to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code") and to avoid certain excise taxes, AIM High Income Municipal Fund may be required to distribute a portion of such discount and income, and may be required to dispose of other portfolio securities, which could occur during periods of adverse market prices, in order to generate sufficient cash to meet these distribution requirements.
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions involve commitments by a Fund to dealers or issuers to acquire or sell securities at a specified future date beyond the customary settlement for such securities. These commitments may fix the payment price and interest rate to be received or paid on the investment. A Fund may purchase securities on a delayed delivery basis to the extent it can anticipate having available cash on settlement date.
Investment in securities on a delayed delivery basis may increase a Fund's exposure to market fluctuation and may increase the possibility that the Fund will incur short-term gains subject to federal taxation or short-term losses if the Fund must engage in portfolio transactions in order to honor a delayed delivery commitment. In a delayed delivery transaction, the Fund relies on the other party to complete the transaction. If the transaction is not completed, the Fund may miss a price or yield considered to be advantageous. A Fund will employ techniques designed to reduce such risks. Until the settlement date, a Fund will segregate liquid assets of a dollar value sufficient at all times to make payment for the delayed delivery transactions. Such segregated liquid assets will be marked-to-market daily, and the amount segregated will be increased if necessary to maintain adequate coverage of the delayed delivery commitments. No additional delayed delivery agreements or when-issued commitments (as described below) will be made by a Fund if, as a result, more than 25% of the Fund's total assets would become so committed.
The delayed delivery securities, which will not begin to accrue interest or dividends until the settlement date, will be recorded as an asset of a Fund and will be subject to the risk of market fluctuation. The purchase price of the delayed delivery securities is a liability of a Fund until settlement. Absent extraordinary circumstances, a Fund will not sell or otherwise transfer the delayed delivery securities prior to settlement.
WHEN-ISSUED SECURITIES. The Funds may purchase securities on a "when-issued" basis. When-issued securities are securities that have been announced but not yet auctioned. The payment obligation
and yield that will be received on the securities are fixed at the time the buyer enters into the commitment. A Fund will only make commitments to purchase such securities with the intention of actually acquiring such securities, but the Fund may sell these securities before the settlement date if it is deemed advisable.
Investment in securities on a when-issued basis may increase a Fund's exposure to market fluctuation and may increase the possibility that the Fund will incur short-term gains subject to federal taxation or short-term losses if the Fund must engage in portfolio transactions in order to honor a when-issued commitment. If a Fund purchases a when-issued security, the Fund's custodian bank will segregate liquid assets in an amount equal to the when-issued commitment. If the market value of such segregated assets declines, additional liquid assets will be segregated on a daily basis so that the market value of the segregated assets will equal the amount of the Fund's when-issued commitments. No additional delayed delivery agreements (as described above) or when-issued commitments will be made by a Fund if, as a result, more than 25% of the Fund's total assets would become so committed.
SHORT SALES. In a short sale, a Fund does not immediately deliver the securities sold and does not receive the proceeds from the sale. A Fund is said to have a short position in the securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale. A Fund will make a short sale, as a hedge, when it believes that the price of a security may decline, causing a decline in the value of a security owned by the Fund or a security convertible into or exchangeable for such security, or when the Fund does not want to sell the security it owns, because it wishes to defer recognition of gain or loss for federal income tax purposes. In such case, any future losses in a Fund's long position should be reduced by a gain in the short position. Conversely, any gain in the long position should be reduced by a loss in the short position. The extent to which such gains or losses are reduced will depend upon the amount of the security sold short relative to the amount a Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. In determining the number of shares to be sold short against a Fund's position in a convertible security, the anticipated fluctuation in the conversion premium is considered. A Fund may also make short sales to generate additional income from the investment of the cash proceeds of short sales.
A Fund will only make short sales "against the box," meaning that at all times when a short position is open, the Fund owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short. To secure its obligation to deliver the securities sold short, a Fund will segregate with its custodian an equal amount of the securities sold short or securities convertible into or exchangeable for such securities. Each Fund (except for AIM Limited Maturity Treasury Fund and AIM Money Market Fund) may pledge no more than 10% of its total assets as collateral for short sales at any time.
MARGIN TRANSACTIONS. None of the Funds will purchase any security on margin, except that each Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of portfolio securities. The payment by a Fund of initial or variation margin in connection with futures or related options transactions will not be considered the purchase of a security on margin.
SWAP AGREEMENTS. AIM Total Return Bond Fund may enter into interest rate, index and currency exchange rate swap agreements for purposes of attempting to obtain a particular desired return at a lower cost to the Fund than if it had invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index. Commonly used swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap"; interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor"; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on which to calculate the obligations which the parties to a swap agreement have agreed to exchange. Most swap agreements entered into by the Fund would calculate the obligations of the parties to the agreement on a "net basis." Consequently, the Fund's obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). Obligations under a swap agreement will be accrued daily (offset against amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by segregating liquid assets, to avoid any potential leveraging of the Fund. The Fund will not enter into a swap agreement with any single party if the net amount owed to or to be received under existing contracts with that party would exceed 5% of the Fund's total assets. For a discussion of the tax considerations relating to swap agreements, see "Dividends, Distributions and Tax Matters - Swap Agreements."
INTERFUND LOANS. Each Fund may lend up to 15% of its net assets to other AIM Funds and each Fund may borrow from other AIM Funds to the extent permitted under such Fund's investment restrictions. During temporary or emergency periods, the percentage of a Fund's net assets that may be loaned to other AIM Funds may be increased as permitted by the SEC. If any interfund loans are outstanding, a Fund cannot make any additional investments. If a Fund has borrowed from other AIM Funds and has aggregate borrowings from all sources that exceed 10% of such Fund's total assets, such Fund will secure all of its loans from other AIM Funds. The ability of the Fund to lend their securities to other AIM Funds is subject to certain other terms and conditions.
BORROWING. Each Fund may borrow money to a limited extent for temporary or emergency purposes. If there are unusually heavy redemptions because of changes in interest rates or for any other reason, a Fund may have to sell a portion of its investment portfolio at a time when it may be disadvantageous to do so. Selling fund securities under these circumstances may result in a lower net asset value per share or decreased dividend income, or both. The Trust believes that, in the event of abnormally heavy redemption requests, the Fund's borrowing ability would help to mitigate any such effects and could make the forced sale of their portfolio securities less likely.
LENDING PORTFOLIO SECURITIES. The Funds may each lend their portfolio securities (principally to broker-dealers) where such loans are callable at any time and are continuously secured by segregated collateral equal to no less than the market value, determined daily, of the loaned securities. Such collateral will be cash, letters of credit, or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Each Fund may lend portfolio securities to the extent of one-third of its total assets.
The Funds would continue to receive the income on loaned securities and would, at the same time, earn interest on the loan collateral or on the investment of any cash collateral. Any cash collateral pursuant to these loans would be invested in short-term money market instruments or Affiliated Money Market Funds. Lending securities entails a risk of loss to the Funds if and to the extent that the market value of the securities loaned increases and the collateral is not increased accordingly.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which a Fund acquires ownership of a security from a broker-dealer or bank that agrees to repurchase the security at a mutually agreed upon time and price (which is higher than the purchase price), thereby determining the yield during the Fund's holding period. A Fund may, however, enter into a "continuing contract" or "open" repurchase agreement under which the seller is under a continuing obligation to repurchase the underlying obligation from the Fund on demand and the effective interest rate is negotiated on a daily basis. Each of the Funds may engage in repurchase agreement transactions involving the types of securities in which it is permitted to invest.
If the seller of a repurchase agreement fails to repurchase the security in accordance with the terms of the agreement, the Fund might incur expenses in enforcing its rights, and could experience losses, including a decline in the value of the underlying security and loss of income. The securities underlying a repurchase agreement will be marked to market every business day so that the value of such securities is at least equal to the investment value of the repurchase agreement, including any accrued interest thereon.
AIM Limited Maturity Treasury Fund's investment policies permit it to invest in repurchase agreements with banks and broker-dealers pertaining to U.S. Treasury obligations. However, in order to maximize the Fund's dividends which are exempt from state income taxation, as a matter of operating policy, the Fund does not currently invest in repurchase agreements.
The Funds have obtained an exemptive order from the SEC allowing them to invest their cash balances in joint accounts for the purpose of investing in repurchase agreements with maturities not to exceed 60 days, and in certain other money market instruments with remaining maturities not to exceed 90 days.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are agreements that involve the sale of securities held by a Fund to financial institutions such as banks and broker-dealers, with an agreement that the Fund will repurchase the securities at an agreed upon price and date. A Fund may employ reverse repurchase agreements (i) for temporary emergency purposes, such as to meet unanticipated net redemptions so as to avoid liquidating other portfolio securities during unfavorable market conditions; (ii) to cover short-term cash requirements resulting from the timing of trade settlements (except AIM Limited Maturity Treasury Fund); or (iii) to take advantage of market situations where the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. At the time it enters into a reverse repurchase agreement, a Fund will segregate liquid assets (U.S. Treasury obligations in the case of AIM Limited Maturity Treasury Fund) having a dollar value equal to the repurchase price, and will subsequently continually monitor the account to ensure that such equivalent value is maintained at all times. Reverse repurchase agreements involve the risk that the market value of securities to be purchased by the Fund may decline below the price at which it is obligated to repurchase the securities, or that the other party may default on its obligation, so that the Fund is delayed or prevented from completing the transaction.
DOLLAR ROLLS. AIM Income Fund, AIM Intermediate Government Fund and AIM Total Return Bond Fund may engage in dollar roll transactions with respect to mortgage securities issued by GNMA, FNMA and FHLMC. A dollar roll involves the sale of a security, with an agreement to repurchase a substantially similar security at an agreed upon price and date. Whether such a transaction produces a gain depends upon the costs of the agreement and the income and gains of the investments purchased with the proceeds received from the sale of the dollar roll security. At the time a Fund enters into a dollar roll, it will segregate liquid assets having a dollar value equal to the repurchase price, and will monitor the account to ensure that such equivalent value is maintained. The Funds typically enter into dollar roll transactions on mortgage securities to enhance their return either on an income or total return basis.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be disposed of within seven days in the normal course of business at the price at which they are valued. Illiquid securities may include securities that are subject to restrictions on resale because they have not been registered under the Securities Act of 1933 (the "1933 Act"). Restricted securities may, in certain circumstances, be resold pursuant to Rule 144A, and thus may or may not constitute illiquid securities.
Each Fund (except AIM Money Market Fund) may invest up to 15% of its net assets in securities that are illiquid. AIM Money Market Fund may invest up to 10% of its net assets in securities that are illiquid, including repurchase agreements with remaining maturities in excess of seven (7) days. Limitations on the resale of restricted securities may have an adverse effect on their marketability, which may prevent a Fund from disposing of them promptly at reasonable prices. A Fund may have to bear the expense of registering such securities for resale, and the risk of substantial delays in effecting such registrations.
RULE 144A SECURITIES. Rule 144A securities are securities which, while
privately placed, are eligible for purchase and resale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. AIM, under the supervision of
the Board of Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Funds' restriction on investment in
illiquid securities. Determination of whether a Rule 144A security is liquid or
not is a question of fact. In making this determination AIM will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, AIM could consider the (i)
frequency of trades and quotes; (ii) number of dealers and potential purchasers;
(iii) dealer undertakings to make a market; and (iv) nature of the security and
of market place trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). AIM will also
monitor the liquidity of Rule 144A securities and, if as a result of changed
conditions, AIM determines that a Rule 144A security is no longer liquid, AIM
will review a Fund's holdings of illiquid securities to determine what, if any,
action is required to assure that such Fund complies with its restriction on
investment in illiquid securities. Investing in Rule 144A securities could
increase the amount of each Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
PORTFOLIO TRANSACTIONS. AIM Money Market Fund does not seek profits through short-term trading and will generally hold portfolio securities to maturity, but AIM may seek to enhance the yield of the Fund by taking advantage of yield disparities or other factors that occur in the money markets. For example, market conditions frequently result in similar securities trading at different prices. AIM may dispose of any portfolio security prior to its maturity if such disposition and reinvestment of proceeds are expected to enhance yield consistent with AIM's judgment as to desirable portfolio maturity structure or if such disposition is believed to be advisable due to other circumstances or conditions. Securities held by the Fund will be disposed of prior to maturity if an earlier disposition is deemed desirable by AIM to meet redemption requests. In addition, AIM will continually monitor the creditworthiness of issuers whose securities are held by the Fund, and securities held by the Fund may be disposed of prior to maturity as a result of a revised credit evaluation of the issuer or other circumstances or considerations. The Fund's policy of investing in securities with maturities of 397 days or less will result in high portfolio turnover. Since brokerage commissions are not normally paid on investments of the type made by the Fund, the high turnover should not adversely affect the Fund's net income.
Derivatives
AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund, AIM Intermediate Government Fund and AIM Total Return Bond Fund may each invest in forward contracts, futures contracts, options on securities, options on indices, options on currencies, and options on futures contracts to attempt to hedge against the overall level of investment and currency risk normally associated with each Fund's investments. These instruments are often referred to as "derivatives," which may be defined as financial instruments whose performance is derived, at least in part, from the performance of another asset (such as a security, currency or an index of securities).
AIM Limited Maturity Treasury Fund, AIM Money Market Fund and AIM Municipal Bond Fund may not invest in puts, calls, straddles, spreads or any combination thereof, except, however, AIM Municipal Bond Fund may purchase and sell options on financial futures contracts and may sell covered call options.
PUT AND CALL OPTIONS. A call option gives the purchaser the right to buy the underlying security, contract or foreign currency at the stated exercise price at any time prior to the expiration of the
option (or on a specified date if the option is a European style option), regardless of the market price or exchange rate of the security, contract or foreign currency, as the case may be at the time of exercise. If the purchaser exercises the call option, the writer of a call option is obligated to sell the underlying security, contract or foreign currency. A put option gives the purchaser the right to sell the underlying security, contract or foreign currency at the stated exercise price at any time prior to the expiration date of the option (or on a specified date if the option is a European style option), regardless of the market price or exchange rate of the security, contract or foreign currency, as the case may be at the time of exercise. If the purchaser exercises the put option, the writer of a put option is obligated to buy the underlying security, contract or foreign currency. The premium paid to the writer is consideration for undertaking the obligations under the option contract. Until an option expires or is offset, the option is said to be "open." When an option expires or is offset, the option is said to be "closed."
A Fund will not write (sell) options if, immediately after such sale, the aggregate value of securities or obligations underlying the outstanding options exceeds 20% of the Fund's total assets. A Fund will not purchase options if, at any time of the investment, the aggregate premiums paid for the options will exceed 5% of the Fund's total assets.
Writing Options. A Fund may write put and call options in an attempt to realize, through the receipt of premiums, a greater current return than would be realized on the underlying security, contract, or foreign currency alone. In return for the premium received for writing a call option, the Fund foregoes the opportunity for profit from a price increase in the underlying security, contract, or foreign currency above the exercise price so long as the option remains open, but retains the risk of loss should the price of the security, contract, or foreign currency decline. In return for the premium received for writing a put option, the Fund assumes the risk that the price of the underlying security, contract, or foreign currency will decline below the exercise price, in which case the put would be exercised and the Fund would suffer a loss.
If a call option that a Fund has written expires, it will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security, contract or currency during the option period. If the call option is exercised, a Fund will realize a gain or loss from the sale of the underlying security, contract or currency, which will be increased or offset by the premium received. A Fund would write a put option at an exercise price that, reduced by the premium received on the option, reflects the lowest price it is willing to pay for the underlying security, contract or currency. The obligation imposed upon the writer of an option is terminated upon the expiration of the option, or such earlier time at which a Fund effects a closing purchase transaction by purchasing an option (put or call as the case may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. Closing transactions may be effected in order to realize a profit on an outstanding call option, to prevent an underlying security, contract or currency from being called or to permit the sale of the underlying security, contract or currency. Furthermore, effecting a closing transaction will permit a Fund to write another call option on the underlying security, contract or currency with either a different exercise price or expiration date, or both.
Purchasing Options. A Fund may purchase a call option for the purpose of acquiring the underlying security, contract or currency for its portfolio. Utilized in this fashion, the purchase of call options would enable a Fund to acquire the security, contract or currency at the exercise price of the call option plus the premium paid. So long as it holds such a call option, rather than the underlying security or currency itself, the Fund is partially protected from any unexpected increase in the market price of the underlying security, contract or currency. If the market price does not exceed the exercise price, the Fund could purchase the security on the open market and could allow the call option to expire, incurring a loss only to the extent of the premium paid for the option. The Funds may also purchase call options on underlying securities, contracts or currencies against which it has written other call options. For example, where a Fund has written a call option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a call option with a different exercise strike and/or expiration date that would eliminate some or all of the risk associated with the written call. Used in combinations, these strategies are commonly referred to as "call spreads."
A Fund may purchase a put option on an underlying security, contract or currency ("protective put") owned by the Fund in order to protect against an anticipated decline in the value of the security,
contract or currency. Such hedge protection is provided only during the life of the put option. The premium paid for the put option and any transaction costs would reduce any profit realized when the security, contract or currency is delivered upon the exercise of the put option. Conversely, if the underlying security, contract or currency does not decline in value, the option may expire worthless and the premium paid for the protective put would be lost. A Fund may also purchase put options on underlying securities, contracts or currencies against which it has written other put options. For example, where a Fund has written a put option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a put option with a different exercise price and/or expiration date that would eliminate some or all of the risk associated with the written put. Used in combinations, these strategies are commonly referred to as "put spreads." Likewise, a Fund may write call options on underlying securities, contracts or currencies against which it has purchased protective put options. This strategy is commonly referred to as a "collar."
Over-The-Counter Options. Options may be either listed on an exchange or traded in over-the-counter ("OTC") markets. Listed options are third-party contracts (i.e., performance of the obligations of the purchaser and seller is guaranteed by the exchange or clearing corporation) and have standardized strike prices and expiration dates. OTC options are two-party contracts with negotiated strike prices and expiration dates. A Fund will not purchase an OTC option unless it believes that daily valuations for such options are readily obtainable. OTC options differ from exchange-traded options in that OTC options are transacted with dealers directly and not through a clearing corporation (which guarantees performance). Consequently, there is a risk of non-performance by the dealer. Since no exchange is involved, OTC options are valued on the basis of an average of the last bid prices obtained from dealers, unless a quotation from only one dealer is available, in which case only that dealer's price will be used. In the case of OTC options, there can be no assurance that a liquid secondary market will exist for any particular option at any specific time. Because OTC options in certain cases may be difficult to dispose of in a timely manner, the Fund may be required to treat some or all of these options as illiquid securities. Although a Fund will enter into OTC options only with dealers that are expected to be capable of entering into closing transactions with it, there is no assurance that the Fund will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the dealer, a Fund might be unable to close out an OTC option position at any time prior to its expiration.
Index Options. Index options (or options on securities indices) are similar in many respects to options on securities, except that an index option gives the holder the right to receive, upon exercise, cash instead of securities, if the closing level of the securities index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the call or put times a specified multiple (the "multiplier"), which determines the total dollar value for each point of such difference.
The risks of investment in index options may be greater than options on securities. Because index options are settled in cash, when a Fund writes a call on an index it cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. A Fund can offset some of the risk of writing a call index option position by holding a diversified portfolio of securities similar to those on which the underlying index is based. However, the Fund cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities as underlie the index and, as a result, bears a risk that the value of the securities held will not be perfectly correlated with the value of the index.
STRADDLES. The Fund, for hedging purposes, may write straddles (combinations of put and call options on the same underlying security) to adjust the risk and return characteristics of the Fund's overall position. A possible combined position would involve writing a covered call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written covered call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out.
WARRANTS. Warrants are, in effect, longer-term call options. They give the holder the right to purchase a given number of shares of a particular company at specified prices within certain periods of
time. The purchaser of a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus giving him a profit. Since the market price may never exceed the exercise price before the expiration date of the warrant, the purchaser of the warrant risks the loss of the entire purchase price of the warrant. Warrants generally trade in the open market and may be sold rather than exercised. Warrants are sometimes sold in unit form with other securities of an issuer. Units of warrants and common stock may be employed in financing young, unseasoned companies. The purchase price of a warrant varies with the exercise price of the warrant, the current market value of the underlying security, the life of the warrant and various other investment factors.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract is a two party agreement to buy or sell a specified amount of a specified security or currency (or delivery of a cash settlement price, in the case of an index future) for a specified price at a designated date, time and place (collectively, "Futures Contracts"). A stock index Futures Contract provides for the delivery, at a designated date, time and place, of an amount of cash equal to a specified dollar amount times the difference between the stock index value at the close of trading on the contract and the price agreed upon in the Futures Contract; no physical delivery of stocks comprising the index is made. Brokerage fees are incurred when a Futures Contract is bought or sold, and margin deposits must be maintained at all times when a Futures Contract is outstanding.
A Fund will enter into Futures Contracts for hedging purposes only; that is, Futures Contracts will be sold to protect against a decline in the price of securities or currencies that the Fund owns, or Futures Contracts will be purchased to protect the Fund against an increase in the price of securities or currencies it has committed to purchase or expects to purchase. A Fund's hedging may include sales of Futures Contracts as an offset against the effect of expected increases in interest rates, and decreases in currency exchange rates and stock prices, and purchases of Futures Contracts as an offset against the effect of expected declines in interest rates, and increases in currency exchange rates or stock prices.
The Funds will only enter into Futures Contracts that are traded (either domestically or internationally) on futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading thereon in the United States are regulated under the Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges and trading thereon are not regulated by the CFTC and are not subject to the same regulatory controls. For a further discussion of the risks associated with investments in foreign securities, see "Foreign Investments" in this Statement of Additional Information.
Closing out an open Futures Contract is effected by entering into an offsetting Futures Contract for the same aggregate amount of the identical financial instrument or currency and the same delivery date. There can be no assurance, however, that a Fund will be able to enter into an offsetting transaction with respect to a particular Futures Contract at a particular time. If a Fund is not able to enter into an offsetting transaction, it will continue to be required to maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that must be deposited by a Fund in order to initiate Futures Contracts trading and maintain its open positions in Futures Contracts. A margin deposit made when the Futures Contract is entered ("initial margin") is intended to ensure the Fund's performance under the Futures Contract. The margin required for a particular Futures Contract is set by the exchange on which the Futures Contract is traded and may be significantly modified from time to time by the exchange during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures commission merchant through which a Fund entered into the Futures Contract will be made on a daily basis as the price of the underlying security, currency or index fluctuates making the Futures Contract more or less valuable, a process known as marking-to-market.
If a Fund were unable to liquidate a Futures Contract or an option on a Futures Contract position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the Futures Contract or option or to maintain cash or securities in a segregated account.
Options on Futures Contracts. Options on Futures Contracts are similar to options on securities or currencies except that options on Futures Contracts give the purchaser the right, in return for the premium paid, to assume a position in a Futures Contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the Futures Contract position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's Futures Contract margin account.
Limitations on Futures Contracts and Options on Futures Contracts and on Certain Options on Currencies. To the extent that a Fund enters into Futures Contracts, options on Futures Contracts and options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are "in-the-money") will not exceed 5% of the total assets of the Fund, after taking into account unrealized profits and unrealized losses on any contracts it has entered into. This guideline may be modified by the Board, without a shareholder vote. This limitation does not limit the percentage of the Fund's assets at risk to 5%.
Pursuant to federal securities rules and regulations, a Fund's use of Futures Contracts and options on Futures Contracts may require that Fund to set aside assets to reduce the risks associated with using Futures Contracts and options on Futures Contracts. This process is described in more detail below in the section "Cover."
FORWARD CONTRACTS. A forward contract is an obligation, usually arranged with a commercial bank or other currency dealer, to purchase or sell a currency against another currency at a future date and price as agreed upon by the parties. A Fund either may accept or make delivery of the currency at the maturity of the forward contract. A Fund may also, if its contra party agrees prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Forward contracts are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, it may be more difficult to value such contracts, and it may be difficult to enter into closing transactions.
The Funds may engage in forward currency transactions in anticipation of, or to protect itself against, fluctuations in exchange rates. A Fund may enter into forward contracts with respect to a specific purchase or sale of a security, or with respect to its portfolio positions generally. When a Fund purchases a security denominated in a foreign currency for settlement in the near future, it may immediately purchase in the forward market the currency needed to pay for and settle the purchase. By entering into a forward contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the Fund can secure an exchange rate between the trade and settlement dates for that purchase or sale transaction. This practice is sometimes referred to as "transaction hedging." Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. Because forward contracts are usually entered into on a principal basis, no fees or commissions are involved. The use of forward contracts does not eliminate fluctuations in the prices of the underlying securities a Fund owns or intends to acquire, but it does establish a rate of exchange in advance. In addition, while forward contract sales limit the risk of loss due to a decline in the value of the hedged currencies, they also limit any potential gain that might result should the value of the currencies increase.
Pursuant to federal securities rules and regulations, a Fund's use of forward contracts may require that Fund to set aside assets to reduce the risks associated with using forward contracts. This process is described in more detail below in the section "Cover."
COVER. Transactions using forward contracts, futures contracts and options (other than options purchased by a Fund) expose a Fund to an obligation to another party. A Fund will not enter into any such transactions unless it owns either (1) an offsetting ("covered") position in securities, currencies, or other options, forward contracts or futures contracts or (2) cash, liquid assets and/or short-term debt securities with a value sufficient at all times to cover its potential obligations not covered as provided in (1) above. Each Fund will comply with SEC guidelines regarding cover for these instruments and, if the guidelines so require, set aside cash or liquid securities. To the extent that a futures contract, forward contract or option is deemed to be illiquid, the assets used to "cover" the Fund's obligation will also be treated as illiquid for purposes of determining the Fund's maximum allowable investment in illiquid securities.
Even though options purchased by the Funds do not expose the Funds to an obligation to another party, but rather provide the Funds with a right to exercise, the Funds intend to "cover" the cost of any such exercise. To the extent that a purchased option is deemed illiquid, a Fund will treat the market value of the option (i.e., the amount at risk to the Fund) as illiquid, but will not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the corresponding forward contract, futures contract or option is open, unless they are replaced with other appropriate assets. If a large portion of a Fund's assets is used for cover or otherwise set aside, it could affect portfolio management or the Fund's ability to meet redemption requests or other current obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by the Funds of options, futures contracts and forward currency contracts involves special considerations and risks, as described below. Risks pertaining to particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability to correctly predict the direction of changes in the value of the applicable markets and securities, contracts and/or currencies. While AIM is experienced in the use of these instruments, there can be no assurance that any particular hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between the price movements of an instrument (such as an option contract) and the price movements of the investments being hedged. For example, if a "protective put" is used to hedge a potential decline in a security and the security does decline in price, the put option's increased value may not completely offset the loss in the underlying security. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as changing interest rates, market liquidity, and speculative or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for any particular option, futures contract or option thereon or forward contract at any particular time.
(5) As described above, a Fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in instruments involving obligations to third parties. If a Fund were unable to close out its positions in such instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. The requirements might impair the Fund's ability to sell a portfolio security or make
an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions. For example, if a Fund determines that the cost of hedging will exceed the potential benefit to the Fund, the Fund will not enter into such transaction.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following investment restrictions, which may be changed only by a vote of a majority of such Fund's outstanding shares. Fundamental restrictions may be changed only by a vote of the lesser of (i) 67% or more of the Fund's shares present at a meeting if the holders of more than 50% of the outstanding shares are present in person or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares. Any investment restriction that involves a maximum or minimum percentage of securities or assets (other than with respect to borrowing) shall not be considered to be violated unless an excess over or a deficiency under the percentage occurs immediately after, and is caused by, an acquisition or disposition of securities or utilization of assets by the Fund.
(1) The Fund is a "diversified company" as defined in the 1940 Act. The Fund will not purchase the securities of any issuer if, as a result, the Fund would fail to be a diversified company within the meaning of the 1940 Act, and the rules and regulations promulgated thereunder, as such statute, rules and regulations are amended from time to time or are interpreted from time to time by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or except to the extent that the Fund may be permitted to do so by exemptive order or similar relief (collectively, with the 1940 Act Laws and Interpretations, the "1940 Act Laws, Interpretations and Exemptions"). In complying with this restriction, however, the Fund may purchase securities of other investment companies to the extent permitted by the 1940 Act Laws, Interpretations and Exemptions.
(2) The Fund may not borrow money or issue senior securities, except as permitted by the 1940 Act Laws, Interpretations and Exemptions.
(3) The Fund may not underwrite the securities of other issuers. This restriction does not prevent the Fund from engaging in transactions involving the acquisition, disposition or resale of its portfolio securities, regardless of whether the Fund may be considered to be an underwriter under the 1933 Act.
(4) The Fund will not make investments that will result in the concentration (as that term may be defined or interpreted by the 1940 Act Laws, Interpretations and Exemptions) of its investments in the securities of issuers primarily engaged in the same industry. This restriction does not limit the Fund's investments in (i) obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, (ii) tax-exempt obligations issued by governments or political subdivisions of governments, or (iii) with respect to AIM Money Market Fund, bank instruments. In complying with this restriction, the Fund will not consider a bank-issued guaranty or financial guaranty insurance as a separate security.
(5) The Fund may not purchase real estate or sell real estate unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from investing in issuers that invest, deal, or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein.
(6) The Fund may not purchase physical commodities or sell physical commodities unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities.
(7) The Fund may not make personal loans or loans of its assets to persons who control or are under common control with the Fund, except to the extent permitted by 1940 Act Laws, Interpretations and Exemptions. This restriction does not prevent the Fund from, among other things, purchasing debt obligations, entering into repurchase agreements, loaning its assets to broker-dealers or institutional investors, or investing in loans, including assignments and participation interests.
(8) The Fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objectives, policies and restrictions as the Fund.
The investment restrictions set forth above provide each of the Funds with the ability to operate under new interpretations of the 1940 Act or pursuant to exemptive relief from the SEC without receiving prior shareholder approval of the change. Even though each of the Funds has this flexibility, the Board of Trustees has adopted non-fundamental restrictions for each of the Funds relating to certain of these restrictions which the advisor must follow in managing the Funds. Any changes to these non-fundamental restrictions, which are set forth below, require the approval of the Board of Trustees.
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment restrictions apply to each of the Funds. They may be changed for any Fund without approval of that Fund's voting securities.
(1) In complying with the fundamental restriction regarding issuer
diversification, the Fund will not, with respect to 75% of its total assets (and
for AIM Money Market Fund with respect to 100% of its total assets), purchase
the securities of any issuer (other than securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities), if, as a result,
(i) more than 5% of the Fund's total assets would be invested in the securities
of that issuer, except as permitted by Rule 2a-7 under the 1940 Act, or (ii) the
Fund would hold more than 10% of the outstanding voting securities of that
issuer. The Fund may (i) purchase securities of other investment companies as
permitted by Section 12(d)(1) of the 1940 Act and (ii) invest its assets in
securities of other money market funds and lend money to other investment
companies or their series portfolios that have AIM or an affiliate of AIM as an
investment advisor (an "AIM Advised Fund"), subject to the terms and conditions
of any exemptive orders issued by the SEC. In addition, in complying with the
fundamental restriction regarding issuer diversification, AIM Municipal Bond
Fund will regard each state and political subdivision, agency or
instrumentality, and each multi-state agency of which such state is a member, as
a separate issuer.
(2) In complying with the fundamental restriction regarding borrowing money and issuing senior securities, the Fund may borrow money in an amount not exceeding 331/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). The Fund may borrow from banks, broker-dealers or an AIM Advised Fund. The Fund may not borrow for leveraging, but may borrow for temporary or emergency purposes, in anticipation of or in response to adverse market conditions, or for cash management purposes. The Fund may not purchase additional securities when any borrowings from banks exceed 5% of the Fund's total assets or when any borrowings from an AIM Advised Fund are outstanding.
(3) In complying with the fundamental restriction regarding industry concentration, the Fund may invest up to 25% of its total assets in the securities of issuers whose principal business activities are in the same industry. For purposes of AIM Limited Maturity Treasury Fund's fundamental restriction regarding industry concentration, the United States Government shall not be considered an industry.
(4) In complying with the fundamental restriction with regard to making loans, the Fund may lend up to 331/3% of its total assets and may lend money to an AIM Advised Fund, on such terms and conditions as the SEC may require in an exemptive order.
(5) Notwithstanding the fundamental restriction with regard to investing all assets in an open-end fund, the Fund may not invest all of its assets in the securities of a single open-end management investment company with the same fundamental investment objectives, policies and restrictions as the Fund.
ADDITIONAL NON-FUNDAMENTAL POLICIES. As non-fundamental policies, AIM Municipal Bond Fund will not: invest 25% or more of its assets in (1) securities whose issuers are located in the same state; (2) securities the interest upon which is paid from revenues of similar type projects; or (3) industrial development bonds. The policy described in (2) does not apply, however, if the securities are subject to a guarantee. For securities subject to a guarantee, the Fund does not intend to purchase any such security if, after giving effect to the purchase, 25% or more of the Fund's assets would be invested in securities issued or guaranteed by entities in a particular industry. Securities issued or guaranteed by a bank or subject to financial guaranty insurance are not subject to the limitations set forth in the preceding sentence.
The Trust has obtained an opinion of Dechert Price & Rhoads, special counsel to the Trust, that shares of AIM Limited Maturity Treasury Fund are eligible for investment by a federal credit union. In order to ensure that shares of AIM Limited Maturity Treasury Fund meet the requirements for eligibility for investment by federal credit unions, that Fund has adopted the following additional non-fundamental policies:
(a) The Fund will enter into repurchase agreements only with:
(i) banks insured by the Federal Deposit Insurance Corporation (FDIC);
(ii) savings and loan associations insured by the FDIC; or (iii)
registered broker-dealers. The Fund will only enter into repurchase
transactions pursuant to a master repurchase agreement in writing with
the Fund's counterparty. Under the terms of a written agreement with
its custodian, the Fund receives on a daily basis written confirmation
of each purchase of a security subject to a repurchase agreement and a
receipt from the Fund's custodian evidencing each transaction. In
addition, securities subject to a repurchase agreement may be recorded
in the Federal Reserve Book-Entry System on behalf of the Fund by its
custodian. The Fund purchases securities subject to a repurchase
agreement only when the purchase price of the security acquired is
equal to or less than its market price at the time of the purchase.
(b) The Fund will only enter into reverse repurchase agreements and purchase additional securities with the proceeds when such proceeds are used to purchase other securities that either mature on a date simultaneous with or prior to the expiration date of the reverse repurchase agreement, or are subject to an agreement to resell such securities within that same time period.
(c) The Fund will only enter into securities lending transactions that comply with the same counterparty, safekeeping, maturity and borrowing restrictions that the Fund observes when participating in repurchase and reverse repurchase transactions.
(d) The Fund will enter into when-issued and delayed delivery transactions only when the time period between trade date and settlement date does not exceed 120 days, and only when settlement is on a cash basis. When the delivery of securities purchased in such manner is to occur within 30 days of the trade date, the Fund will purchase the securities only at their market price as of the trade date.
TEMPORARY DEFENSIVE POSITIONS
In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, each of the Funds may temporarily hold all or a portion of its assets in cash, money market instruments, bonds, or (with the exception of AIM Limited Maturity Treasury Fund) other debt securities. Each of the Funds may also invest up to 25% of its total assets in Affiliated Money Market Funds for these purposes.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The overall management of the business and affairs of the Funds and the Trust is vested in the Board of Trustees. The Board of Trustees approves all significant agreements between the Trust, on behalf of one or more of the Funds, and persons or companies furnishing services to the Funds. The day-to-day operations of each Fund are delegated to the officers of the Trust and to AIM, subject always to the objective(s), restrictions and policies of the applicable Fund and to the general supervision of the Board of Trustees. Certain trustees and officers of the Trust are affiliated with AIM and A I M Management Group Inc. ("AIM Management"), the parent corporation of AIM. All of the Trust's executive officers hold similar offices with some or all of the other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust and their principal occupations during at least the last five years are set forth in Appendix B.
The standing committees of the Board of Trustees are the Audit Committee, the Investments Committee, the Committee on Directors/Trustees and the Valuation Committee.
The members of the Audit Committee are Frank S. Bayley, Bruce L. Crockett, Albert R. Dowden (Vice Chair), Edward K. Dunn, Jr. (Chair), Jack M. Fields, Carl Frischling (on leave of absence), Lewis F. Pennock and Louis S. Sklar, Dr. Prema Mathai-Davis and Ruth H. Quigley. The Audit Committee is responsible for: (i) considering management's recommendations of independent accountants for each Fund and evaluating such accountants' performance, costs and financial stability; (ii) with AIM, reviewing and coordinating audit plans prepared by the Funds' independent accountants and management's internal audit staff; and (iii) reviewing financial statements contained in periodic reports to shareholders with the Funds' independent accountants and management.
The members of the Investments Committee are Messrs. Bayley, Crockett,
Dowden, Dunn, Fields, Frischling, Pennock and Sklar (Chair), Dr. Mathai-Davis
(Vice Chair) and Miss Quigley. The Investments Committee is responsible for: (i)
overseeing AIM's investment-related compliance systems and procedures to ensure
their continued adequacy; and (ii) considering and acting, on an interim basis
between meetings of the full Board, on investment-related matters requiring
Board consideration, including dividends and distributions, brokerage policies
and pricing matters.
The members of the Committee on Directors/Trustees are Messrs. Bayley, Crockett (Chair), Dowden, Dunn, Fields (Vice Chair), Pennock and Sklar, Dr. Mathai-Davis and Miss Quigley. The Committee on Directors/Trustees is responsible for: (i) considering and nominating individuals to stand for election as dis-interested trustees as long as the Trust maintains a distribution plan pursuant to Rule 12b-1 under the 1940 Act; (ii) reviewing from time to time the compensation payable to the dis-interested trustees; and (iii) making recommendations to the Board regarding matters related to compensation, including deferred compensation plans and retirement plans for the dis-interested trustees.
The Committee on Directors/Trustees will consider nominees recommended
by a shareholder to serve as trustees, provided: (i) that such person is a
shareholder of record at the time he or she submits such names and is entitled
to vote at the meeting of shareholders at which trustees will be elected; and
(ii) that the Committee on Directors/Trustees or the Board, as applicable, shall
make the final determination of persons to be nominated.
The members of the Valuation Committee are Messrs. Dunn and Pennock, and Miss Quigley. The Valuation Committee is responsible for: (i) periodically reviewing AIM's Procedures for Valuing Securities ("Procedures"), and making any recommendations to AIM with respect thereto; (ii) reviewing
proposed changes to the Procedures recommended by AIM from time to time; (iii) periodically reviewing information provided by AIM regarding industry developments in connection with valuation; (iv) periodically reviewing information from AIM regarding fair value and liquidity determinations made pursuant to the Procedures, and making recommendations to the full Board in connection therewith (whether such information is provided only to the Committee or to the Committee and the full Board simultaneously); and (v) if requested by AIM, assisting AIM's internal valuation committee and/or the full Board in resolving particular valuation anomalies.
COMPENSATION
Each trustee who is not affiliated with AIM is compensated for his or her services according to a fee schedule which recognizes the fact that such trustee also serves as a director or trustee of other AIM Funds. Each such trustee receives a fee, allocated among the AIM Funds for which he or she serves as a director or trustee, which consists of an annual retainer component and a meeting fee component.
Set forth below is information regarding compensation paid or accrued for each trustee of the Trust who is not affiliated with AIM during the year ended December 31, 2000:
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL
COMPENSATION ACCRUED BENEFITS COMPENSATION
FROM THE BY ALL UPON FROM ALL AIM
TRUSTEE TRUST(1) AIM FUNDS(2) RETIREMENT(3) FUNDS(4)
------- ------------ ------------ ------------- ------------
Frank S. Bayley(5) -0- -0- $ 75,000 $ 105,000
Bruce L. Crockett $ 8,697 $ 60,951 75,000 111,500
Owen Daly II(6) 8,697 97,195 75,000 111,500
Albert R. Dowden(7) 6,127 -0- 75,000 13,435
Edward K. Dunn, Jr. 8,697 22,138 75,000 111,500
Jack M. Fields 8,488 23,019 75,000 108,500
Carl Frischling(8) 8,697 107,507 75,000 111,500
Prema Mathai-Davis 8,697 22,606 75,000 111,500
Lewis F. Pennock 8,697 67,995 75,000 111,500
Ruth H. Quigley(5) -0- -0- 75,000 105,000
Louis S. Sklar 8,425 87,538 75,000 111,000
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(1) The total amount of compensation deferred by all trustees of the Trust during the fiscal year ended July 31, 2001, including earnings, was $89,216.
(2) During the fiscal year ended July 31, 2001, the total amount of expenses allocated to the Trust in respect of such retirement benefits was $15,545.
(3) Amounts shown assume each trustee serves until his or her normal retirement date.
(4) As of December 31, 2000, Mr. Bayley and Miss Quigley served as trustees of four registered investment companies advised by AIM, and all other trustees who are not affiliated with AIM served as directors and trustees of twelve registered investment companies advised by AIM. All trustees currently serve as directors or trustees of sixteen registered investment companies advised by AIM.
(5) Mr. Bayley and Miss Quigley were elected to serve as trustees on September 28, 2001.
(6) Mr. Daly was a trustee until December 31, 2001, when he retired.
(7) Mr. Dowden was elected to serve as a trustee on December 12, 2000.
(8) During the fiscal year ended July 31, 2001, the Trust paid $35,868 in legal fees to Kramer Levin Naftalis & Frankel LLP for services rendered by such firm as counsel to the independent trustees of the Trust. Mr. Frischling is a partner of such firm.
Retirement Plan For Trustees
The Trustees have adopted a retirement plan for the Trustees of the Trust who are not affiliated with AIM. The retirement plan includes a retirement policy as well as retirement benefits for the non-AIM-affiliated trustees.
The retirement policy permits each non-AIM-affiliated trustee to serve until December 31 of the year in which the trustee turns 72. A majority of the Trustees may extend from time to time the retirement date of a trustee.
Annual retirement benefits are available to each non-AIM-affiliated
trustee of the Trust and/or the other AIM Funds (each, a "Covered Fund") who has
at least five years of credited service as a trustee (including service to a
predecessor fund) for a Covered Fund. The retirement benefits will equal 75% of
the trustee's annual retainer paid or accrued by any Covered Fund to such
trustee during the twelve-month period prior to retirement, including the amount
of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the trustee. The annual retirement benefits are
payable in quarterly installments for a number of years equal to the lesser of
(i) ten or (ii) the number of such trustee's credited years of service. A death
benefit is also available under the plan that provides a surviving spouse with a
quarterly installment of 50% of a deceased trustee's retirement benefits for the
same length of time that the trustee would have received based on his or her
service. A trustee must have attained the age of 65 (55 in the event of death or
disability) to receive any retirement benefit.
The table below shows estimated credited years of service under the Plan for each non-AIM-affiliated trustee as of December 31, 2000.
ESTIMATED CREDITED
TRUSTEE YEARS OF SERVICE
------- ------------------
Frank S. Bayley 15
Bruce L. Crockett 13
Owen Daly II 13
Albert R. Dowden 0
Edward K. Dunn, Jr. 2
Jack M. Fields 3
Carl Frischling 23
Prema Mathai-Davis 2
Lewis F. Pennock 19
Ruth H. Quigley 24
Louis S. Sklar 11
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Deferred Compensation Agreements
Messrs. Daly, Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis (for purposes of this paragraph only, the "Deferring Trustees") have each executed a Deferred Compensation Agreement (collectively, the "Compensation Agreements"). Pursuant to the Compensation Agreements, the Deferring Trustees have the option to elect to defer receipt of up to 100% of their compensation payable by the Trust, and such amounts are placed into a deferral account. Currently, the Deferring Trustees have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested. Distributions from the Deferring Trustees' deferral accounts will be paid in cash, generally in equal quarterly installments over a period of up to ten (10) years (depending on the Compensation Agreement) beginning on the date selected under the Compensation
Agreement. The Trust's Board of Trustees, in its sole discretion, also may accelerate or extend the distribution of such deferral accounts after the Deferring Trustee's retirement benefits commence under the Plan. The Board, in its sole discretion, also may accelerate or extend the distribution of such deferral accounts after the Deferring Trustee's termination of service as a trustee of the Trust. If a Deferring Trustee dies prior to the distribution of amounts in his or her deferral account, the balance of the deferral account will be distributed to his or her designated beneficiary. The Compensation Agreements are not funded and, with respect to the payments of amounts held in the deferral accounts, the Deferring Trustees have the status of unsecured creditors of the Trust and of each other AIM Fund from which they are deferring compensation.
CODES OF ETHICS
AIM, the Trust and A I M Distributors, Inc. ("AIM Distributors") have each adopted a Code of Ethics governing, as applicable, personal trading activities of all Directors/Trustees, officers of the Trust, persons who, in connection with their regular functions, play a role in the recommendation of any purchase or sale of a security by any of the Funds or obtain information pertaining to such purchase or sale, and certain other employees. The Codes of Ethics are intended to prohibit conflicts of interest with the Trust that may arise from personal trading. Personal trading, including personal trading involving securities that may be purchased or held by a Fund, is permitted by persons covered under the relevant Codes subject to certain restrictions; however those persons are generally required to pre-clear all security transactions with the Compliance Officer or his designee and to report all transactions on a regular basis.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of each Fund's shares by beneficial or record owners of such Fund and by trustees and officers as a group is found in Appendix C. A shareholder who owns beneficially 25% or more of the outstanding shares of a Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Funds' investment advisor, was organized in 1976, and along with its subsidiaries, manages or advises over 135 investment portfolios encompassing a broad range of investment objectives. AIM is a direct, wholly owned subsidiary of AIM Management, a holding company that has been engaged in the financial services business since 1976. AIM Management is an indirect, wholly owned subsidiary of AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are an independent global investment management group. Certain of the directors and officers of AIM are also executive officers of the Trust and their affiliations are shown under "Management Information" herein.
As investment advisor, AIM supervises all aspects of the Funds' operations and provides investment advisory services to the Funds. AIM obtains and evaluates economic, statistical and financial information to formulate and implement investment programs for the Funds.
The Advisor is also responsible for furnishing to each Fund, at the Advisor's expense, the services of persons believed to be competent to perform all supervisory and administrative services required by each Fund, in the judgment of the Trustees, to conduct their respective businesses effectively, as well as the offices, equipment and other facilities necessary for their operations. Such functions include the maintenance of each Fund's accounts and records, and the preparation of all requisite corporate documents such as tax returns and reports to the SEC and shareholders.
The Master Advisory Agreement provides that each Fund will pay or cause to be paid all expenses of such Fund not assumed by AIM, including, without limitation: brokerage commissions, taxes, legal, auditing or governmental fees, the cost of preparing share certificates, custodian, transfer and shareholder service agent costs, expenses of issue, sale, redemption, and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to trustees and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees and other expenses incurred by the Trust on behalf of each Fund in connection with membership in investment company organizations, and the cost of printing copies of prospectuses and statements of additional information distributed to shareholders.
AIM, at its own expense, furnishes to the Trust office space and facilities. AIM furnishes to the Trust all personnel for managing the affairs of the Trust and each of its series of shares.
Pursuant to its advisory agreement with the Trust, AIM receives a monthly fee from each Fund calculated at the following annual rates, based on the average daily net assets of each Fund during the year:
FUND NAME NET ASSETS ANNUAL RATE
--------- ---------- -----------
AIM High Yield Fund First $200 million 0.625%
Next $300 million 0.550%
Next $500 million 0.500%
Amount over $1 billion 0.450%
AIM High Yield Fund II First $500 million 0.625%
Next $500 million 0.55%
Amount over $1 billion 0.50%
AIM Income Fund First $200 million 0.50%
AIM Intermediate Government Fund Next $300 million 0.40%
AIM Municipal Bond Fund Next $500 million 0.35%
Amount over $1 billion 0.30%
AIM Money Market Fund First $1 billion 0.55%
Amount over $1 billion 0.50%
AIM Limited Maturity Treasury Fund First $500 million 0.20%
Amount over $500 million 0.175%
AIM Total Return Bond First $500 million 0.50%
Next $500 million 0.45%
Amount over $1 billion 0.40%
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AIM may from time to time waive or reduce its fee. Voluntary fee waivers or reductions may be rescinded at any time without further notice to investors. During periods of voluntary fee waivers or reductions, AIM will retain its ability to be reimbursed for such fee prior to the end of each fiscal year.
AIM has contractually agreed to waive fees and/or reimburse expenses (excluding interest, taxes, dividends on short sales, extraordinary items and increases in expenses due to expense offset arrangements, if any) for AIM Total Return Bond Fund's Class A, Class B and Class C shares to the extent necessary to limit the total operating expenses of Class A shares to 1.00% (e.g. if AIM waives 0.37% of Class A expenses, AIM will also waive 0.37% of Class B and Class expenses). Such contractual fee waivers or reductions are set forth in the Fee Table to the Fund's Prospectus and may not be terminated or amended to the Funds' detriment during the period stated in the agreement between AIM and the Fund.
AIM has voluntarily agreed, effective July 1, 2001, to waive a portion of advisory fees payable by each Fund. The amount of the waiver will equal 25% of the advisory fee AIM receives from the Affiliated Money Market Funds as a result of each Fund's Investment of uninvested cash in an Affiliated Money Market Fund. See "Investment Strategies and Risks - Other Investments - Other Investment Companies."
The management fees payable by each Fund, the amounts waived by AIM and the net fee paid by each Fund for the last four fiscal periods are found in Appendix D.
SECURITIES LENDING ARRANGEMENTS. If a Fund engages in securities lending, AIM will provide the Fund investment advisory services and related administrative services. The advisory agreement describes the administrative services to be rendered by AIM if a Fund engages in securities lending activities, as well as the compensation AIM may receive for such administrative services. Services to be provided include: (a) overseeing participation in the securities lending program to ensure compliance with all applicable regulatory and investment guidelines; (b) assisting the securities lending agent or principal (the agent) in determining which specific securities are available for loan; (c) monitoring the agent to ensure that securities loans are effected in accordance with AIM's instructions and with procedures adopted by the Board; (d) preparing appropriate periodic reports for, and seeking appropriate approvals from, the Board with respect to securities lending activities; (e) responding to agent inquiries; and (f) performing such other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with securities lending is included in the advisory fee schedule. As compensation for the related administrative services AIM will provide, a lending Fund will pay AIM a fee equal to 25% of the net monthly interest or fee income retained or paid to the Fund from such activities. AIM currently intends to waive such fee, and has agreed to seek Board approval prior to its receipt of all or a portion of such fee.
SERVICE AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Trust have entered into a Master Administrative Services Agreement ("Administrative Services Agreement") pursuant to which AIM may perform or arrange for the provision of certain accounting and other administrative services to each Fund which are not required to be performed by AIM under the advisory agreement. The Administrative Services Agreement provides that it will remain in effect and continue from year to year only if such continuance is specifically approved at least annually by the Trust's Board of Trustees, including the independent trustees, by votes cast in person at a meeting called for such purpose. Under the Administrative Services Agreement, AIM is entitled to receive from the Funds reimbursement of its costs or such reasonable compensation as may be approved by the Board of Trustees. Currently, AIM is reimbursed for the services of the Trust's principal financial officer and her staff, and any expenses related to fund accounting services.
Administrative services fees paid to AIM by each Fund for the last four fiscal periods are found in Appendix E.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. A I M Fund Services, Inc. ("AFS"), 11 Greenway Plaza, Suite 100, Houston, Texas 77046, a registered transfer agent and wholly owned subsidiary of AIM, acts as transfer and dividend disbursing agent for the Funds.
The Transfer Agency and Service Agreement between the Trust and AFS provides that AFS will perform certain shareholder services for the Funds. The Transfer Agency and Service Agreement provides that AFS will receive a per account fee plus out-of-pocket expenses to process orders for purchases, redemptions and exchanges of shares; prepare and transmit payments for dividends and distributions declared by the Funds; maintain shareholder accounts and provide shareholders with
information regarding the Funds and their accounts. AFS may impose certain copying charges for requests for copies of shareholder account statements and other historical account information older than the current year and the immediately preceding year.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), 800 Scudders Mill Road, Plainsboro, New Jersey 08536 has entered into an agreement with the Trust (and certain other AIM Funds), PFPC Inc. (formerly known as First Data Investor Service Group) and Financial Data Services, Inc., pursuant to which MLPF&S is paid a per account fee to perform certain shareholder sub-accounting services for its customers who beneficially own shares of the Fund(s).
CUSTODIANS. State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and cash of AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund and AIM Intermediate Government Fund. The Bank of New York, 100 Church Street, New York, New York 10286, is custodian of all securities and cash of AIM Limited Maturity Fund, AIM Money Market Fund and AIM Municipal Bond Fund. Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as sub-custodian for retail purchases. The Bank of New York also serves as sub-custodian to facilitate cash management.
The custodians are authorized to establish separate accounts in foreign countries and to cause foreign securities owned by the Funds to be held outside the United States in branches of U.S. banks and, to the extent permitted by applicable regulations, in certain foreign banks and securities depositories. AIM is responsible for selecting eligible foreign securities depositories; the custodians are responsible for monitoring eligible foreign securities depositories.
Under their contracts with the Trust, the custodians maintain the portfolio securities of the Funds, administer the purchases and sales of portfolio securities, collect interest and dividends and other distributions made on the securities held in the portfolios of the Funds and perform other ministerial duties. These services do not include any supervisory function over management or provide any protection against any possible depreciation of assets.
AUDITORS. The Funds' independent public accountants are responsible for auditing the financial statements of the Funds. Due to an investment in another AIM Fund, which KPMG LLP represented to the AIM Fund was inadvertent, and new SEC rules regarding auditor independence, KPMG LLP resigned as independent public accountants for the Trust. The Board of Trustees selected Ernst & Young LLP, 1221 McKinney, Houston, Texas 77010-2007, as the independent public accountants to audit the financial statements of the Funds.
COUNSEL TO THE TRUST. Legal matters for the Trust have been passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania 19103.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS
AIM makes decisions to buy and sell securities for each Fund, selects broker-dealers, effects the Funds' investment portfolio transactions, allocates brokerage fees in such transactions and, where applicable, negotiates commissions and spreads on transactions. Since purchases and sales of portfolio securities by the Funds are usually principal transactions, the Funds incur little or no brokerage commission. AIM's primary consideration in effecting a security transaction is to obtain the most favorable execution of the order, which includes the best price on the security and a low commission rate. While AIM seeks reasonably competitive commission rates, the Funds may not pay the lowest commission or spread available. See "Brokerage Selection" below.
Some of the securities in which the Funds invest are traded in over-the-counter markets. Portfolio transactions placed in such markets may be effected at either net prices without commissions,
but which include compensation to the broker-dealer in the form of a mark up or mark down, or on an agency basis, which involves the payment of negotiated brokerage commissions.
Traditionally, commission rates have not been negotiated on stock markets outside the United States. Although in recent years many overseas stock markets have adopted a system of negotiated rates, a number of markets maintain an established schedule of minimum commission rates.
Brokerage commissions paid by each of the Funds during the last four fiscal periods are found in Appendix F.
COMMISSIONS
During the last three fiscal periods ended July 31, 2001, none of the Funds paid brokerage commissions to brokers affiliated with the Funds, AIM, AIM Distributors, or any affiliates of such entities.
The Funds may engage in certain principal and agency transactions with banks and their affiliates that own 5% or more of the outstanding voting securities of an AIM Fund, provided the conditions of an exemptive order received by the AIM Funds from the SEC are met. In addition, a Fund may purchase or sell a security from or to another AIM Fund or account (and may invest in Affiliated Money Market Funds) provided the Funds follow procedures adopted by the Boards of Directors/Trustees of the various AIM Funds, including the Trust. These inter-fund transactions do not generate brokerage commissions but may result in custodial fees or taxes or other related expenses.
Under the 1940 Act, certain persons affiliated with the Trust are prohibited from dealing with the Trust as principal in any purchase or sale of securities unless an exemptive order allowing such transactions is obtained from the SEC. The 1940 Act also prohibits the Trust from purchasing a security being publicly underwritten by a syndicate of which certain persons affiliated with the Trust are members except in accordance with certain conditions. These conditions may restrict the ability of the Funds to purchase municipal securities being publicly underwritten by such syndicate, and the Funds may be required to wait until the syndicate has been terminated before buying such securities. At such time, the market price of the securities may be higher or lower than the original offering price. A person affiliated with the Trust may, from time to time, serve as placement agent or financial advisor to an issuer of Municipal Securities and be paid a fee by such issuer. The Funds may purchase such Municipal Securities directly from the issuer, provided that the purchase is reviewed by the Trust's Board of Trustees and a determination is made that the placement fee or other remuneration paid by the issuer to a person affiliated with the Trust is fair and reasonable in relation to the fees charged by others performing similar services.
BROKERAGE SELECTION
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM, under certain circumstances, lawfully may cause an account to pay a higher commission than the lowest available. Under Section 28(e), AIM must make a good faith determination that the commissions paid are "reasonable in relation to the value of the brokerage and research services provided ... viewed in terms of either that particular transaction or [AIM's] overall responsibilities with respect to the accounts as to which it exercises investment discretion." The services provided by the broker also must lawfully and appropriately assist AIM in the performance of its investment decision-making responsibilities. Accordingly, in recognition of research services provided to it, a Fund may pay a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied by specialized services to AIM and to the Trust's trustees with respect to the performance, investment activities, and fees and expenses of other mutual funds. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and the providing of custody services, as well as the providing of equipment used to communicate research information, the providing of specialized consultations with AIM personnel with respect to computerized systems and data furnished to AIM as a component of other research services, the arranging of meetings with management of companies, and the providing of access to consultants who supply research information.
The outside research assistance is useful to AIM since the broker-dealers used by AIM tend to follow a broader universe of securities and other matters than AIM's staff can follow. In addition, the research provides AIM with a diverse perspective on financial markets. Research services provided to AIM by broker-dealers are available for the benefit of all accounts managed or advised by AIM or by its affiliates. Some broker-dealers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by AIM's clients, including the Funds. However, the Funds are not under any obligation to deal with any broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the broker-dealer providing them. In other cases, the research services may be obtainable from alternative sources in return for cash payments. AIM believes that the research services are beneficial in supplementing AIM's research and analysis and that they improve the quality of AIM's investment advice. The advisory fee paid by the Funds is not reduced because AIM receives such services. However, to the extent that AIM would have purchased research services had they not been provided by broker-dealers, the expenses to AIM could be considered to have been reduced accordingly.
AIM may determine target levels of commission business with various brokers on behalf of its clients (including the Funds) over a certain time period. The target levels will be based upon the following factors, among others: (1) the execution services provided by the broker; (2) the research services provided by the broker; and (3) the broker's interest in mutual funds in general and in the Funds and other mutual funds advised by AIM or A I M Capital Management, Inc. (collectively, the "AIM Funds") in particular, including sales of the Funds and of the other AIM Funds. In connection with (3) above, the Funds' trades may be executed directly by dealers that sell shares of the AIM Funds or by other broker-dealers with which such dealers have clearing arrangements, consistent with obtaining best execution. AIM will not use a specific formula in connection with any of these considerations to determine the target levels.
DIRECTED BROKERAGE (RESEARCH SERVICES)
During the last fiscal year ended March 31, 2001, the Funds did not pay brokerage commissions.
REGULAR BROKERS OR DEALERS
During the last fiscal year ended July 31, 2001, none of AIM High Yield Fund, AIM High Yield Fund II, AIM Intermediate Government Fund, AIM Limited Maturity Treasury Fund or AIM Municipal Bond Fund purchased securities of their "regular" brokers or dealers.
During the last fiscal year ended July 31, 2001, the Funds held securities issued by the following companies, which are "regular" brokers or dealers of one or more of the Funds identified below:
Fund Security Market Value
---- -------- ------------
AIM Income Fund Lehman Brothers Holdings Inc. $ 1,080,714
Morgan Stanley Dean Witter & Co. 1,274,100
Salomon Smith Barney Holdings Inc. 3,972,191
Fidelity Investments 4,420,702
AIM Money Market Fund Credit Suisse First Boston $ 25,000,000
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ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous other investment accounts. Some of these accounts may have investment objectives similar to the Funds. Occasionally, identical securities will be appropriate for investment by one of the Funds and by another Fund or one or more of these investment accounts. However, the position of each account in the same securities and the length of time that each account may hold its investment in the same securities may vary. The timing and amount of purchase by each account will also be determined by its cash position. If the purchase or sale of securities is consistent with the investment policies of the Fund(s) and one or more of these accounts, and is considered at or about the same time, AIM will fairly allocate transactions in such securities among the Fund(s) and these accounts. AIM may combine such transactions, in accordance with applicable laws and regulations, to obtain the most favorable execution. Simultaneous transactions could, however, adversely affect a Fund's ability to obtain or dispose of the full amount of a security which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among the various investment accounts advised by AIM results in transactions which could have an adverse effect on the price or amount of securities available to a Fund. In making such allocations, AIM considers the investment objectives and policies of its advisory clients, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held, and the judgments of the persons responsible for recommending the investment. This procedure would apply to transactions in both equity and fixed income securities.
ALLOCATION OF EQUITY OFFERING TRANSACTIONS
From time to time, certain of the AIM Funds or other accounts managed by AIM may become interested in participating in equity security distributions that are available in an equity "offering", which AIM defines as an IPO, a secondary (follow-on offering), a private placement, a direct placement or a PIPE (private investment in a public equity) and occasions may arise when purchases of such securities by one AIM Fund or account may also be considered for purchase by one or more other AIM Funds or accounts. In such cases, it shall be AIM's practice to specifically combine or otherwise bunch indications of interest for offerings for all AIM Funds and accounts participating in purchase transactions for that offering, and to allocate such transactions in accordance with the following procedures:
AIM will determine the eligibility of each AIM Fund and account that seeks to participate in a particular offering by reviewing a number of factors, including suitability of the investment with the AIM Fund's or account's investment objective, policies and strategies, the liquidity of the AIM Fund or account if such investment is purchased, and whether the portfolio manager intends to hold the security as a long-term investment. The allocation of limited supply securities issued in offerings will be made to eligible AIM Funds and accounts in a manner designed to be fair and equitable for the eligible AIM Funds and accounts, and so that there is equal allocation of offerings over the longer term. Where multiple funds or accounts are eligible, rotational participation may occur, based on the extent to which an AIM Fund or account has participated in previous offerings as well as the size of the AIM Fund or account. Each eligible AIM Fund and account with an asset level of less than $500 million will be placed in one of three tiers, depending upon each AIM Fund's or account's asset level. The AIM Funds and accounts in the tier containing funds and accounts with the smallest asset levels will participate first, each receiving a 40 basis point allocation (rounded to the nearest share round lot that approximates 40 basis points) (the "Allocation"), based on that AIM Fund's or account's net assets. This process continues until all of the AIM Funds and accounts in the three tiers receive their Allocations, or until the shares are all allocated. Should securities remain after this process, eligible AIM Funds and accounts will receive their Allocations on a straight pro rata basis. For the tier of AIM Funds and accounts not receiving a full Allocation, the Allocation may be made only to certain AIM Funds or accounts so that each may receive
close to or exactly 40 basis points. Selection of those AIM Funds or accounts shall be rotational in a manner designed to allocate equally over the longer term.
When any AIM Funds and/or accounts with substantially identical investment objectives and policies participate in offerings, they will do so in amounts that are substantially proportionate to each other. In these cases, the net assets of the largest participating AIM Fund will be used to determine in which tier, as described in the paragraph above, such group of AIM Funds or accounts will be placed. If no AIM Fund is participating, then the net assets of the largest account will be used to determine tier placement. The price per share of securities purchased in such offering transactions will be the same for each AIM Fund and account.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE AND REDEMPTION OF SHARES
Purchases of Class A Shares and AIM Cash Reserve Shares of AIM Money Market Fund
INITIAL SALES CHARGES. Each AIM Fund (other than AIM Tax-Exempt Cash Fund and AIM Money Market Fund) is grouped into one of three categories to determine the applicable initial sales charge for its Class A Shares. The sales charge is used to compensate AIM Distributors and participating dealers for their expenses incurred in connection with the distribution of the Funds' shares. You may also be charged a transaction or other fee by the financial institution managing your account.
Class A Shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund are sold without an initial sales charge.
CATEGORY I FUNDS
AIM Aggressive Growth Fund AIM Large Cap Core Equity Fund AIM Asian Growth Fund AIM Large Cap Growth Fund AIM Basic Value Fund AIM Large Cap Opportunities Fund AIM Blue Chip Fund AIM Mid Cap Basic Value Fund AIM Capital Development Fund AIM Mid Cap Equity Fund AIM Charter Fund AIM Mid Cap Growth Fund AIM Constellation Fund AIM Mid Cap Opportunities Fund AIM Dent Demographic Trends Fund AIM New Technology Fund AIM Emerging Growth Fund AIM Select Equity Fund AIM European Development Fund AIM Small Cap Equity Fund AIM European Small Company Fund AIM Small Cap Growth Fund AIM Euroland Growth Fund AIM Small Cap Opportunities Fund AIM Global Utilities Fund AIM Value Fund AIM International Emerging Growth Fund AIM Value II Fund AIM International Equity Fund AIM Weingarten Fund AIM International Value Fund AIM Worldwide Spectrum Fund AIM Large Cap Basic Value Fund |
Dealer
Investor's Sales Charge Concession
------------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
--------------------------------- ------------- ---------- -------------
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
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(1) AIM Small Cap Opportunities Fund will not accept any single purchase in excess of $250,000.
CATEGORY II FUNDS
AIM Balanced Fund AIM Global Trends Fund AIM Basic Balanced Fund AIM High Income Municipal Fund AIM Developing Markets Fund AIM High Yield Fund AIM Global Aggressive Growth Fund AIM High Yield Fund II AIM Global Energy Fund AIM Income Fund AIM Global Financial Services Fund AIM Intermediate Government Fund AIM Global Growth Fund AIM Municipal Bond Fund AIM Global Health Care Fund AIM Real Estate Fund AIM Global Income Fund AIM Strategic Income Fund AIM Global Infrastructure Fund AIM Total Return Bond Fund AIM Global Telecommunications and Technology Fund |
Dealer
Investor's Sales Charge Concession
----------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
--------------------------------- ------------- ---------- -------------
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
|
CATEGORY III FUNDS
AIM Limited Maturity Treasury Fund
AIM Tax-Free Intermediate Fund
Dealer
Investor's Sales Charge Concession
----------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
--------------------------------- ------------- ---------- -------------
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
|
LARGE PURCHASES OF CLASS A SHARES. Investors who purchase $1,000,000 or more of Class A Shares of Category I, II or III Funds do not pay an initial sales charge. In addition, investors who currently own Class A shares of Category I, II, or III Funds and make additional purchases that result in account balances of $1,000,000 or more do not pay an initial sales charge on the additional purchases. The additional purchases, as well as initial purchases of $1,000,000 or more, are referred to as ("Large Purchases"). If an investor makes a Large Purchase of Class A shares of a Category I or II Fund, however, the shares generally will be subject to a 1% contingent deferred sales charge ("CDSC") if the investor redeems those shares within 18 months after purchase. Large Purchases of Class A shares of Category III Funds made on or after November 15, 2001 will be subject to a 0.25% CDSC if the investor redeems those shares within 12 months after purchase.
AIM Distributors may pay a dealer concession and/or advance a service fee on Large Purchases, as set forth below. Exchanges between the AIM Funds may affect total compensation paid.
For Large Purchases of Class A shares of Category I or II Funds, AIM Distributors may make the following payments to dealers and institutions that are dealers of record:
PERCENT OF SUCH PURCHASES
1% of the first $2 million plus 0.80% of the next $1 million plus 0.50% of the next $17 million plus 0.25% of amounts in excess of $20 million |
For Large Purchases of Class A shares of Category III Funds, AIM Distributors may make the following payments to dealers and institutions that are dealers of record:
Up to 0.10% of purchases of AIM Limited Maturity Treasury Fund; and Up to 0.25% of purchases of AIM Tax-Free Intermediate Fund
If an investor makes a Large Purchase of Class A shares of a Category III Fund on and after November 15, 2001 and exchanges those shares for Class A shares of a Category I or II Fund, AIM Distributors will pay an additional dealer concession of 0.75% upon exchange.
If an investor makes a Large Purchase of Class A shares of a Category I or II Fund on and after November 15, 2001 and exchanges those shares for Class A shares of a Category III Fund, AIM Distributors will not pay any additional dealer compensation upon the exchange.
If an investor makes a Large Purchase of Class A shares of a Category III Fund and exchanges those shares for Class A shares of another Category III Fund, AIM Distributors will not pay any additional dealer concession upon the exchange.
For annual purchases of Class A shares of Category I and II Funds, AIM Distributors may make the following payments to investment dealers or other financial service firms for sales of such shares at net asset value to employee benefit plans:
PERCENT OF SUCH PURCHASES
1% of the first $2 million plus 0.80% of the next $1 million plus 0.50% of the next $17 million plus 0.25% of amounts in excess of $20 million |
For annual purchases of Class A Shares of AIM Limited Maturity Treasury Fund, AIM Distributors may pay investment dealers or other financial service firms up to 0.10% of the net asset value of such shares sold at net asset value.
PURCHASERS QUALIFYING FOR REDUCTIONS IN INITIAL SALES CHARGES. As shown in the tables above, purchases of certain amounts of AIM Fund shares may reduce the initial sales charges. These reductions are available to purchasers that meet the qualifications listed below. We will refer to purchasers that meet these qualifications as "Qualified Purchasers."
INDIVIDUALS
o an individual (including his or her spouse or domestic partner, and children)
o any trust established exclusively for the benefit of an individual
o a pension, profit-sharing, or other retirement plan established exclusively for the benefit of an individual, such as:
a. an IRA
b. a Roth IRA
c. a single-participant money-purchase/profit-sharing plan
d. an individual participant in a 403(b) Plan (unless the 403(b) plan itself qualifies as the purchaser, as discussed below)
403(b) PLANS
o A 403(b) plan, the employer/sponsor of which is an organization described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for all participating employees in a single contribution transmittal (i.e., the Funds will not accept contributions submitted with respect to individual participants);
b. each transmittal must be accompanied by a single check or wire transfer; and
c. all new participants must be added to the 403(b) plan by submitting an application on behalf of each new participant with the contribution transmittal.
TRUSTEES AND FIDUCIARIES
o a trustee or fiduciary purchasing for a single trust, estate or single fiduciary account
o a trustee or fiduciary purchasing for a pension, profit-sharing or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Code
o a trustee or fiduciary purchasing for a 457 plan, even if more than one beneficiary or participant is involved
LINKED EMPLOYEE PLANS
o Linked Employee Plans where the employer has notified AIM Distributor in writing that all of its related employee accounts should be linked, such as:
a. Simplified Employee Pension (SEP) Plans
b. Salary Reduction and other Elective Simplified Employee Pension account (SAR-SEP) Plans
c. Savings Incentive Match Plans for Employees IRA (SIMPLE IRA)
OTHER GROUPS
o any other organized group of persons, whether incorporated or not, provided that:
a. the organization has been in existence for at least six months; and
b. the organization has some purpose other than the purchase at a discount of redeemable securities of a registered investment company.
HOW TO QUALIFY FOR REDUCTIONS IN INITIAL SALES CHARGES. The following sections discuss different ways that a purchaser can qualify for a reduction in the initial sales charges for purchases of Class A shares of the AIM Funds.
LETTERS OF INTENT
A Qualified Purchaser may pay reduced initial sales charges by:
o indicating on the account application that he or she intends to provide a Letter of Intent ("LOI"); and
o fulfilling the conditions of that LOI.
The LOI confirms the total investment in shares of the AIM Funds that the Qualified Purchaser intends to make within the next 13 months. By marking the LOI section on the account application and by signing the account application, the Qualified Purchaser indicates that he or she understands and agrees to the terms of the LOI and is bound by the provisions described below:
Calculating the Initial Sales Charge
o Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI (to determine what the applicable public offering price is, look as the Sales Charge Table in the section on "Large Purchases of Class A Shares" above).
o It is the purchaser's responsibility at the time of purchase to specify the account numbers that should be considered in determining the appropriate sales charge.
o The offering price may be further reduced as described below under "Rights of Accumulation" if the Transfer Agent is advised of all other accounts at the time of the investment.
o Shares acquired through reinvestment of dividends and capital gains distributions will not be applied to the LOI.
Calculating the Number of Shares to be Purchased
o Purchases made within 90 days before signing an LOI will be applied toward completion of the LOI. The LOI effective date will be the date of the first purchase within the 90-day period.
o Purchases made more than 90 days before signing an LOI will be applied toward the completion of the LOI based on the value of the shares purchased that is calculated at the public offering price on the effective date of the LOI.
o If a purchaser meets the original obligation at any time during the 13-month period, he or she may revise the intended investment amount upward by submitting a written and signed request. This revision will not change the original expiration date.
o The Transfer Agent will process necessary adjustments upon the expiration or completion date of the LOI.
Fulfilling the Intended Investment
o By signing an LOI, a purchaser is not making a binding commitment to purchase additional shares, but if purchases made within the 13-month period do not total the amount specified, the purchaser will have to pay the increased amount of sales charge.
o To assure compliance with the provisions of the 1940 Act, the Transfer Agent will escrow in the form of shares an appropriate dollar amount (computed to the nearest full share) out of the initial purchase (or subsequent purchases if necessary). All dividends and any capital gain distributions on the escrowed shares will be credited to the purchaser. All shares purchased, including those escrowed, will be registered in the purchaser's name. If the total investment specified under this LOI is completed within the 13-month period, the escrowed shares will be promptly released.
o If the intended investment is not completed, the purchaser will pay the Transfer Agent the difference between the sales charge on the specified amount and the sales charge on the amount actually purchased. If the purchaser does not pay such difference within 20 days of the expiration date, he or she irrevocably constitutes and appoints the Transfer Agent as his attorney to surrender for redemption any or all shares, to make up such difference within 60 days of the expiration date.
Canceling the LOI
o If at any time before completing the LOI Program, the purchaser wishes to cancel the agreement, he or she must give written notice to AIM Distributors.
o If at any time before completing the LOI Program the purchaser requests the Transfer Agent to liquidate or transfer beneficial ownership of his total shares, the LOI will be automatically canceled. If the total amount purchased is less than the amount specified in the LOI, the Transfer Agent will redeem an appropriate number of escrowed shares equal to the difference between the sales charge actually paid and the sales charge that would have been paid if the total purchases had been made at a single time.
Other Persons Eligible for the LOI Privilege
The LOI privilege is also available to holders of the Connecticut General Guaranteed Account, established for tax qualified group annuities, for contracts purchased on or before June 30, 1992.
LOIs and Contingent Deferred Sales Charges
If an investor enters into an LOI to purchase $1,000,000 or more of Class A shares of a Category III Fund on and after November 15, 2001, such shares will be subject to a 12-month, 0.25% CDSC. Purchases of Class A shares of a Category III Fund made pursuant to an LOI to purchase $1,000,000 or more of shares entered into prior to November 15, 2001 will not be subject to this CDSC. All LOIs to purchase $1,000,000 or more of Class A Shares of Category I and II Funds are subject to an 18-month, 1% CDSC.
RIGHTS OF ACCUMULATION
A Qualified Purchaser may also qualify for reduced initial sales charges based upon his or her existing investment in shares of any of the AIM Funds at the time of the proposed purchase. To determine whether or not a reduced initial sales charge applies to a proposed purchase, AIM Distributors takes into account not only the money which is invested upon such proposed purchase, but also the value of all shares of the AIM Funds owned by such purchaser, calculated at their then current public offering price.
If a purchaser qualifies for a reduced sales charge, the reduced sales charge applies to the total amount of money being invested, even if only a portion of that amount exceeds the breakpoint for the reduced sales charge. For example, if a purchaser already owns qualifying shares of any AIM Fund with a value of $20,000 and wishes to invest an additional $20,000 in a fund with a maximum initial sales charge of 5.50%, the reduced initial sales charge of 5.25% will apply to the full $20,000 purchase and not just to the $15,000 in excess of the $25,000 breakpoint.
To qualify for obtaining the discount applicable to a particular purchase, the purchaser or his dealer must furnish the Transfer Agent with a list of the account numbers and the names in which such accounts of the purchaser are registered at the time the purchase is made.
Rights of Accumulation are also available to holders of the Connecticut General Guaranteed Account, established for tax-qualified group annuities, for contract purchased on or before June 30, 1992.
If an investor's new purchase of Class A shares of a Category I, II or III Fund is at net asset value, the newly purchased shares will be subject to a contingent deferred sales charge if the investor redeems them prior to the end of the applicable holding period (18 months for Category I and II Funds shares and 12 months for Category III Fund shares). For Class A shares of Category III Funds, the provisions of this paragraph apply only to new purchases made on and after November 15, 2001.
OTHER REQUIREMENTS FOR REDUCTIONS IN INITIAL SALES CHARGES. As discussed above, investors or dealers seeking to qualify orders for a reduced initial sales charge must identify such orders and, if necessary, support their qualification for the reduced charge. AIM Distributors reserves the right to determine whether any purchaser is entitled to the reduced sales charge based on the definition of a Qualified Purchaser listed above. No person or entity may distribute shares of the AIM Funds without payment of the applicable sales charge other than to Qualified Purchasers.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund, and Class B and Class C shares of AIM Floating Rate Fund will not be taken into account in determining whether a purchase qualifies for a reduction in initial sales charges.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE. AIM Distributors permits certain categories of persons to purchase Class A shares of AIM Funds without paying an initial sales charge. These are typically categories of persons whose transactions involve little expense, such as:
o Persons who have a relationship with the funds or with AIM and its affiliates, and are therefore familiar with the funds, and who place unsolicited orders directly with AIM Distributors; or
o programs for purchase that involve little expense because of the size of the transaction and shareholder records required.
AIM Distributors believes that it is appropriate and in the Funds' best interests that such persons, and certain other persons whose purchases result in relatively low expenses of distribution, be permitted to purchase shares through AIM Distributors without payment of a sales charge.
Accordingly, the following purchasers will not pay initial sales charges on purchases of Class A shares because there is a reduced sales effort involved in sales to these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director or employee (and members of their immediate family) of AIM Management, its affiliates or The AIM Family of Funds,--REGISTERED TRADEMARK-- and any foundation, trust or employee benefit plan established exclusively for the benefit of, or by, such persons;
o Any current or retired officer, director, or employee (and members of their immediate family), of PFPC Inc. (formerly known as First Data Investor Services Group);
o Sales representatives and employees (and members of their immediate family) of selling group members of financial institutions that have arrangements with such selling group members;
o Purchases through approved fee-based programs;
O Employee benefit plans that are Qualified Purchasers, as defined above, and non-qualified plans offered in conjunction with those employee benefit plans, provided that:
a. the initial investment in the plan(s) is at least $1 million;
b. the sponsor signs a $1 million LOI;
c. the employer-sponsored plan has at least 100 eligible employees; or
d. all plan transactions are executed through a single omnibus account per Fund and the financial institution or service organization has entered into the appropriate agreement with the distributor.
o Section 403(b) plans sponsored by public educational institutions are not eligible for a sales charge exception based on the aggregate investment made by the plan or the number of eligible employees. Purchases of AIM Small Cap Opportunities Fund by such plans are subject to initial sales charges;
o Shareholders of record of Advisor Class shares of AIM International Growth Fund or AIM Worldwide Growth Fund on February 12, 1999 who have continuously owned shares of the AIM Funds;
o Shareholders of record or discretionary advised clients of any investment advisor holding shares of AIM Weingarten Fund or AIM Constellation Fund on September 8, 1986, or of AIM Charter Fund on November 17, 1986, who have continuously owned shares having a market value of at least $500 and who purchase additional shares of the same Fund;
o Unitholders of G/SET series unit investment trusts investing proceeds from such trusts in shares of AIM Weingarten Fund or AIM Constellation Fund; provided, however, prior to the termination date of the trusts, a unitholder may invest proceeds from the redemption or repurchase of his units only when the investment in shares of AIM Weingarten Fund and AIM Constellation Fund is effected within 30 days of the redemption or repurchase;
o A shareholder of a fund that merges or consolidates with an AIM Fund or that sells its assets to an AIM Fund in exchange for shares of an AIM Fund;
o Shareholders of the GT Global funds as of April 30, 1987 who since that date continually have owned shares of one or more of these funds;
o Certain former AMA Investment Advisers' shareholders who became shareholders of the AIM Global Health Care Fund in October 1989, and who have continuously held shares in the GT Global funds since that time;
o Shareholders of record of Advisor Class shares of an AIM Fund on February 11, 2000 who have continuously owned shares of that AIM Fund, and who purchase additional shares of that AIM Fund;
o Qualified Tuition Programs created and maintained in accordance with
Section 529 of the Code; and
o Participants in select brokerage programs for defined contribution plans and rollover IRAs (including rollover IRAs which accept annual IRA contributions) who purchase shares through an electronic brokerage platform offered by entities with which AIM Distributors has entered into a written agreement.
As used above, immediate family includes an individual and his or her spouse or domestic partner, children, parents and parents of spouse or domestic partner.
In addition, an investor may acquire shares of any of the AIM Funds at net asset value in connection with:
o the reinvestment of dividends and distributions from a Fund;
o exchanges of shares of certain Funds;
o use of the reinstatement privilege; or
o a merger, consolidation or acquisition of assets of a Fund.
PAYMENTS TO DEALERS. AIM Distributors may elect to re-allow the entire initial sales charge to dealers for all sales with respect to which orders are placed with AIM Distributors during a particular period. Dealers to whom substantially the entire sales charge is re-allowed may be deemed to be "underwriters" as that term is defined under the 1933 Act.
In addition to, or instead of, amounts paid to dealers as a sales commission, AIM Distributors may, from time to time, at its expense or as an expense for which it may be compensated under a distribution plan, if applicable, pay a bonus or other consideration or incentive to dealers. The total amount of such additional bonus payments or other consideration shall not exceed 0.25% of the public offering price of the shares sold or of average daily net assets of the AIM Fund attributable to that particular dealer. At the option of the dealer, such incentives may take the form of payment for travel expenses, including lodging, incurred in connection with trips taken by qualifying registered representatives and their families to places within or outside the United States. Any such bonus or
incentive programs will not change the price paid by investors for the purchase of the applicable AIM Fund's shares or the amount that any particular AIM Fund will receive as proceeds from such sales. Dealers may not use sales of the AIM Funds' shares to qualify for any incentives to the extent that such incentives may be prohibited by the laws of any state.
Purchases of Class B Shares
Class B shares are sold at net asset value, and are not subject to an initial sales charge. Instead, investors may pay a contingent deferred sales charge if they redeem their shares within eight years after purchase. See the Prospectus for additional information regarding contingent deferred sales charges. AIM Distributors may pay sales commissions to dealers and institutions who sell Class B shares of the AIM Funds at the time of such sales. Payments will equal 4.00% of the purchase price and will consist of a sales commission equal to 3.75% plus an advance of the first year service fee of 0.25%.
Purchases of Class C Shares
Class C shares are sold at net asset value, and are not subject to an initial sales charge. Instead, investors may pay a contingent deferred sales charge if they redeem their shares within the first year after purchase. See the Prospectus for additional information regarding this contingent deferred sales charge (CDSC). AIM Distributors may pay sales commissions to dealers and institutions who sell Class C shares of the AIM Funds at the time of such sales. Payments will equal 1.00% of the purchase price and will consist of a sales commission of 0.75% plus an advance of the first year service fee of 0.25%. These commissions are not paid on sales to investors exempt from the CDSC, including shareholders of record of AIM Advisor Funds, Inc. on April 30, 1995, who purchase additional shares in any of the Funds on or after May 1, 1995, and in circumstances where AIM Distributors grants an exemption on particular transactions.
Exchanges
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to be acquired by exchange are purchased at their net asset value or applicable offering price, as the case may be, determined on the date that such request is received, but under unusual market conditions such purchases may be delayed for up to five business days if it is determined that a fund would be materially disadvantaged by an immediate transfer of the proceeds of the exchange. If a shareholder is exchanging into a fund paying daily dividends, and the release of the exchange proceeds is delayed for the foregoing five-day period, such shareholder will not begin to accrue dividends until the sixth business day after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with certain dealers and investment advisory firms to accept telephone instructions to exchange shares between any of the AIM Funds. AIM Distributors reserves the right to impose conditions on dealers or investment advisors who make telephone exchanges of shares of the funds, including the condition that any such dealer or investment advisor enter into an agreement (which contains additional conditions with respect to exchanges of shares) with AIM Distributors. To exchange shares by telephone, a shareholder, dealer or investment advisor who has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a shareholder is unable to reach AFS by telephone, he may also request exchanges by fax, telegraph or use overnight courier services to expedite exchanges by mail, which will be effective on the business day received by AFS as long as such request is received prior to the close of the customary trading session of the NYSE. AFS and AIM Distributors may in certain cases be liable for losses due to unauthorized or fraudulent transactions if they do not follow reasonable procedures for verification of telephone transactions. Such reasonable procedures may include recordings of telephone transactions (maintained for six months), requests for confirmation of the shareholder's Social Security Number and current address, and mailings of confirmations promptly after the transaction.
Redemptions
GENERAL. Shares of the AIM Funds may be redeemed directly through AIM Distributors or through any dealer who has entered into an agreement with AIM Distributors. In addition to the Funds' obligation to redeem shares, AIM Distributors may also repurchase shares as an accommodation to shareholders. To effect a repurchase, those dealers who have executed Selected Dealer Agreements with AIM Distributors must phone orders to the order desk of the Funds at (800) 959-4246 and guarantee delivery of all required documents in good order. A repurchase is effected at the net asset value per share of the applicable Fund next determined after the repurchase order is received. Such an arrangement is subject to timely receipt by AFS, the Funds' transfer agent, of all required documents in good order. If such documents are not received within a reasonable time after the order is placed, the order is subject to cancellation. While there is no charge imposed by a Fund or by AIM Distributors (other than any applicable contingent deferred sales charge) when shares are redeemed or repurchased, dealers may charge a fair service fee for handling the transaction.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the date of payment postponed when (a) trading on the New York Stock Exchange ("NYSE") is restricted, as determined by applicable rules and regulations of the SEC, (b) the NYSE is closed for other than customary weekend and holiday closings, (c) the SEC has by order permitted such suspension, or (d) an emergency as determined by the SEC exists making disposition of portfolio securities or the valuation of the net assets of a Fund not reasonably practicable.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an investor appoints AFS as his true and lawful attorney-in-fact to surrender for redemption any and all unissued shares held by AFS in the designated account(s), present or future, with full power of substitution in the premises. AFS and AIM Distributors are thereby authorized and directed to accept and act upon any telephone redemptions of shares held in any of the account(s) listed, from any person who requests the redemption. An investor acknowledges by signing the form that he understands and agrees that AFS and AIM Distributors may not be liable for any loss, expense or cost arising out of any telephone redemption requests effected in accordance with the authorization set forth in these instructions if they reasonably believe such request to be genuine, but may in certain cases be liable for losses due to unauthorized or fraudulent transactions. Procedures for verification of telephone transactions may include recordings of telephone transactions (maintained for six months), requests for confirmation of the shareholder's Social Security Number and current address, and mailings of confirmations promptly after the transactions. AFS reserves the right to cease to act as attorney-in-fact subject to this appointment, and AIM Distributors reserves the right to modify or terminate the telephone redemption privilege at any time without notice. An investor may elect not to have this privilege by marking the appropriate box on the application. Then any redemptions must be effected in writing by the investor.
SYSTEMATIC WITHDRAWAL PLAN. A Systematic Withdrawal Plan permits a shareholder of an AIM Fund to withdraw on a regular basis at least $50 per withdrawal. Under a Systematic Withdrawal Plan, all shares are to be held by AFS and all dividends and distributions are reinvested in shares of the applicable AIM Fund by AFS. To provide funds for payments made under the Systematic Withdrawal Plan, AFS redeems sufficient full and fractional shares at their net asset value in effect at the time of each such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events. Since such payments are funded by the redemption of shares, they may result in a return of capital and in capital gains or losses, rather than in ordinary income. Because sales charges are imposed on additional purchases of shares (other than Class B or Class C Shares of the Funds), it is disadvantageous to effect such purchases while a Systematic Withdrawal Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic Withdrawal Plan.
Contingent Deferred Sales Charges Imposed upon Redemption of Shares
A contingent deferred sales charge (CDSC) may be imposed upon the redemption of Large Purchases of Class A Shares of Category I and II Funds or upon the redemption of Class B shares or Class C shares. On and after November 15, 2001, a CDSC also may be imposed upon the redemption of Large Purchases of Class A Shares of Category III Funds. See the Prospectus for additional information regarding CDSCs.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR LARGE PURCHASES OF CLASS A SHARES. An investor who has made a Large Purchase of Class A shares of a Category I, II, or III Fund will not be subject to a CDSC upon the redemption of those shares in the following situations:
o Redemptions of shares of Category I or II Funds held more than 18 months;
o Redemptions of shares of Category III Funds purchased prior to November 15, 2001;
o Redemptions of shares of Category III Funds purchased on or after November 15, 2001 and held for more than 12 months;
o Redemptions from employee benefit plans designated as Qualified Purchasers, as defined above, where the redemptions are in connection with employee terminations or withdrawals, provided the total amount invested in the plan is at least $1,000,000; the sponsor signs a $1 million LOI; or the employer-sponsored plan has at least 100 eligible employees; provided, however, that 403(b) plans sponsored by public educational institutions shall qualify for the CDSC waiver on the basis of the value of each plan participant's aggregate investment in the AIM Funds, and not on the aggregate investment made by the plan or on the number of eligible employees;
o Redemptions from private foundations or endowment funds;
o Redemptions of shares by the investor where the investor's dealer waives the amounts otherwise payable to it by the distributor and notifies the distributor prior to the time of investment;
o Redemptions of shares of Category I, II or III Funds or AIM Cash Reserve Shares of AIM Money Market Fund acquired by exchange from Class A shares of a Category I or II Fund, unless the shares acquired by exchange are redeemed within 18 months of the original purchase of the exchanges of Category I or II Fund shares;
o Redemptions of shares of Category III Funds, shares of AIM Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired by exchange from Class A shares of a Category III Fund purchased prior to November 15, 2001;
o Redemptions of shares of Category I or II Funds acquired by exchange from Class A shares of a Category III Fund purchased on and after November 15, 2001, unless the shares acquired by exchange are redeemed within 18 months of the original purchase of the exchanged Category III Fund shares;
o Redemptions of shares of Category III Funds, shares of AIM Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired by exchange from Class A shares of a Category III Fund purchased on and after November 15, 2001, unless the shares acquired by exchange are redeemed within 12 months of the original purchase of the exchanged Category III Fund shares; and
o Redemptions of shares of Category I or II Funds acquired by exchange on and after November 15, 2001 from AIM Cash Reserve Shares of AIM Money Market Fund if the AIM Cash Reserve Shares were acquired by exchange from a Category I or II Fund, unless the Category I or II Fund shares acquired by exchange are redeemed within 18 months of the original purchase of the exchanged Category I or II Funds shares.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS B AND C SHARES. Investors who purchased former GT Global funds Class B shares before June 1, 1998 are subject to the following waivers from the CDSC otherwise due upon redemption:
o total or partial redemptions resulting from a distribution following retirement in the case of a tax-qualified employer-sponsored retirement;
o minimum required distributions made in connection with an IRA, Keogh Plan or custodial account under Section 403(b) of the Code or other retirement plan following attainment of age 70 1/2;
o redemptions pursuant to distributions from a tax-qualified employer-sponsored retirement plan, which is invested in the former GT Global funds, which are permitted to be made without penalty pursuant to the Code, other than tax-free rollovers or transfers of assets, and the proceeds of which are reinvested in the former GT Global funds;
o redemptions made in connection with participant-directed exchanges between options in an employer-sponsored benefit plan;
o redemptions made for the purpose of providing cash to fund a loan to a participant in a tax-qualified retirement plan;
o redemptions made in connection with a distribution from any retirement plan or account that is permitted in accordance with the provisions of Section 72(t)(2) of the Code, and the regulations promulgated thereunder;
o redemptions made in connection with a distribution from a qualified profit-sharing or stock bonus plan described in Section 401(k) of the Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code upon hardship of the covered employee (determined pursuant to Treasury Regulation Section 1.401(k)-1(d)(2));
o redemptions made by or for the benefit of certain states, counties or cities, or any instrumentalities, departments or authorities thereof where such entities are prohibited or limited by applicable law from paying a sales charge or commission.
CDSCs will not apply to the following redemptions of Class B or Class C shares, as applicable:
o Additional purchases of Class C shares of AIM International Value Fund and AIM Real Estate Fund by shareholders of record on April 30, 1995, of these Funds, except that shareholders whose broker-dealers maintain a single omnibus account with AFS on behalf of those shareholders, perform sub-accounting functions with respect to those shareholders, and are unable to segregate shareholders of record prior to April 30, 1995, from shareholders whose accounts were opened after that date will be subject to a CDSC on all purchases made after March 1, 1996;
o Redemptions following the death or post-purchase disability of (1) any registered shareholders on an account or (2) a settlor of a living trust, of shares held in the account at the time of death or initial determination of post-purchase disability;
o Certain distributions from individual retirement accounts, Section 403(b) retirement plans, Section 457 deferred compensation plans and Section 401 qualified plans, where redemptions result from (i) required minimum distributions to plan participants or beneficiaries who are age 70 1/2or older, and only with respect to that portion of such distributions that does not exceed 12% annually of the participant's or beneficiary's account value in a particular AIM Fund; (ii) in kind transfers of assets where the participant or beneficiary notifies the distributor of the transfer no later than the time the transfer occurs; (iii) tax-free rollovers or transfers of assets to another plan of the type described above invested in Class B or Class C shares of one or more of the AIM Funds; (iv) tax-free returns of excess contributions or returns of excess deferral amounts; and (v) distributions on the death or disability (as defined in the Code) of the participant or beneficiary;
o Amounts from a Systematic Withdrawal Plan of up to an annual amount of 12% of the account value on a per fund basis, at the time the withdrawal plan is established, provided the investor reinvests his dividends;
o Liquidation by the Fund when the account value falls below the minimum required account size of $500;
o Investment account(s) of AIM;
o Class C shares where the investor's dealer of record notifies the distributor prior to the time of investment that the dealer waives the payment otherwise payable to him; and
o Redemptions of Class C shares, where such redemptions are in
connection with employee terminations or withdrawals from (i) a
pension, profit-sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Code; and
(ii) a 457 plan, even if more than one beneficiary or participant
is involved.
General Information Regarding Purchases, Exchanges and Redemptions
GOOD ORDER. Purchase, exchange and redemption orders must be received in good order. To be in good order, an investor must supply AFS with all required information an documentation, including signature guarantees when required. In addition, if a purchase of shares is made by check, the check must be received in good order. This means that the check must be properly completed and signed, and legible to AFS in its sole discretion.
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer or other financial intermediary to ensure that all orders are transmitted on a timely basis to AFS. Any loss resulting from the failure of the dealer or financial intermediary to submit an order within the prescribed time frame will be borne by that dealer or financial intermediary. If a check used to purchase shares does not clear, or if any investment order must be canceled due to nonpayment, the investor will be responsible for any resulting loss to an AIM Fund or to AIM Distributors.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the "Shareholder Information" section of each Fund's prospectus, signature guarantees are required in the following situations: (1) requests to transfer the registration of shares to another owner; (2) telephone exchange and telephone redemption authorization forms; (3) changes in previously designated wiring or electronic funds transfer instructions; and (4) written redemptions or exchanges of shares previously reported as lost, whether or not the redemption amount is under $250,000 or the proceeds are to be sent to the address of record. AIM Funds may waive or modify any signature guarantee requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions, national securities exchanges, savings associations and any other organization, provided that such institution or organization qualifies as an "eligible guarantor institution" as that term is defined in rules adopted by the
SEC, and further provided that such guarantor institution is listed in one of the reference guides contained in AFS' current Signature Guarantee Standards and Procedures, such as certain domestic banks, credit unions, securities dealers, or securities exchanges. AFS will also accept signatures with either: (1) a signature guaranteed with a medallion stamp of the STAMP Program, or (2) a signature guaranteed with a medallion stamp of the NYSE Medallion Signature Program, provided that in either event, the amount of the transaction involved does not exceed the surety coverage amount indicated on the medallion. For information regarding whether a particular institution or organization qualifies as an "eligible guarantor institution," an investor should contact the Client Services Department of AFS.
TRANSACTIONS BY TELEPHONE. By signing an account application form, an investor appoints AFS as his true and lawful attorney-in-fact to surrender for redemption any and all unissued shares held by AFS in the designated account(s), or in any other account with any of the AIM Funds, present or future, which has the identical registration as the designated account(s), with full power of substitution in the premises. AFS and AIM Distributors are thereby authorized and directed to accept and act upon any telephone redemptions of shares held in any of the account(s) listed, from any person who requests the redemption proceeds to be applied to purchase shares in any one or more of the AIM Funds, provided that such fund is available for sale and provided that the registration and mailing address of the shares to be purchased are identical to the registration of the shares being redeemed. An investor acknowledges by signing the form that he understands and agrees that AFS and AIM Distributors may not be liable for any loss, expense or cost arising out of any telephone exchange requests effected in accordance with the authorization set forth in these instructions if they reasonably believe such request to be genuine, but may in certain cases be liable for losses due to unauthorized or fraudulent transactions. Procedures for verification of telephone transactions may include recordings of telephone transactions (maintained for six months), requests for confirmation of the shareholder's Social Security Number and current address, and mailings of confirmations promptly after the transactions. AFS reserves the right to modify or terminate the telephone exchange privilege at any time without notice. An investor may elect not to have this privilege by marking the appropriate box on the application. Then any exchanges must be effected in writing by the investor.
INTERNET TRANSACTIONS. An investor may effect transactions in his account through the internet by selecting the AIM Internet Connect option on his completed account application form or completing an AIM Internet Connect Authorization Form. By signing either form the investor acknowledges and agrees that AFS and AIM Distributors will not be liable for any loss, expense or cost arising out of any internet transaction effected in accordance with the instructions set forth in the forms if they reasonably believe such request to be genuine. Procedures for verification of internet transactions include requests for confirmation of the shareholder's personal identification number and mailing of confirmations promptly after the transactions. The investor also acknowledges that (1) if he no longer wants the AIM Internet Connect option, he will notify AFS in writing, and (2) the AIM Internet Connect option may be terminated at any time by the AIM Funds.
OFFERING PRICE
The following formula may be used to determine the public offering price per Class A share of an investor's investment:
Net Asset Value / (1 - Sales Charge as % of Offering Price ) = Offering Price.
For example, at the close of business on July 31, 2001, AIM High Yield Fund - Class A shares had a net asset value per share of $4.92. The offering price, assuming an initial sales charge of 4.75%, therefore was $5.17.
Calculation of Net Asset Value
For AIM Money Market Fund
The net asset value per share of the Fund is determined daily as of 12:00 noon and the close of the customary trading session of the NYSE (generally 4:00 p.m. Eastern time) on each business day of the Fund. In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern time) on a particular day, the net asset value of the Fund is determined as of the close of the NYSE on such day. Net asset value per share is determined by dividing the value of the Fund's securities, cash and other assets (including interest accrued but not collected) attributable to a particular class, less all its liabilities (including accrued expenses and dividends payable) attributable to that class, by the number of shares outstanding of that class and rounding the resulting per share net asset value to the nearest one cent. Determination of the net asset value per share is made in accordance with generally accepted accounting principles.
The Fund uses the amortized cost method to determine its net asset value. Under the amortized cost method, each investment is valued at its cost and thereafter any discount or premium is amortized on a constant basis to maturity. While this method provides certainty of valuation, it may result in periods in which the amortized cost value of the Fund's investments is higher or lower than the price that would be received if the investments were sold. During periods of declining interest rates, use by the Fund of the amortized cost method of valuing its portfolio may result in a lower value than the market value of the portfolio, which could be an advantage to new investors relative to existing shareholders. The converse would apply in a period of rising interest rates.
The Fund may use the amortized cost method to determine its net asset value so long as the Fund does not (a) purchase any instrument with a remaining maturity greater than 397 days (for these purposes, repurchase agreements shall not be deemed to involve the purchase by the Fund of the securities pledged as collateral in connection with such agreements) or (b) maintain a dollar-weighted average portfolio maturity in excess of 90 days, and otherwise complies with the terms of rules adopted by the SEC.
The Board of Trustees has established procedures designed to stabilize the Fund's net asset value per share at $1.00, to the extent reasonably possible. Such procedures include review of portfolio holdings by the trustees at such intervals as they may deem appropriate. The reviews are used to determine whether net asset value, calculated by using available market quotations, deviates from $1.00 per share and, if so, whether such deviation may result in material dilution or is otherwise unfair to investors or existing shareholders. In the event the trustees determine that a material deviation exists, they intend to take such corrective action as they deem necessary and appropriate. Such actions may include selling portfolio securities prior to maturity in order to realize capital gains or losses or to shorten average portfolio maturity, withholding dividends, redeeming shares in kind, or establishing a net asset value per share by using available market quotations are used to establish net asset value, the net asset value could possibly be more or less than $1.00 per share. AIM Money Market Fund intends to comply with any amendments made to Rule 2a-7 which may require corresponding changes in the Fund's procedures which are designed to stabilize the Fund's price per share at $1.00.
For AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund, AIM Intermediate Government Fund, AIM Limited Maturity Treasury Fund, AIM Municipal Bond Fund, AIM Total Return Bond Fund
Each Fund determines its net asset value per share once daily as of the close of the customary trading session of the NYSE (generally 4:00 p.m. Eastern time) on each business day of the Fund. In the event the NYSE closes early (i.e., before 4:00 p.m. Eastern time) on a particular day, each Fund determines its net asset value per share as of the close of the NYSE on such day. For purposes of determining net asset value per share, the Fund will generally use futures and options contract closing prices which are available fifteen (15) minutes after the close of the customary trading session of the NYSE. The Funds determine net asset value per share by dividing the value of a Fund's securities, cash and other assets (including interest accrued but not collected) attributable to a particular class, less all its liabilities (including accrued expenses and dividends payable) attributable to that class, by the total
number of shares outstanding of that class. Determination of a Fund's net asset value per share is made in accordance with generally accepted accounting principles.
Each security (excluding convertible bonds) held by a Fund is valued at
its last sales price on the exchange where the security is principally traded
or, lacking any sales on a particular day, the security is valued at the closing
bid price on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the closing bid price furnished by independent pricing services or
market makers. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or absent a last sales
price, at the closing bid price on that day; option contracts are valued at the
mean between the closing bid and asked prices on the exchange where the
contracts are principally traded; futures contracts are valued at final
settlement price quotations from the primary exchange on which they are traded.
Debt securities (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and may
reflect appropriate factors such as institution-size trading in similar groups
of securities, developments related to special securities, dividend rate, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Securities for which market prices are
not provided by any of the above methods are valued based upon quotes furnished
by independent sources and are valued at the last bid price in the case of
equity securities and in the case of debt obligations, the mean between the last
bid and ask prices. Securities for which market quotations are not readily
available or are questionable are valued at fair value as determined in good
faith by or under the supervision of the Trust's officers in a manner
specifically authorized by the Board of Trustees. Short-term obligations having
60 days or less to maturity are valued on the basis of amortized cost, which
approximates market value. AIM Municipal Bond Fund values all variable rate
securities with an unconditional demand or put feature exercisable within seven
(7) days or less are valued at par, which reflects the market value of such
securities.
Generally, trading in foreign securities, corporate bonds, U.S. Government securities and money market instruments is substantially completed each day at various times prior to the close of the customary trading session of the NYSE. The values of such securities used in computing the net asset value of each Fund's shares are determined at such times. Foreign currency exchange rates are also generally determined prior to the close of the customary trading session of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which such values are determined and the close of the customary trading session of the NYSE which will not be reflected in the computation of a Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Trustees.
Fund securities primarily traded in foreign markets may be traded in such markets on days which are not business days of the Fund. Because the net asset value per share of each Fund is determined only on business days of the Fund, the net asset value per share of a Fund may be significantly affected on days when an investor cannot exchange or redeem shares of the Fund.
REDEMPTION IN KIND
AIM intends to redeem all shares of the Funds in cash. It is possible that future conditions may make it undesirable for a Fund to pay for redeemed shares in cash. In such cases, the Fund may make payment in securities or other property if the Fund has made an election under Rule 18f-1 under the 1940 Act. Rule 18f-1 obligates a Fund to redeem for cash all shares presented to such Fund for redemption by any one shareholder in an amount up to the lesser of $250,000 or 1% of that Fund's net assets in any 90-day period. Securities delivered in payment of redemptions are valued at the same value assigned to them in computing the applicable Fund's net asset value per share. Shareholders receiving such securities are likely to incur brokerage costs on their subsequent sales of such securities.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification number or, alternatively, a completed IRS Form W-8 (for non-resident aliens) or Form W-9 (certifying exempt status) accompanying the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, must withhold as of January 1, 2002, 30% of redemption payments and reportable dividends (whether paid or accrued) in the case of any shareholder who fails to provide the Fund with a taxpayer identification number ("TIN") and a certification that he is not subject to backup withholding; however, backup withholding further decreases in phases to 28% for years 2006 and thereafter.
An investor is subject to backup withholding if:
1. the investor fails to furnish a correct TIN to the Fund, or
2. the IRS notifies the Fund that the investor furnished an incorrect TIN, or
3. the investor or the Fund is notified by the IRS that the investor is subject to backup withholding because the investor failed to report all of the interest and dividends on such investor's tax return (for reportable interest and dividends only), or
4. the investor fails to certify to the Fund that the investor is not subject to backup withholding under (3) above (for reportable interest and dividend accounts opened after 1983 only), or
5. the investor does not certify his TIN. This applies only to non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in all five situations discussed above. Redemption proceeds and long-term gain distributions are subject to backup withholding only if (1), (2) or (5) above applies.
Certain payees and payments are exempt from backup withholding and information reporting. AIM or AFS will not provide Form 1099 to those payees.
Investors should contact the IRS if they have any questions concerning withholding.
IRS PENALTIES - Investors who do not supply the AIM Funds with a correct TIN will be subject to a $50 penalty imposed by the IRS unless such failure is due to reasonable cause and not willful neglect. If an investor falsifies information on this form or makes any other false statement resulting in no backup withholding on an account which should be subject to backup withholding, such investor may be subject to a $500 penalty imposed by the IRS and to certain criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS - Nonresident alien individuals and foreign entities are not subject to the backup withholding previously discussed, but must certify their foreign status by attaching IRS Form W-8 to their application. Form W-8 generally remains in effect for a period starting on the date the Form is signed and ending on the last day of the third succeeding calendar year. Such shareholders may, however, be subject to federal income tax withholding at a 30% rate on ordinary income dividends and other distributions. Under applicable treaty law, residents of treaty countries may qualify for a reduced rate of withholding or a withholding exemption.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
It is the present policy of the Fund to declare daily and pay monthly net investment income dividends and declare and pay annually any capital gain distributions. It is the Fund's intention to distribute substantially all of its net investment income and realized net capital gains by the end of each taxable year. In determining the amount of capital gains, if any, available for distribution, capital gains will be offset against available net capital losses, if any, carried forward from previous fiscal periods. All dividends and distributions will be automatically reinvested in additional shares of the same class of each Fund unless the shareholder has requested in writing to receive such dividends and distributions in cash or that they be invested in shares of another AIM Fund, subject to the terms and conditions set forth in the Prospectus under the caption "Special Plans - Automatic Dividend Investment." Such dividends and distributions will be reinvested at the net asset value per share determined on the ex-dividend date. If a shareholder's account does not have any shares in it on a dividend or capital gain distribution payment date, the dividend or distribution will be paid in cash whether or not the shareholder has elected to have such dividends or distributions reinvested.
Dividends are declared immediately prior to the determination of the net asset value of each Fund. For each Fund, except AIM Money Market Fund, dividends begin accruing on the first business day in which a purchase order for shares settles, and accrue through the day before a redemption order settles. Thus, if a purchase order settles on Friday, dividends will begin accruing on Friday. For AIM Money Market Fund, dividends begin accruing one day after a purchase order settles and accrue through the day a redemption order settles. Thus, if a purchase order settles on Thursday, dividends will begin accruing on Friday (unless Friday is not a business day of the Fund).
A dividend or distribution paid by a fund which does not declare dividends daily has the effect of reducing the net asset value per share on the ex-dividend date by the amount of the dividend or distribution. Therefore, a dividend or distribution declared shortly after a purchase of shares by an investor would represent, in substance, a return of capital to the shareholder with respect to such shares even though it would be subject to income taxes.
Dividends on Class B and Class C shares are expected to be lower than those for Class A shares because of higher distribution fees paid by Class B and Class C shares. Other class-specific expenses may also affect dividends on shares of those classes. Expenses attributable to a particular class ("Class Expenses") include distribution plan expenses, which must be allocated to the class for which they are incurred. Other expenses may be allocated as Class Expenses, consistent with applicable legal principals under the 1940 Act and the Code.
Should the Trust incur or anticipate any unusual expense, loss or depreciation, which would adversely affect the net asset value per share of the AIM Money Market Fund or the net income per share of a class of the Fund for a particular period, the Board of Trustees would at that time consider whether to adhere to the present dividend policy described above or to revise it in light of then prevailing circumstances. For example, if the net asset value per share of the AIM Money Market Fund was reduced, or was anticipated to be reduced, below $1.00, the Board of Trustees might suspend further dividend payments on shares of the Fund until the net asset value returns to $1.00. Thus, such expense, loss or depreciation might result in a shareholder receiving no dividends for the period during which it held shares of the Fund and/or its receiving upon redemption a price per share lower than that which it paid.
TAX MATTERS
The following is only a summary of certain additional tax considerations generally affecting the Funds and their shareholders that are not described in the Prospectus. No attempt is made to present a detailed explanation of the tax treatment of each Fund or its shareholders, and the discussion here and in the Prospectus is not intended as a substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each Fund has elected to be taxed as a regulated investment company under Subchapter M of the Code. As a regulated investment company, each Fund is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and capital gain net income (i.e., the excess of capital gains over capital losses) that it distributes to shareholders, provided that it distributes (i) at least 90% of its investment company taxable income (i.e., net investment income, net foreign currency ordinary gain or loss and the excess of net short-term capital gain over net long-term capital loss) and (ii) at least 90% of the excess of its tax-exempt interest income under Code Section 103(a) over its deductions disallowed under Code Sections 265 and 171(a)(2) for the taxable year (the "Distribution Requirement"), and satisfies certain other requirements of the Code that are described below. Distributions by a Fund made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year, will be considered distributions of income and gains of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment company must derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the "Income Requirement").
In addition to satisfying the requirements described above, each Fund must satisfy an asset diversification test in order to qualify as a regulated investment company (the "Asset Diversification Test"). Under this test, at the close of each quarter of each Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers, as to which the Fund has not invested more than 5% of the value of the Fund's total assets in securities of such issuer and as to which the Fund does not hold more than 10% of the outstanding voting securities of such issuer, and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses.
Treasury regulations permit a regulated investment company, in determining its investment company taxable income and net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) for any taxable year, to elect (unless it has made a taxable year election for excise tax purposes as discussed below) to treat all or part of any net capital loss, any net long-term capital loss or any net foreign currency loss incurred after October 31 as if it had been incurred in the succeeding year.
For purposes of the Asset Diversification Test, the IRS has ruled that the issuer of a purchased listed call option on stock is the issuer of the stock underlying the option. The IRS has also informally ruled that, in general, the issuers of purchased or written call and put options on securities, of long and short positions on futures contracts on securities and of options on such future contracts are the issuers of the securities underlying such financial instruments where the instruments are traded on an exchange.
Where the writer of a listed call option owns the underlying securities, the IRS has ruled that the Asset Diversification Test will be applied solely to such securities and not to the value of the option itself. With respect to options on securities indexes, futures contracts on securities indexes and options on such futures contracts, the IRS has informally ruled that the issuers of such options and futures contracts are the separate entities whose securities are listed on the index, in proportion to the weighing of securities in the computation of the index. It is unclear under present law who should be treated as the issuer of forward foreign currency exchange contracts, of options on foreign currencies, or of foreign currency futures and related options. It has been suggested that the issuer in each case may be the foreign central bank or the foreign government backing the particular currency. Due to this uncertainty and because the Funds may not rely on informal rulings of the IRS, the Funds may find it necessary to seek a
ruling from the IRS as to the application of the Asset Diversification Test to certain of the foregoing types of financial instruments or to limit its holdings of some or all such instruments in order to stay within the limits of such test.
If for any taxable year a Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable as ordinary dividends to the extent of such Fund's current and accumulated earnings and profits. Such distributions generally will be eligible for the dividends received deduction in the case of corporate shareholders.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In general, gain or loss recognized by a Fund on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by a Fund at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time the Fund held the debt obligation unless the Fund made an election to accrue market discount into income. If a Fund purchases a debt obligation that was originally issued at a discount, the Fund is generally required to include in gross income each year the portion of the original issue discount which accrues during such year. In addition, under the rules of Code Section 988, gain or loss recognized on the disposition of a debt obligation denominated in a foreign currency or an option with respect thereto (but only to the extent attributable to changes in foreign currency exchange rates), and gain or loss recognized on the disposition of a foreign currency forward contract or of foreign currency itself, will generally be treated as ordinary income or loss.
Certain hedging transactions that may be engaged in by certain of the Funds (such as short sales "against the box") may be subject to special tax treatment as "constructive sales" under Section 1259 of the Code if a Fund holds certain "appreciated financial positions" (defined generally as any interest (including a futures or forward contract, short sale or option) with respect to stock, certain debt instruments, or partnership interests if there would be a gain were such interest sold, assigned, or otherwise terminated at its fair market value). Upon entering into a constructive sales transaction with respect to an appreciated financial position, a Fund will generally be deemed to have constructively sold such appreciated financial position and will recognize gain as if such position were sold, assigned, or otherwise terminated at its fair market value on the date of such constructive sale (and will take into account any gain for the taxable year which includes such date).
Some of the forward foreign currency exchange contracts, options and
futures contracts that certain of the Funds may enter into will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts that a
Fund holds are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. Any
gain or loss recognized as a consequence of the year-end deemed disposition of
Section 1256 contracts is combined with any other gain or loss that was
previously recognized upon the termination of Section 1256 contracts during that
taxable year. The net amount of such gain or loss for the entire taxable year
(including gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is deemed to be 60% long-term and 40% short-term gain or loss.
However, in the case of Section 1256 contracts that are forward foreign currency
exchange contracts, the net gain or loss is separately determined and (as
discussed above) generally treated as ordinary income or loss. If such a future
or option is held as an offsetting position and can be considered a straddle
under Section 1092 of the Code, such a straddle will constitute a mixed
straddle. A mixed straddle will be subject to both Section 1256 and Section 1092
unless certain elections are made by the Fund.
Other hedging transactions in which the Funds may engage may result in "straddles" or "conversion transactions" for U.S. federal income tax purposes. The straddle and conversion transaction rules may affect the character of gains (or in the case of the straddle rules, losses) realized by the Funds. In addition, losses realized by the Funds on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules
and the conversion transaction rules have been promulgated, the tax consequences to the Funds of hedging transactions are not entirely clear. The hedging transactions may increase the amount of short-term capital gain realized by the Funds (and, if they are conversion transactions, the amount of ordinary income) which is taxed as ordinary income when distributed to shareholders.
Because application of any of the foregoing rules governing Section 1256 contracts, constructive sales, straddle and conversion transactions may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected investment or straddle positions, the taxable income of a Fund may exceed its book income. Accordingly, the amount which must be distributed to shareholders and which will be taxed to shareholders as ordinary income or long-term capital gain may also differ from the book income of the Fund and may be increased or decreased as compared to a fund that did not engage in such transactions.
AIM Limited Maturity Treasury Fund may enter into notional principal contracts, including interest rate swaps, caps, floors and collars. Under Treasury regulations, in general, the net income or deduction from a notional principal contract for a taxable year is included in or deducted from gross income for that taxable year. The net income or deduction from a notional principal contract for a taxable year equals the total of all of the periodic payments (generally, payments that are payable or receivable at fixed periodic intervals of one year or less during the entire term of the contract) that are recognized from that contract for the taxable year and all of the non-periodic payments (including premiums for caps, floors and collars), even if paid in periodic installments, that are recognized from that contract for the taxable year. A periodic payment is recognized ratably over the period to which it relates. In general, a non-periodic payment must be recognized over the term of the notional principal contract in a manner that reflects the economic substance of the contract. A non-periodic payment that relates to an interest rate swap, cap, floor or collar shall be recognized over the term of the contract by allocating it in accordance with the values of a series of cash-settled forward or option contracts that reflect the specified index and notional principal amount upon which the notional principal contract is based (or, in the case of a swap or of a cap or floor that hedges a debt instrument, under alternative methods contained in the regulations and, in the case of other notional principal contracts, under alternative methods that the IRS may provide in a revenue procedure).
EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of ordinary taxable income for the calendar year and 98% of capital gain net income (excess of capital gains over capital losses) for the one-year period ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a "taxable year election")). The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall (1) reduce its capital gain net income (but not below its net capital gain) by the amount of any net ordinary loss for the calendar year and (2) exclude Section 988 foreign currency gains and losses incurred after October 31 of any year (or after the end of its taxable year if it has made a taxable year election) in determining the amount of ordinary taxable income for the current calendar year (and, instead, include such gains and losses in determining ordinary taxable income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, investors should note that a Fund may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability.
FUND DISTRIBUTIONS. Each Fund anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions will be taxable to shareholders as ordinary income and treated as dividends for federal income tax purposes, but they will qualify for the 70% dividends received deduction for corporations only to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital gain (net long-term capital gain over net short-term capital loss) for each taxable year. Each Fund currently intends to distribute any such amounts. If net capital gain is distributed and designated as a capital gain dividend, it will be taxable to shareholders as long-term capital gain (currently taxable at a maximum rate of 20% for noncorporate shareholders) regardless of the length of time the shareholder has held his shares or whether such gain was recognized by the Fund prior to the date on which the shareholder acquired his shares. Conversely, if a Fund elects to retain its net capital gain, the Fund will be taxed thereon (except to the extent of any available capital loss carry forwards) at the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it is expected that the Fund also will elect to have shareholders treated as if each received a distribution of its pro rata share of such gain, with the result that each shareholder will be required to report its pro rata share of such gain on its tax return as long-term capital gain, will receive a refundable tax credit for its pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for its shares by an amount equal to the deemed distribution less the tax credit.
Legislation enacted in 1997 lowers the maximum capital gain tax rate from 20% to 18% with respect to capital assets which are held for five years and for which the holding period begins after December 31, 2000. In connection with this new legislation, a Fund may make elections to treat any readily tradable stock it holds on January 1, 2001 as having been sold and reacquired on January 2, 2001 at its closing market price on that date and to treat any other security in its portfolio as having been sold and reacquired on January 1 for an amount equal to its fair market value on that date. If a Fund makes any such election (when it files its tax return), it will recognize gain, but not loss, on the deemed sale, which may cause a Fund to increase the amount of distributions that the Fund will make in comparison to a fund that did not make such an election. The Funds have not yet determined whether they will make this election with respect to any stock or securities in their respective portfolios.
Ordinary income dividends paid by the Fund with respect to a taxable year will qualify for the 70% dividends received deduction generally available to corporations (other than corporations, such as "S" corporations, which are not eligible for the deduction because of their special characteristics and other than for purposes of special taxes such as the accumulated earnings tax and the personal holding company tax) to the extent of the amount of qualifying dividends received by the Fund from domestic corporations for the taxable year.
Alternative minimum tax ("AMT") is imposed in addition to, but only to the extent it exceeds, the regular tax and is computed at a maximum rate of 28% for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount. The corporate dividends received deduction is not itself an item of tax preference that must be added back to taxable income or is otherwise disallowed in determining a corporation's AMTI. However, corporate shareholders will generally be required to take the full amount of any dividend received from the Fund into account (without a dividend received deduction) in determining their adjusted current earnings, which are used in computing an additional corporate preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted current earnings over its AMTI (determined without regard to this item and the AMTI net operating loss deduction)) that is includable in AMTI. However, certain small corporations are wholly exempt from the AMT.
Distributions by a Fund that do not constitute earnings and profits will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any excess will be treated as gain from the sale of his shares.
Distributions by a Fund will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of the Fund (or of another Fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date.
Ordinarily, shareholders are required to take distributions by a Fund into account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such a month will be deemed to have been received by the shareholders (and made by the Fund) on December 31 of such calendar year if such dividends are actually paid in January of the following year. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year in accordance with the guidance that has been provided by the IRS.
AIM MUNICIPAL BOND FUND. With respect to interest income that is exempt from federal income tax ("FIT"), the Fund intends to comply with Section 852(b)(5) of the Code, which enables distributions of tax-exempt income to retain their character when distributed to shareholders as an exempt interest dividend. Some or all of the non-exempt interest that the Fund receives from municipal securities should become taxable by law or determined by the Internal Revenue Service to be taxable. Exempt interest dividends will be treated as a return of capital.
The Tax Reform Act of 1986 (the "1986 Act") divided municipal debt obligations into three categories, only one of which ("Public Purpose Bonds") bears interest which is exempt from both the regular income tax and the alternative minimum tax as it applies to individuals. For corporations, some or all of the income from Public Purpose Bonds would be includable in the corporate alternative minimum tax base. Of the other two categories ("Qualified Private Activity Bonds" and "Private Activity Bonds"), for both individuals and corporations, Qualified Private Activity Bonds bear interest which is excluded from income for purposes of the regular income tax but must generally be included in the alternative minimum tax base, and Private Activity Bonds are taxable under both the regular and alternative minimum taxes. Certain small corporations are wholly exempt from the alternative minimum tax.
The 1986 Act also applied limitations on the issuance of bonds whose proceeds are used by organizations exempt from tax under Code Section 501(c)(3), as well as general limitations on the amount of Qualified Private Activity Bonds governmental units may issue.
The 1986 Act limitations on tax-exempt bonds apply generally to bonds issued after August 16, 1986. The private activity bond rules are generally applicable to bonds issued on or after September 1, 1986, with the alternative minimum tax rules applicable generally to bonds issued on or after August 7, 1986. Municipal Bond intends to limit its investments in Qualified Private Activity Bonds and taxable securities to no more than 20% of its total assets in any given year, consistent with its stated investment objective.
Original issue discount on tax-exempt bonds is accrued as tax-exempt interest (except for a portion thereof in the case of certain stripped tax-exempt bonds), and is included in the tax basis of the security for capital gain and loss computation purposes. Any gain or loss from the sale or other disposition of a tax-exempt security is generally treated as either long-term or short-term capital gain or loss, depending upon its holding period, and is fully taxable. However, gain recognized from the sale or other disposition of a tax-exempt security purchased after April 30, 1993, will be treated as ordinary income to the extent of the accrued market discount on such security.
Interest on indebtedness incurred by shareholders (including financial institutions) will not be deductible for FIT purposes to the extent that the money was used to purchase or carry tax-exempt securities. The purchase of Fund shares may be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchase of Fund shares. Further, persons who are "substantial users" (or persons related thereto) of facilities financed by private activity bonds should consult their own tax advisor before purchasing Fund shares.
The exemption of interest income for FIT purposes does not necessarily result in exemption under state and local laws. Shareholders should consult their tax advisors as to the treatment of such income under state and local laws.
PFIC INVESTMENTS. Those Funds that are permitted to invest in foreign equity securities may invest in stocks of foreign companies that are classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign company is classified as a PFIC if at least one-half of its assets constitute investment-type assets or 75% or more of its gross income is investment-type income.
The application of the PFIC rules may affect, among other things, the character of gains, the amount of gain or loss and the timing of the recognition of income with respect to PFIC stock, as well as subject the Funds themselves to tax on certain income from PFIC stock. For these reasons the amount that must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gains, may be increased or decreased substantially as compared to a fund that did not invest in PFIC stock.
SWAP AGREEMENTS. AIM Income Fund and AIM Total Return Bond Fund may each enter into swap agreements. The rules governing the tax aspects of swap agreements are in a developing stage and are not entirely clear in certain respects. Accordingly, while such Funds intend to account for such transactions in a manner deemed to be appropriate, the IRS might not accept such treatment. If it did not, the status of the Trust as a regulated investment company might be affected. The Trust intends to monitor developments in this area. Certain requirements that must be met under the Code in order for the Trust to qualify as a regulated investment company may limit the extent to which these Funds will be able to engage in swap agreements.
SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss on
the sale or redemption of shares of a Fund in an amount equal to the difference
between the proceeds of the sale or redemption and the shareholder's adjusted
tax basis in the shares. All or a portion of any loss so recognized may be
deferred if the shareholder purchases other shares of the Fund within thirty
(30) days before or after the sale or redemption. In general, any gain or loss
arising from (or treated as arising from) the sale or redemption of shares of a
Fund will be considered capital gain or loss and will be long-term capital gain
or loss if the shares were held for longer than one year. Currently, any
long-term capital gain recognized by a non-corporate shareholder will be subject
to a maximum tax rate of 20%. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. Capital losses in any year are deductible only to the extent of
capital gains plus, in the case of a non-corporate taxpayer, $3,000 of ordinary
income.
If a shareholder (a) incurs a sales load in acquiring shares of a Fund, (b) disposes of such shares less than 91 days after they are acquired, and (c) subsequently acquires shares of the Fund or another fund at a reduced sales load pursuant to a right to reinvest at such reduced sales load acquired in connection with the acquisition of the shares disposed of, then the sales load on the shares disposed of (to the extent of the reduction in the sales load on the shares subsequently acquired) shall not be taken into account in determining gain or loss on the shares disposed of, but shall be treated as incurred on the acquisition of the shares subsequently acquired. The wash sale rules may also limit loss recognized.
BACKUP WITHHOLDING. The Funds may be required to withhold 30.5% of distributions and/or redemption payments made on or after January 1, 2002; however, this rate is reduced in phases to 28% for years 2006 and thereafter. For more information refer to "Purchase, Redemption and Pricing of Shares - Backup Withholding".
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder"), depends on whether the income from a Fund is "effectively connected" with a U.S. trade or business carried on by such shareholder. If the income from a Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, distributions (other than distributions of long-term capital gain) will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the distribution. Such a foreign shareholder would generally be exempt from U.S. federal income tax on gains realized on the redemption of shares of a Fund, capital gain dividends and amounts retained by a Fund that are designated as undistributed net capital gains.
If the income from a Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends and any gains realized upon the sale or redemption of shares of the Fund will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be required to withhold U.S. federal income tax at a rate of 30% made on or after January 1, 2002 that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of their foreign status; however, this rate is reduced in phases to 28% for years 2006 and thereafter.
Foreign shareholders may be subject to U.S. withholding tax at a rate of 30% on the income resulting from the Fund's election to treat any foreign income tax paid by it as paid by its shareholders, but may not be able to claim a credit or deduction with respect to the withholding tax for the foreign tax treated as having been paid by them.
Foreign persons who file a United States tax return to obtain a U.S. tax refund and who are not eligible to obtain a social security number must apply to the IRS for an individual taxpayer identification number, using IRS Form W-7. For a copy of the IRS Form W-7 and accompanying instructions, please contact your tax advisor or the IRS.
Transfers by gift of shares of a Fund by a foreign shareholder who is a nonresident alien individual will not be subject to U.S. federal gift tax. An individual who, at the time of death, is a foreign shareholder will nevertheless be subject to U.S. federal estate tax with respect to shares at the graduated rates applicable to U.S. citizens and residents, unless a treaty exception applies. In the absence of a treaty, there is a $13,000 statutory estate tax credit.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund, including the applicability of foreign tax.
FOREIGN INCOME TAX. Investment income received by each Fund from sources within foreign countries may be subject to foreign income tax withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle the Funds to a reduced rate of, or exemption from, tax on such income. It is impossible to determine the effective rate of foreign tax in advance since the amount of a Fund's assets to be invested in various countries is not known.
If more than 50% of the value of a Fund's total assets at the close of each taxable year consists of the stock or securities of foreign corporations, the Fund may elect to "pass through" to the Fund's shareholders the amount of foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to the Foreign Tax Election, shareholders will be required (i) to include in gross income, even though not actually received, their respective pro-rata shares of the foreign income tax paid by the Fund that are attributable to any distributions they receive; and (ii) either to deduct their pro-rata share of foreign tax in computing their taxable income, or to use it (subject to various Code limitations) as a foreign tax credit against Federal income tax (but not both). No deduction for foreign tax may be claimed by a non-corporate shareholder who does not itemize deductions or who is subject to alternative minimum tax.
Unless certain requirements are met, a credit for foreign tax is subject to the limitation that it may not exceed the shareholder's U.S. tax (determined without regard to the availability of the credit) attributable to the shareholder's foreign source taxable income. In determining the source and character of distributions received from a Fund for this purpose, shareholders will be required to allocate Fund distributions according to the source of the income realized by the Fund. Each Fund's gain from the sale of stock and securities and certain currency fluctuation gain and loss will generally be treated as derived from U.S. sources. In addition, the limitation on the foreign tax credit is applied separately to foreign
source "passive" income, such as dividend income. Individuals who have no more than $300 ($600 for married persons filing jointly) of creditable foreign tax included on Form 1099 and all whose foreign source income is "qualified passive income" may elect each year to be exempt from the foreign tax credit limitation and will be able to claim a foreign tax credit without filing Form 1116 with its corresponding requirement to report income and tax by country. Moreover, no foreign tax credit will be allowable to any shareholder who has not held his shares of the Fund for at least 16 days during the 30-day period beginning 15 days before the day such shares become ex-dividend with respect to any Fund distribution to which foreign income taxes are attributed (taking into account certain holding period reduction requirements of the Code). Because of these limitations, shareholders may be unable to claim a credit for the full amount of their proportionate shares of the foreign income tax paid by a Fund.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS. The foregoing general discussion of U.S. federal income tax consequences is based on the Code and the regulations issued thereunder as in effect on the date of this Statement of Additional Information. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends and capital gain dividends from regulated investment companies often differ from the rules for U.S. federal income taxation described above. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in the Funds.
DISTRIBUTION OF SECURITIES
DISTRIBUTION PLANS
The Trust has adopted distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to each Fund's Class A shares (other than AIM Money Market Fund), Class B shares and Class C shares, and AIM Cash Reserve Shares of AIM Money Market Fund (collectively the "Plans"). Each Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate, shown immediately below, of the Fund's average daily net assets of Class A shares. Each Fund pays 1.00% of the average daily net assets of Class B shares and of Class C shares.
FUND CLASS A* ---- -------- AIM High Yield Fund 0.25% AIM High Yield Fund II 0.25 AIM Income Fund 0.25 AIM Intermediate Government Fund 0.25 AIM Limited Maturity Treasury Fund 0.15 AIM Money Market Fund 0.25 AIM Municipal Bond Fund 0.25 AIM Total Return Bond Fund 0.35 |
* AIM Cash Reserve shares of AIM Money Market Fund
All of the Plans compensate AIM Distributors for the purpose of financing any activity which is primarily intended to result in the sale of shares of the Funds. Such activities include, but are not limited to, the following: printing of prospectuses and statements of additional information and reports for other than existing shareholders; overhead; preparation and distribution of advertising material and sales literature; expenses of organizing and conducting sales seminars; supplemental payments to dealers and other institutions such as asset-based sales charges or as payments of service fees under shareholder service arrangements; and costs of administering each Plan.
Amounts payable by a Fund under the Plans need not be directly related to the expenses actually incurred by AIM Distributors on behalf of each Fund. The Plans do not obligate the Funds to reimburse AIM Distributors for the actual expenses AIM Distributors may incur in fulfilling its obligations under the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee payable to AIM Distributors at any given time, the Funds will not be obligated to pay more than that fee. If AIM Distributors' expenses are less than the fee it receives, AIM Distributors will retain the full amount of the fee.
AIM Distributors may from time to time waive or reduce any portion of its 12b-1 fee for Class A shares and Class C shares. Voluntary fee waivers or reductions may be rescinded at any time without further notice to investors. During periods of voluntary fee waivers or reductions, AIM Distributors will retain its ability to be reimbursed for such fee prior to the end of each fiscal year.
AIM Distributors has contractually agreed to limit the AIM Total Return Bond Fund's Class A shares Rule 12b-1 distribution plan payments to 0.25%. This contractual fee waiver is set forth in the Fee Table to the Fund's Prospectus and may not be terminated or amended to the Fund's detriment during the period stated in the agreement between AIM Distributors and the Fund.
The Funds may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares (0.15% of the average daily net assets of the Class A shares of AIM Limited Maturity Treasury Fund) to selected dealers and financial institutions, including AIM Distributors, acting as principal, who furnish continuing personal shareholder services to their customers who purchase and own the applicable class of shares of the Fund. Under the terms of a shareholder service agreement, such personal shareholder services include responding to customer inquiries and providing customers with information about their investments. Any amounts not paid as a service fee under each Plan would constitute an asset-based sales charge.
Under a Shareholder Service Agreement, a Fund agrees to pay periodically fees to selected dealers and other institutions who render the foregoing services to their customers. The fees payable under a Shareholder Service Agreement will be calculated at the end of each payment period for each business day of the Funds during such period at the annual rate specified in each agreement based on the average daily net asset value of the Funds' shares purchased or acquired through exchange. Fees shall be paid only to those selected dealers or other institutions who are dealers or institutions of record at the close of business on the last business day of the applicable payment period for the account in which such Fund's shares are held.
Selected dealers and other institutions entitled to receive compensation for selling Fund shares may receive different compensation for selling shares of one particular class over another. Under the Plans, certain financial institutions which have entered into service agreements and which sell shares of the Funds on an agency basis, may receive payments from the Funds pursuant to the respective Plans. AIM Distributors does not act as principal, but rather as agent for the Funds, in making dealer incentive and shareholder servicing payments to dealers and other financial institutions under the Plans. These payments are an obligation of the Funds and not of AIM Distributors.
Payments pursuant to the Plans are subject to any applicable limitations imposed by rules of the National Association of Securities Dealers, Inc. ("NASD").
See Appendix G for a list of the amounts paid by each class of shares to AIM Distributors pursuant to the Plans for the fiscal year ended July 31, 2001 and Appendix H for an estimate by category of the allocation of actual fees paid by each class of shares of each Fund pursuant to its respective distribution plan for the fiscal year ended July 31, 2001.
As required by Rule 12b-1, the Plans and related forms of Shareholder Service Agreements were approved by the Board of Trustees, including a majority of the trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of the Plans or in any agreements related to the Plans (the "Rule 12b-1 Trustees"). In
approving the Plans in accordance with the requirements of Rule 12b-1, the trustees considered various factors and determined that there is a reasonable likelihood that the Plans would benefit each class of the Funds and its respective shareholders.
The anticipated benefits that may result from the Plans with respect to each Fund and/or the classes of each Fund and/or the classes of each Fund and its shareholders include but are not limited to the following: (1) rapid account access; (2) relatively predictable flow of cash; and (3) a well-developed, dependable network of shareholder service agents to help to curb sharp fluctuations in rates of redemptions and sales, thereby reducing the chance that an unanticipated increase in net redemptions could adversely affect the performance of each Fund.
Unless terminated earlier in accordance with their terms, the Plans continue from year to year as long as such continuance is specifically approved, in person, at least annually by the Board of Trustees, including a majority of the Rule 12b-1 Trustees. A Plan may be terminated as to any Fund or class by the vote of a majority of the Rule 12b-1 Trustees or, with respect to a particular class, by the vote of a majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution expenses paid by the applicable class requires shareholder approval; otherwise, the Plans may be amended by the trustees, including a majority of the Rule 12b-1 Trustees, by votes cast in person at a meeting called for the purpose of voting upon such amendment. As long as the Plans are in effect, the selection or nomination of the Independent Trustees is committed to the discretion of the Independent Trustees.
The Class B Plan obligates Class B shares to continue to make payments to AIM Distributors following termination of the Class B shares Distribution Agreement with respect to Class B shares sold by or attributable to the distribution efforts of AIM Distributors, unless there has been a complete termination of the Class B Plan (as defined in such Plan) and the Class B Plan expressly authorizes AIM Distributors to assign, transfer or pledge its rights to payments pursuant to the Class B Plan.
DISTRIBUTOR
The Trust has entered into master distribution agreements, as amended, relating to the Funds (the "Distribution Agreements") with AIM Distributors, a registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to which AIM Distributors acts as the distributor of shares of the Funds. The address of AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain trustees and officers of the Trust are affiliated with AIM Distributors. See "Management of the Trust."
The Distribution Agreements provide AIM Distributors with the exclusive right to distribute shares of the Funds on a continuous basis directly and through institutions with whom AIM Distributors has entered into selected dealer agreements. AIM Distributors has not undertaken to sell any specified number of shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own resources to dealers and institutions who sell Class B and Class C shares of the Funds at the time of such sales.
Payments with respect to Class B shares will equal 4.0% of the purchase price of the Class B shares sold by the dealer or institution, and will consist of a sales commission equal to 3.75% of the purchase price of the Class B shares sold plus an advance of the first year service fee of 0.25% with respect to such shares. The portion of the payments to AIM Distributors under the Class B Plan which constitutes an asset-based sales charge (0.75%) is intended in part to permit AIM Distributors to recoup a portion of such sales commissions plus financing costs. In the future, if multiple distributors serve a Fund, each such distributor (or its assignee or transferee) would receive a share of the payments under the Class B Plan based on the portion of the Fund's Class B shares sold by or attributable to the distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions who sell Class C shares of the AIM Funds at the time of such sales. Payments with respect to Class C shares will equal 1.00% of the purchase price of the Class C shares sold by the dealer or institution, and will consist of a sales commission of 0.75% of the purchase price of the Class C shares sold plus an advance of the first year service fee of 0.25% with respect to such shares. AIM Distributors will retain all payments received by it relating to Class C shares for the first year after they are purchased. The portion of the payments to AIM Distributors under the Class A and C Plan attributable to Class C shares which constitutes an asset-based sales charge (0.75%) is intended in part to permit AIM Distributors to recoup a portion of on-going sales commissions to dealers plus financing costs, if any. After the first full year, AIM Distributors will make such payments quarterly to dealers and institutions based on the average net asset value of Class C shares which are attributable to shareholders for whom the dealers and institutions are designated as dealers of record.
The Trust (on behalf of any class of any Fund) or AIM Distributors may terminate the Distribution Agreements on sixty (60) days' written notice without penalty. The Distribution Agreements will terminate automatically in the event of their assignment. In the event the Class B shares Distribution Agreement is terminated, AIM Distributors would continue to receive payments of asset-based distribution fees in respect of the outstanding Class B shares attributable to the distribution efforts of AIM Distributors; provided, however that a complete termination of the Class B Plan (as defined in such Plan) would terminate all payments to AIM Distributors. Termination of the Class B Plan or the Distribution Agreement for Class B shares would not affect the obligation of a Fund and its Class B shareholders to pay contingent deferred sales charges.
Total sales charges (front end and contingent deferred sales charges) paid in connection with the sale of shares of each Fund, if applicable, for the last four fiscal periods are found in Appendix I.
CALCULATION OF PERFORMANCE DATA
Although performance data may be useful to prospective investors when comparing a Fund's performance with other funds and other potential investments, investors should note that the methods of computing performance of other potential investments are not necessarily comparable to the methods employed by a Fund.
Average Annual Total Return Quotation
The standard formula for calculating average annual total return is as follows:
P(1+T)(n)=ERV
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable maximum
sales load is deducted at the beginning of the 1, 5, or 10 year
periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at the
end of the 1, 5, or 10 year periods (or fractional portion of
such period).
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The average annual total returns for each Fund, with respect to its Class A, Class B and Class C shares, for the one, five and ten year periods (or since inception if applicable) ended July 31 are found in Appendix J.
Total returns quoted in advertising reflect all aspects of a Fund's return, including the effect of reinvesting dividends and capital gain distributions, and any change in the Fund's net asset value per share over the period. Cumulative total return reflects the performance of a Fund over a stated period of time. Average annual total returns are calculated by determining the growth or decline in value of a hypothetical investment in a Fund over a stated period of time, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period.
Each Fund's total return is calculated in accordance with a standardized formula for computation of annualized total return. Standardized total return for Class A shares reflects the deduction of a Fund's maximum front-end sales charge at the time of purchase. Standardized total return for Class B and Class C shares (except for Limited Maturity) reflects the deduction of the maximum applicable contingent deferred sales charge on a redemption of shares held for the period. Standardized total return for AIM Cash Reserve Shares does not reflect a deduction of any sales charge, since that class is sold and redeemed at net asset value.
A Fund's total return shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. A cumulative total return reflects the Fund's performance over a stated period of time. An average annual total return reflects the hypothetical compounded annual rate of return that would have produced the same cumulative total return if the Fund's performance had been constant over the entire period. Because average annual returns tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its cumulative and average annual returns into income results and capital gains or losses.
Alternative Total Return Quotations
Standard total return quotes may be accompanied by total return figures calculated by alternative methods. For example, average annual total return may be calculated without assuming payment of the full sales load according to the following formula:
P(1+U)(n)=ERV
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming payment of only a stated
portion of, or none of, the applicable maximum sales load at
the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
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Cumulative total return across a stated period may be calculated as follows:
P(1+V)=ERV
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a stated
portion of, or none of, the applicable maximum sales load at
the beginning of the stated period.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
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The cumulative total returns for each Fund, with respect to its Class A shares, for the one, five and ten year periods (or since inception if applicable) ended July 31 are found in Appendix J.
Yield Quotation
Yield is a function of the type and quality of a Fund's investments, the maturity of the securities held in a Fund's portfolio and the operating expense ratio of the Fund. Yield is computed in accordance with standardized formulas described below and can be expected to fluctuate from time to time and is not necessarily indicative of future results. Accordingly, yield information may not provide a basis for comparison with investments which pay a fixed rate of interest for a stated period of time.
A Fund's tax equivalent yield is the rate an investor would have to earn from a fully taxable investment in order to equal the Fund's yield after taxes. Tax equivalent yields are calculated by dividing the Fund's yield by one minus a stated tax rate (if only a portion of the Fund's yield was tax-exempt, only that portion would be adjusted in the calculation).
A Fund also may quote its distribution rate, which expresses the historical amount of income the Fund paid as dividends to its shareholders as a percentage of the Fund's offering price.
Income calculated for purposes of calculating a Fund's yield differs from income as determined for other accounting purposes. Because of the different accounting methods used, and because of the compounding assumed in yield calculations, the yield quoted for a Fund may differ from the rate of distributions from the Fund paid over the same period or the rate of income reported in the Fund's financial statements.
The standard formula for calculating yield for each Fund is as follows:
YIELD = 2[((a-b)/(c x d)+1)(6)-1]
Where a = dividends and interest earned during a stated 30-day period.
For purposes of this calculation, dividends are accrued rather
than recorded on the ex-dividend date. Interest earned under
this formula must generally be calculated based on the yield
to maturity of each obligation (or, if more appropriate, based
on yield to call date).
b = expenses accrued during period (net of reimbursements).
c = the average daily number of shares outstanding during the
period.
d = the maximum offering price per share on the last day of the
period.
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The standard formula for calculating annualized 7-day yield for AIM Money Market Fund is as follows:
Y = (V(1)-V(0)) x 365
----------- ---
V(0) 7
Where Y = annualized yield.
V(0) = the value of a hypothetical pre-existing account in the AIM
Money Market Fund having a balance of one share at the
beginning of a stated seven-day period.
V(1) = the value of such an account at the end of the stated
period.
|
The standard formula for calculating effective annualized yield for the AIM Money Market Fund is as follows:
EY = (Y + 1)(365/7) - 1
Where EY = effective annualized yield.
Y = annualized yield, as determined above.
The yield for each Fund (other than AIM Money Market Fund), the yield and corresponding tax-equivalent yield for AIM Municipal Bond Fund, and the annualized and effective annualized yield for the AIM Cash Reserve Shares, Class B and Class C shares of AIM Money Market Fund are also found in Appendix J. In addition, the distribution rates for each Fund (other than AIM Money Market Fund) are found in Appendix J.
Performance Information
All advertisements of the Funds will disclose the maximum sales charge (including deferred sales charges) imposed on purchases of a Fund's shares. If any advertised performance data does not reflect the maximum sales charge (if any), such advertisement will disclose that the sales charge has not been deducted in computing the performance data, and that, if reflected, the maximum sales charge would reduce the performance quoted. Further information regarding each Fund's performance is contained in that Fund's annual report to shareholders, which is available upon request and without charge.
From time to time, AIM or its affiliates may waive all or a portion of their fees and/or assume certain expenses of any Fund. Fee waivers or reductions or commitments to reduce expenses will have the effect of increasing that Fund's yield and total return.
The performance of each Fund will vary from time to time and past results are not necessarily indicative of future results.
Total return and yield figures for the Funds are neither fixed nor guaranteed. The Funds may provide performance information in reports, sales literature and advertisements. The Funds may also, from time to time, quote information about the Funds published or aired by publications or other media entities which contain articles or segments relating to investment results or other data about one or more of the Funds. The following is a list of such publications or media entities:
Advertising Age Forbes Nation's Business Barron's Fortune New York Times Best's Review Hartford Courant Pension World Broker World Inc. Pensions & Investments Business Week Institutional Investor Personal Investor Changing Times Insurance Forum Philadelphia Inquirer Christian Science Monitor Insurance Week USA Today Consumer Reports Investor's Daily U.S. News & World Report Economist Journal of the American Wall Street Journal FACS of the Week Society of CLU & ChFC Washington Post Financial Planning Kiplinger Letter CNN Financial Product News Money CNBC Financial Services Week Mutual Fund Forecaster PBS Financial World |
Each Fund may also compare its performance to performance data of similar mutual funds as published by the following services:
Bank Rate Monitor Stanger Donoghue's Weisenberger Mutual Fund Values (Morningstar) Lipper, Inc. |
Each Fund's performance may also be compared in advertising to the performance of comparative benchmarks such as the following:
Consumer Price Index
Lehman Brothers Aggregate Bond Index
Lehman Brothers High Yield Index
Lehman Brothers Intermediate Government Bond Index
Lehman Brothers 1-2 year U.S. Government Bond Index
Lehman Brothers Municipal Bond Index
Each Fund may also compare its performance to rates on Certificates of Deposit and other fixed rate investments such as the following:
10 year Treasury Notes
90 day Treasury Bills
Advertising for the Funds may from time to time include discussions of
general economic conditions and interest rates. Advertising for such Funds may
also include references to the use of those Funds as part of an individual's
overall retirement investment program. From time to time, sales literature
and/or advertisements for any of the Funds may disclose: (i) the largest
holdings in the Fund's portfolio; (ii) certain selling group members; and/or
(iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements may discuss generic topics pertaining to the mutual fund industry. This includes, but is not limited to, literature addressing general information about mutual funds, variable annuities, dollar-cost averaging, stocks, bonds, money markets, certificates of deposit, retirement, retirement plans, asset allocation, tax-free investing, college planning and inflation.
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt ratings of Moody's, S&P and Fitch:
Moody's describes its ratings for corporate bonds as follows:
AAA: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. These are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the security ranks in
the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
AAA: Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
AA: Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA: Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA: Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Note: Bonds in the Aa group which Moody's believes possess the strongest investment attributes are designated by the symbol Aa1.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa to B. The modifier indicates that the issue ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic category.
In the case of securities with a demand feature, two ratings are assigned: one representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the other representing an evaluation of the degree of risk associated with the demand feature.
Moody's ratings for state and municipal short-term obligations will be designated Moody's Investment Grade or (MIG). Such ratings recognize the differences between short-term credit risk and long-term risk. Factors affecting the liquidity of the borrower and short-term cyclical elements are critical in short-term ratings, while other factors of major importance in bond risk, long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand feature variable rate demand obligation (VRDO). Such ratings will be designated as VMIG or, if the demand feature is not rated, as NR. Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. Additionally, investors should be alert to the fact that the source of payment may be limited to the external liquidity with no or limited legal recourse to the issuer in the event the demand is not met.
A VMIG rating may also be assigned to commercial paper programs. Such programs are characterized as having variable short-term maturities but having neither a variable rate nor demand feature.
Moody's short-term ratings are designated Moody's Investment Grade as MIG 1 or VMIG 1 through MIG 4 or VMIG 4.
Gradations of investment quality are indicated by rating symbols, with each symbol representing a group in which the quality characteristics are broadly the same.
MIG 1/VMIG 1: This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3: This designation denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk.
Moody's commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months.
PRIME-1: Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return
on Funds employed; conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earnings coverage
of fixed financial charges and high internal
cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or related supported institutions) have an acceptable capacity for repayment of short-term promissory obligations. The effects of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating categories.
Note: A Moody's commercial paper rating may also be assigned as an evaluation of the demand feature of a short-term or long-term security with a put option.
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the lowest degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposure to adverse conditions.
An S&P municipal bond rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees.
The ratings are based, in varying degrees, on the following considerations: likelihood of default - capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation; nature of and provisions of the obligation; and protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree.
Note: Ratings within the AA and A major rating categories may be modified by the addition of a plus (+) sign or minus (-) sign to show relative standing.
The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity and the commercial paper rating symbols for the put option (for example, AAA/A-1+). With short-term demand debt, the note rating symbols are used with the commercial paper rating symbols (for example, SP-1+/A-1+).
An S&P note rating reflects the liquidity factors and market-access risks unique to notes. Notes maturing in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment: amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be treated as a note); and source of payment (the more the issue depends on the market for its refinancing, the more likely it is to be treated as a note).
Note rating symbols and definitions are as follows:
SP-1: Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3: Speculative capacity to pay principal and interest.
An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days.
Rating categories are as follows:
A-1: This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
B: Issues with this rating are regarded as having only speculative capacity for timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
D: Debt with this rating is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless it is believed that such payments will be made during such grace period.
Fitch investment grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings represent Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue in a timely manner.
The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated.
Bonds carrying the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature of taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons.
AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+."
A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SUSPENDED: A rating is suspended when Fitch deems the amount of information available from the issuer to be inadequate for rating purposes.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper and timely information.
FITCHALERT: Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to result in a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may be raised or lowered. FitchAlert is relatively short-term, and should be resolved within 12 months.
An outlook is used to describe the most likely direction of any rating change over the intermediate term. It is described as "Positive" or "Negative." The absence of a designation indicates a stable outlook.
Fitch speculative grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings ("BB" to "C") represent Fitch's assessment of the likelihood of timely payment of principal and interest in accordance with the terms of obligation for bond issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an assessment of the ultimate recovery value through reorganization of liquidation.
The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer or possible recovery value in bankruptcy, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily identical credit quality since rating categories cannot fully reflect the differences in degrees of credit risk.
BB: Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
The short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner.
Fitch short-term ratings are as follows:
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate, however, near-term adverse changes could cause these securities to be rated below investment grade.
F-S: Weak Credit Quality. Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions.
D: Default. Issues assigned this rating are in actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit issued by a commercial bank.
APPENDIX B
TRUSTEES AND OFFICERS
Unless otherwise indicated, the address of each trustee and officer is 11 Greenway Plaza, Suite 100, Houston, Texas 77046.
POSITION(S)
HELD WITH PRINCIPAL OCCUPATION(S) DURING AT LEAST
NAME, ADDRESS AND AGE REGISTRANT THE PAST 5 YEARS
--------------------- ----------- ---------------------------------------
*ROBERT H. GRAHAM (55) Trustee, Chairman Chairman, President and Chief Executive Officer,
and President A I M Management Group Inc.; Chairman and President,
A I M Advisors, Inc.; Director and Senior Vice
President, A I M Capital Management, Inc.; Chairman,
A I M Distributors, Inc., A I M Fund Services, Inc.
and Fund Management Company; and Director and Vice
Chairman, AMVESCAP PLC (parent of AIM and a global
investment management firm).
FRANK S. BAYLEY (62) Trustee Partner, law firm of Baker & McKenzie; Director and
Two Embarcadero Center Chairman, C.D. Stimson Company (private investment
Suite 2400 company); and Trustee, The Badgley Funds.
San Francisco, CA 94111
BRUCE L. CROCKETT (57) Trustee Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief Executive
McLean, VA 22102 Officer, COMSAT Corporation; and Chairman, Board of
Governors of INTELSAT (international communications
company).
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* Mr. Graham is an "interested person" of the Trust and AIM as that term is defined in the 1940 Act.
POSITION(S)
HELD WITH PRINCIPAL OCCUPATION(S) DURING AT LEAST
NAME, ADDRESS AND AGE REGISTRANT THE PAST 5 YEARS
--------------------- ----------- ---------------------------------------
ALBERT R. DOWDEN (60) Trustee Chairman, Cortland Trust, Inc. (investment company)
1815 Central Park Drive and DHJ Media, Inc.; and Director, Magellan
P.O. Box 774000 - PMB #222 Insurance Company. Formerly, Director, President
Steamboat Springs, CO 80477 and Chief Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB Volvo; and
Director, The Hertz Corporation, Genmar Corporation
(boat manufacturer), National Media Corporation and
Annuity and Life Re (Holdings), Ltd.
EDWARD K. DUNN, JR. (66) Trustee Formerly, Chairman, Mercantile Mortgage Corp.; Vice
2 Hopkins Plaza Chairman, President and Chief Operating Officer,
8th Floor, Suite 805 Mercantile-Safe Deposit & Trust Co.; and President,
Baltimore, MD 21201 Mercantile Bankshares Corp.
JACK M. FIELDS (49) Trustee Chief Executive Officer, Twenty First Century Group,
434 New Jersey Avenue, SE Inc. (governmental affairs company). Formerly,
Washington, DC 20003 Member of the U.S. House of Representatives.
**CARL FRISCHLING (64) Trustee Partner, Kramer Levin Naftalis & Frankel LLP (law
919 Third Avenue firm); and Director, Cortland Trust, Inc.
New York, NY 10022 (investment company).
PREMA MATHAI-DAVIS (51) Trustee Member, Visiting Committee, Harvard University
370 East 76th Street Graduate School of Education, New School
New York, NY 10021 University. Formerly, Chief Executive Officer, YWCA
of the USA; Commissioner, New York City Department
of the Aging; and Commissioner, New York City
Metropolitan Transportation Authority.
LEWIS F. PENNOCK (59) Trustee Partner, Pennock & Cooper (law firm).
6363 Woodway, Suite 825
Houston, TX 77057
RUTH H. QUIGLEY (66) Trustee Private investor; and President, Quigley Friedlander
1055 California Street & Co., Inc. (financial advisory services firm) from
San Francisco, CA 94108 1984 to 1986.
|
** The law firm in which Mr. Frischling is a partner is counsel to the independent directors/trustees of the AIM Funds and the AIM Funds pay such firm's fees. The AIM Funds believe that Mr. Frischling is not an interested person of the AIM Funds solely as a result of this relationship and are currently communicating with the SEC to confirm their view.
POSITION(S)
HELD WITH PRINCIPAL OCCUPATION(S) DURING AT LEAST
NAME, ADDRESS AND AGE REGISTRANT THE PAST 5 YEARS
--------------------- ----------- ---------------------------------------
LOUIS S. SKLAR (62) Trustee Executive Vice President, Development and
The Williams Tower Operations, Hines Interests Limited Partnership
50th Floor (real estate development).
2800 Post Oak Blvd.
Houston, TX 77056
GARY T. CRUM (54) Senior Vice Director and President, A I M Capital Management,
President Inc.; Director and Executive Vice President, A I M
Management Group Inc.; Director and Senior Vice
President, A I M Advisors, Inc.; and Director,
A I M Distributors, Inc. and AMVESCAP PLC (parent of
AIM and a global investment management firm).
CAROL F. RELIHAN (47) Senior Vice Director, Senior Vice President, General Counsel and
President and Secretary, A I M Advisors, Inc. and A I M
Secretary Management Group Inc.; Director, Vice President and
General Counsel, Fund Management Company; and Vice
President, A I M Fund Services, Inc., A I M Capital
Management, Inc. and A I M Distributors, Inc.
DANA R. SUTTON (42) Vice President Vice President and Fund Treasurer, A I M Advisors,
and Treasurer Inc.
MELVILLE B. COX (58) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc. and A I M Capital Management, Inc.;
and Vice President, A I M Fund Services, Inc.
KAREN DUNN KELLEY (41) Vice President Senior Vice President, A I M Capital Management,
Inc.; Director, Fund Management Company; and Vice
President, A I M Advisors, Inc.
|
APPENDIX C
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the record and beneficial holders of 5% or more of the outstanding shares of each class of the Trust's equity securities and the percentage of the outstanding shares held by such holders are set forth below. Unless otherwise indicated below, the Trust has no knowledge as to whether all or any portion of the shares owned of record are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding securities of a Fund is presumed to "control" that Fund as defined in the 1940 Act. Such control may affect the voting rights of other shareholders.
All information listed below is as of December 20, 2001.
AIM HIGH YIELD FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
------------------- ------------------- ------------------- -------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers 5.05% 10.27% 12.69%
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Bear Stearns Securities Corp
1 Metrotech Center North 5.00% -0- -0-
Brooklyn, NY 11201-3859
|
AIM HIGH YIELD FUND II
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
------------------- ------------------- ------------------- -------------------
Charles Schwab & Co. Inc.
Reinvestment Account 4.85% -0- -0-
101 Montgomery Street
San Francisco, CA 94104
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers -0- 9.60% 11.55%
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
|
AIM INCOME FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
------------------- ------------------- ------------------- -------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers -0- 6.78% 13.24%
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
|
AIM INTERMEDIATE GOVERNMENT FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
------------------- ------------------- ------------------- -------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers 9.23% 15.23% 17.98%
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
|
AIM LIMITED MATURITY TREASURY FUND
CLASS A SHARES INSTITUTIONAL CLASS SHARES
---------------- --------------------------
PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF OF OF
PRINCIPAL HOLDER RECORD RECORD
---------------- ---------------- --------------------------
Esor & Co.
Attn: Trust Operations - Lynn Knight -0- 39.07%
P.O. Box 19006
Green Bay, WI 54307-9006
Frost National Bank TX
Muir & Co. -0- 57.39%
c/o Frost
P.O. Box 2479
San Antonio, TX 78298-2479
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers 6.32% -0-
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
|
AIM MONEY MARKET FUND
CASH RESERVE SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
------------------- ------------------- ------------------- -------------------
N/A N/A N/A N/A
|
AIM MUNICIPAL BOND FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
------------------- ------------------- ------------------- -------------------
Donaldson Lufkin Jenrette
Securities Corporation Inc. -0- -0- 5.69%
P.O. Box 2052
Jersey City, NJ 07303-9998
Robert A. Merkel & Margaret M. Merkel
TTEES Robert A. Merkel & Margaret M. Merkel -0- -0- 8.05%
Trust Dtd. 05/27/94
5118 S. 288th Pl.
Auburn, WA 98001
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers -0- 11.00% 11.61%
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
|
AIM TOTAL RETURN BOND FUND
AIM provided the initial capitalization of the Fund and, accordingly, as of the date of this Statement of Additional Information, owned more than 25% of the issued and outstanding shares of the Fund and therefore could be deemed to "control" the Fund as that term is defined in the 1940 Act. It is anticipated that after commencement of the public offering of the Fund's shares, AIM will cease to control the Fund for purposes of the 1940 Act.
MANAGEMENT OWNERSHIP
As of December 20, 2001 the trustees and officers as a group owned less than 1% of the outstanding shares of each class of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund and AIM Limited Maturity Treasury Fund. In addition, as of December 20, 2001, the trustees and officers as a group owned 2.10% of Class A shares of AIM High Yield Fund II, 1.25% of AIM Cash Reserve Shares of AIM Money Market Fund, and 4.00% of Class A shares of AIM Municipal Bond Fund, respectively.
APPENDIX D
MANAGEMENT FEES
For the last four fiscal periods the management fees by each Fund, the amounts waived by AIM and the net fee paid by each Fund were as follows:
FUND NAME JULY 31, 2001 JULY 31, 2000*
---------------------------------------------- ---------------------------------------------------
NET NET
MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE WAIVERS FEE PAID FEE FEE WAIVERS FEE PAID
-------------- --------------- --------------- --------------- ----------------- -----------------
AIM High
Yield Fund $9,230,307 $ (835) $9,229,472 $7,537,550 N/A $ 7,537,550
AIM High
Yield Fund II 846,144 (228,922) 617,222 366,416 (251,914) 114,502
AIM Income Fund 2,549,509 (109) 2,549,400 1,512,830 N/A 1,512,830
AIM
Intermediate
Government Fund 2,247,495 (1,187) 2,246,308 1,513,654 NA 1,513,654
AIM Limited
Maturity
Treasury Fund 712,990 N/A 712,990 70,741 NA 705,741
AIM Money
Market Fund 7,202,907 N/A 7,202,907 4,041,617 N/A 4,041,617
AIM Municipal
Bond Fund 1,729,991 N/A 1,729,991 953,308 NA 953,308
AIM Total
Return Bond
Fund** N/A N/A N/A N/A N/A N/A
|
* AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund were in a different registrant prior to June 1, 2000; therefore, the reporting period for these funds was from January 1, 2000 through July 31, 2000.
** Commenced operations on December 31, 2001.
FUND NAME 1999*** 1998****
---------------------------------------------- ---------------------------------------------------
NET NET
MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
FEE FEE WAIVERS FEE PAID FEE FEE WAIVERS FEE PAID
-------------- --------------- --------------- --------------- ----------------- -----------------
AIM High
Yield Fund $16,396,698 N/A $16,396,698 $17,600,312 N/A $ 17,600,312
AIM High
Yield Fund II 146,069 N/A 146,069 N/A N/A N/A
AIM Income Fund 2,785,338 N/A 2,785,338 2,375,487 N/A 2,375,487
AIM
Intermediate
Government Fund 2,310,621 N/A 2,310,621 1,611,515 NA 1,611,515
AIM Limited
Maturity
Treasury Fund 850,738 N/A 850,738 855,900 NA 855,900
AIM Money
Market Fund 1,830,490 N/A 1,830,490 1,738,038 N/A 1,738,038
AIM Municipal
Bond Fund 1,729,991 N/A 1,729,991 953,308 NA 953,308
AIM Total
Return Bond
Fund***** N/A N/A N/A N/A N/A N/A
|
*** For the fiscal year ended July 31, 1999 for both AIM High Yield Fund II and AIM Limited Maturity Treasury Fund, and for the fiscal year ended December 31, 1999 for each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund.
**** For the fiscal year ended July 31, 1998 for AIM Limited Maturity Treasury Fund, and for the fiscal year ended December 31, 1998 for each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund.
***** Commenced operations on December 31, 2001.
APPENDIX E
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM the following amounts for administrative services for the last four fiscal periods:
FUND NAME JULY 31, 2001 JULY 31, 2000* 1999** 1998***
--------- ------------- -------------- ------ -------
AIM High Yield Fund $168,568 $107,029 $177,468 $135,537
AIM High Yield Fund II 50,000 45,890 64,643 N/A
AIM Income Fund 123,589 72,169 111,839 87,349
AIM Intermediate Government
Fund 120,488 63,465 97,900 80,271
AIM Limited Maturity
Treasury Fund 81,565 80,566 70,069 59,396
AIM Money Market Fund 150,215 83,475 118,024 71,394
AIM Municipal Bond Fund 96,500 53,056 91,647 73,917
AIM Total Return Bond N/A N/A N/A N/A
Fund****
|
* AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund were in a different registrant prior to June 1, 2000; therefore, the reporting period for these funds was from January 1, 2000 through July 31, 2000.
** For the fiscal year ended July 31, 1999 for both AIM High Yield Fund II and AIM Limited Maturity Treasury Fund, and for the fiscal year ended December 31, 1999 for each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund.
*** For the fiscal year ended July 31, 1998 for AIM Limited Maturity Treasury Fund, and for the fiscal year ended December 31, 1998 for each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund.
**** Commenced operations on December 31, 2001.
APPENDIX F
BROKERAGE COMMISSIONS
Brokerage commissions paid by each of the Funds listed below during the last four fiscal periods were as follows:
JULY 31, JULY 31,
FUND 2001 2000* 1999** 1998***
---- ---------- ---------- ---------- ----------
AIM High Yield Fund .................... $ 3,642 $ 2,882 $ 102,000 $ 14,000
AIM High Yield Fund II ................. 17,229 2,868 6,459 N/A
AIM Income Fund ........................ 10,514 8,000 44,000 12,000
AIM Intermediate Government Fund ....... -0- -0- -0- -0-
AIM Limited Maturity Treasury Fund ..... -0- -0- -0- -0-
AIM Money Market Fund .................. -0- -0- -0- -0-
AIM Municipal Bond Fund ................ -0- -0- -0- -0-
AIM Total Return Bond Fund**** ......... N/A N/A N/A N/A
|
* AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund were in a different registrant prior to June 1, 2000; therefore, the reporting period for these funds was from January 1, 2000 through July 31, 2000.
** For the fiscal year ended July 31, 1999 for both AIM High Yield Fund II and AIM Limited Maturity Treasury Fund, and for the fiscal year ended December 31, 1999 for each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund.
*** For the fiscal year ended July 31, 1998 for AIM Limited Maturity Treasury Fund, and for the fiscal year ended December 31, 1998 for each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund.
**** Commenced operations on December 31, 2001.
APPENDIX G
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS
LIST OF AMOUNTS PAID BY EACH CLASS OF SHARES TO AIM DISTRIBUTORS
PURSUANT TO THE PLANS FOR THE FISCAL YEAR ENDED JULY 31, 2001.
CLASS A* CLASS B CLASS C
FUND SHARES SHARES SHARES
---- ---------- ---------- ----------
AIM High Yield Fund $2,103,766 $9,185,007 $ 911,721
AIM High Yield Fund II 141,295 654,377 134,273
AIM Income Fund 865,834 2,199,570 335,692
AIM Intermediate Government Fund 628,863 2,166,723 453,524
AIM Limited Maturity Treasury Fund 532,019 N/A N/A
AIM Money Market Fund 2,283,574 3,621,846 649,673
AIM Municipal Bond Fund 737,036 757,423 119,410
AIM Total Return Bond Fund** N/A N/A N/A
|
* For AIM Cash Reserve Shares of AIM Money Market Fund
** Commenced operations on December 31, 2001.
APPENDIX H
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS
An estimate by category of the allocation of actual fees paid by Class A Shares (for AIM Money Market Fund, AIM Cash Reserve Shares) of the Funds during the fiscal year ended July 31, 2001, follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
------------ ------------ ------------ ------------ ------------
AIM High Yield Fund .................... $ 0 $ 0 $ 0 $ -0- $ 2,103,766
AIM High Yield II Fund ................. 0 0 0 -0- 141,295
AIM Income Fund ........................ 0 0 0 -0- 865,834
AIM Intermediate Government Fund ....... 0 0 0 -0- 628,863
AIM Limited Maturity Treasury Fund ..... 0 0 0 -0- 532,019
AIM Money Market Fund .................. 0 0 0 -0- 2,283,574
AIM Municipal Bond Fund ................ 0 0 0 -0- 737,036
AIM Total Return Bond Fund* ............ N/A N/A N/A N/A N/A
|
An estimate by category of the allocation of actual fees paid by Class B Shares of the Funds during the fiscal year ended July 31, 2001, follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
------------ ------------ ------------ ------------ ------------
AIM High Yield Fund .................... $ 115,269 $ 10,176 $ 31,227 $ 6,888,755 $ 2,139,580
AIM High Yield Fund II ................. 31,256 2,866 6,824 490,783 122,648
AIM Income Fund ........................ 48,374 4,066 12,908 1,649,677 484,544
AIM Intermediate Government Fund ....... 51,796 4,468 14,893 1,625,042 470,524
AIM Limited Maturity Treasury Fund ..... N/A N/A N/A N/A N/A
AIM Money Market Fund .................. 112,900 9,437 29,710 2,716,385 753,414
AIM Municipal Bond Fund ................ 15,488 1,231 4,560 568,067 168,077
AIM Total Return Bond Fund* ............ N/A N/A N/A N/A N/A
|
An estimate by category of the allocation of actual fees paid by Class C shares of the Funds during the fiscal year ended July 31, 2001, follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
------------ ------------ ------------ ------------ ------------
AIM High Yield Fund .................... $ 27,847 $ 2,468 $ 7,939 $ 177,294 $ 696,173
AIM High Yield Fund II ................. 9,938 864 3,601 64,061 55,808
AIM Income Fund ........................ 16,784 1,496 4,986 103,477 208,949
AIM Intermediate Government Fund ....... 18,049 1,524 5,819 114,022 314,111
AIM Limited Maturity Treasury Fund ..... N/A N/A N/A N/A N/A
AIM Money Market Fund .................. 48,095 4,221 13,530 294,952 288,875
AIM Municipal Bond Fund ................ 7,004 693 1,924 43,294 66,495
AIM Total Return Bond Fund* ............ N/A N/A N/A N/A N/A
|
*Commenced operations on December 31, 2001.
APPENDIX I
TOTAL SALES CHARGES
The following chart reflects the total sales charges paid in connection with the sale of Class A shares (for AIM Money Market Fund, AIM Cash Reserve Shares) of each Fund and the amount retained by AIM Distributors for the last four fiscal periods:
JULY 31, JULY 31,
2001 2000* 1999** 1998***
---------------------- ---------------------- ---------------------- -----------------------
SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
AIM High Yield Fund $2,210,223 $ 388,238 $1,492,443 $ 265,022 $4,583,060 $ 800,330 $10,554,990 $1,822,464
AIM High Yield Fund II 632,930 112,921 989,320 177,396 339,816 61,541 N/A N/A
AIM Income Fund 1,331,391 241,096 777,478 133,679 1,984,670 358,051 1,727,399 340,185
AIM Intermediate Government Fund 1,265,501 215,039 582,038 103,411 1,622,505 297,352 1,129,232 196,016
AIM Limited Maturity Treasury Fund 417,964 100,352 219,047 57,087 292,457 75,023 219,035 56,989
AIM Money Market Fund N/A N/A N/A N/A N/A N/A 1,738,598 347,757
AIM Municipal Bond Fund 524,615 94,615 167,101 33,406 524,426 97,187 556,829 100,100
AIM Total Return Bond Fund**** N/A N/A N/A N/A N/A N/A N/A N/A
|
* AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund, AIM Municipal Bond Fund were in a different registrant prior to June 1, 2000; therefore the reporting period for these funds was from January 1, 2000 through July 31, 2000.
** For the fiscal year ended July 31, 1999 for both AIM High Yield Fund II and AIM Limited Maturity Treasury Fund, and for the fiscal year ended December 31, 1999 for each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund.
*** For the fiscal year ended July 31, 1998 for AIM Limited Maturity Treasury Fund, and for the fiscal year ended December 31, 1998 for each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund.
**** Commenced operations on December 31, 2001.
The following chart reflects the contingent deferred sales charges paid by Class A (for AIM Money Market Fund, AIM Cash Reserve Shares), Class B and Class C shareholders and retained by AIM Distributors for the last four fiscal periods:
JULY 31, JULY 31,
2001 2000* 1999** 1998***
---------- ---------- ---------- ----------
AIM High Yield Fund .................... $ 105,346 $ 136,582 $ 423,986 $ 660,651
AIM High Yield Fund II ................. 14,684 15,557 111 N/A
AIM Income Fund ........................ 52,982 23,462 48,455 99,010
AIM Intermediate Government Fund ....... 209,395 44,911 171,470 108,148
AIM Limited Maturity Treasury Fund ..... N/A N/A 15 N/A
AIM Money Market Fund .................. 2,800,220 740,774 1,254,200 905,887
AIM Municipal Bond Fund ................ 25,351 31,486 123,118 48,077
AIM Total Return Bond Fund**** ......... N/A N/A N/A N/A
|
* AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund, AIM Municipal Bond Fund were in a different registrant prior to June 1, 2000; therefore the reporting period for these funds was from January 1, 2000 through July 31, 2000.
** For the fiscal year ended July 31, 1999 for both AIM High Yield Fund II and AIM Limited Maturity Treasury Fund, and for the fiscal year ended December 31, 1999 for each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund.
*** For the fiscal year ended July 31, 1998 for AIM Limited Maturity Treasury Fund, and for the fiscal year ended December 31, 1998 for each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund.
**** Commenced operations on December 31, 2001.
APPENDIX J
PERFORMANCE DATA
The average annual total returns for each Fund, with respect to its Class A shares (for AIM Money Market Fund, AIM Cash Reserve Shares), for the periods ended July 31, 2001, are as follows:
PERIODS ENDED
JULY 31, 2001
-------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- -------- -------- -------- --------- ---------
AIM High Yield Fund .................... -23.79% -3.29% 4.80% 8.11% 07/11/78
AIM High Yield Fund II ................. -21.46 N/A N/A -1.12 09/30/98
AIM Income Fund ........................ -0.59 4.01 6.57 7.17 05/03/68
AIM Intermediate Government Fund ....... 4.66 5.44 5.83 6.64 04/28/87
AIM Limited Maturity Treasury Fund ..... 7.45 5.64 5.58 6.27 12/15/87
AIM Municipal Bond Fund ................ 3.14 4.11 5.70 6.38 03/28/77
AIM Total Return Bond Fund* ............ N/A N/A N/A N/A N/A
|
The average annual total returns for each Fund, with respect to its Class B shares, for the periods ended July 31, 2001, are as follows:
PERIODS ENDED
JULY 31, 2001
-------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS INCEPTION DATE
--------------- -------- -------- --------- ---------
AIM High Yield Fund .................... -24.11% -3.32% 0.69% 09/01/93
AIM High Yield Fund II ................. -21.82 N/A -3.64 11/20/98
AIM Income Fund ........................ -1.18 3.92 3.64 09/07/93
AIM Intermediate Government Fund ....... 4.17 5.38 4.56 09/07/93
AIM Limited Maturity Treasury Fund ..... N/A N/A N/A N/A
AIM Municipal Bond Fund ................ 2.46 3.97 3.87 09/01/93
AIM Total Return Bond Fund* ............ N/A N/A N/A N/A
|
The average annual total returns for each Fund, with respect to its Class C shares, for the periods ended July 31, 2001, are as follows:
PERIODS ENDED
JULY 31, 2001
-------------
INCEPTION
CLASS C SHARES: 1 YEAR SINCE INCEPTION DATE
--------------- -------- --------------- ---------
AIM High Yield Fund .................... -21.22% -7.48% 08/04/97
AIM High Yield Fund II ................. -18.73 -2.82 11/20/98
AIM Income Fund ........................ 2.71 1.68 08/04/97
AIM Intermediate Government Fund ....... 8.08 5.10 08/04/97
AIM Limited Maturity Treasury Fund ..... N/A N/A N/A
AIM Municipal Bond Fund ................ 6.34 3.63 08/04/97
AIM Total Return Bond Fund* ............ N/A N/A N/A
|
*Commenced operations on December 31, 2001.
The average annual total return for AIM Cash Reserve Shares of AIM Money Market Fund for the one-year period ended July 31, 2001, was 4.77%; for the five-year period ended July 31, 2001, was 4.64%; and since inception (October 16, 1993), was 4.45%.
CUMULATIVE TOTAL RETURN
The cumulative total returns for each of the named Funds' Class A shares for the one-year, five-year and ten-year periods (or since inception, if shorter), ended July 31, 2001, are as follows:
PERIODS ENDED
JULY 31, 2001
------------- SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- -------- -------- -------- --------- ---------
AIM High Yield Fund .................... -23.79% -15.41% 59.86% 503.54% 07/11/78
AIM High Yield Fund II ................. -21.46 N/A N/A -3.14 09/30/98
AIM Income Fund ........................ -0.59 21.75 88.88 898.91 05/03/68
AIM Intermediate Government Fund ....... 4.66 30.35 76.28 150.22 04/28/87
AIM Limited Maturity Treasury Fund ..... 7.45 31.56 72.05 129.12 12/15/87
AIM Municipal Bond Fund ................ 3.14 22.28 74.00 351.01 03/28/77
AIM Total Return Bond Fund* ............ N/A N/A N/A N/A N/A
|
The cumulative total returns for each of the named Funds' Class B shares for the one-year, five-year and ten-year periods (or since inception, if shorter), ended July 31, 2001, are as follows:
PERIODS ENDED
JULY 31, 2001
------------- SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS INCEPTION DATE
--------------- -------- -------- --------- ---------
AIM High Yield Fund .................... -24.11% -15.54% 5.61% 09/01/93
AIM High Yield Fund II ................. -21.82 N/A -9.51 11/20/98
AIM Income Fund ........................ -1.18 21.21 32.61 09/07/93
AIM Intermediate Government Fund ....... 4.17 29.98 42.19 09/07/93
AIM Limited Maturity Treasury Fund ..... N/A N/A N/A N/A
AIM Municipal Bond Fund ................ 2.46 21.49 35.06 09/01/93
AIM Total Return Bond Fund* ............ N/A N/A N/A N/A
|
The cumulative total returns for each of the named Funds' Class C shares for the one-year, five-year and ten-year periods (or since inception, if shorter), ended July 31, 2001, are as follows:
PERIODS ENDED
JULY 31, 2001
-------------
INCEPTION
CLASS C SHARES: 1 YEAR SINCE INCEPTION DATE
--------------- -------- --------------- ---------
AIM High Yield Fund .................... -21.22% -26.28% 08/04/97
AIM High Yield Fund II ................. -18.73 -7.42 11/20/98
AIM Income Fund ........................ 2.71 6.89 08/04/97
AIM Intermediate Government Fund ....... 8.08 21.96 08/04/97
AIM Limited Maturity Treasury Fund ..... N/A N/A N/A
AIM Municipal Bond Fund ................ 6.34 15.31 08/04/97
AIM Total Return Bond Fund* ............ N/A N/A N/A
|
The cumulative total returns for AIM Cash Reserves Shares of AIM Money Market Fund for the one-year period ended July 31, 2001, was 4.77%; and for the five-year period ended July 31, 2001, was 25.44%; and since inception was 40.42%.
*Commenced operations on December 31, 2001.
The 30-day yields for each of the named Funds are as follows:
30 DAYS ENDED
JULY 31, 2001
-------------
CLASS A CLASS B CLASS C
---------- ---------- ----------
AIM High Yield Fund 11.00% 10.76% 10.76%
AIM High Yield Fund II 10.31 9.94 9.94
AIM Income Fund 6.78 6.36 6.36
AIM Intermediate Government Fund 4.91 4.40 4.40
AIM Limited Maturity Treasury Fund 3.60 N/A N/A
AIM Municipal Bond Fund 3.64 3.06 3.06
AIM Total Return Bond Fund* N/A N/A N/A
|
The tax equivalent yield, assuming a tax rate of 39.1% for Class A shares, Class B shares and Class C shares of AIM Municipal Bond Fund are as follows:
TAX-EQUIVALENT YIELD
JULY 31, 2001
--------------------
CLASS A CLASS B CLASS C
---------- ---------- ----------
AIM Municipal Bond Fund 5.98% 5.02% 5.02%
|
The 7-day annualized yield for AIM Cash Reserve Shares, Class B shares and Class C shares of AIM Money Market Fund are as follows:
7 DAYS ENDED
JULY 31, 2001
-------------
CASH RESERVE CLASS B CLASS C
------------ ---------- ----------
AIM Money Market Fund 3.00% 2.25% 2.25%
|
The distribution rates for each of the named Funds are as follows:
30 DAYS ENDED
JULY 31, 2001
-------------
30-DAY: CLASS A CLASS B CLASS C
------- ------------ ---------- ----------
AIM High Yield Fund 12.20% 11.44% 11.46%
AIM High Yield Fund II 11.57 10.75 10.75
AIM Income Fund 6.95 6.16 6.16
AIM Intermediate Government Fund 5.48 4.68 4.69
AIM Limited Maturity Treasury Fund 4.43 N/A N/A
AIM Municipal Bond Fund 4.76 4.01 4.02
AIM Total Return Bond Fund* N/A N/A N/A
|
*Commenced operations on December 31, 2001.
12 MONTHS ENDED
JULY 31, 2001
---------------
12-MONTH: CLASS A CLASS B CLASS C
--------- ------------ ---------- ----------
AIM High Yield Fund 14.88% 13.90% 13.93%
AIM High Yield Fund II 14.04 13.02 13.02
AIM Income Fund 7.69 6.81 6.82
AIM Intermediate Government Fund 5.92 5.14 5.16
AIM Limited Maturity Treasury Fund 5.16 N/A N/A
AIM Municipal Bond Fund 4.25 4.26 4.26
AIM Total Return Bond Fund* N/A N/A N/A
|
*Commenced operations on December 31, 2001.
FINANCIAL STATEMENTS
FS
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM High Yield Fund And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM High Yield Fund (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2001, and the related statement of operations, statement of changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2001 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM High Yield Fund at July 31, 2001, and the results of its operations, changes in its net assets, and financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 7, 2001
|
FS-1
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders AIM High Yield Fund:
We have audited the accompanying statement of changes in net assets of AIM High Yield Fund (a portfolio of AIM Investment Securities Funds) for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for the seven months ended July 31, 2000 and for each of the years in the four-year period ended December 31, 1999. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2000, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the changes in net assets of AIM High Yield Fund for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for the seven months ended July 31, 2000 and for each of the years in the four-year period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP September 1, 2000 Houston, Texas |
FS-2
SCHEDULE OF INVESTMENTS
July 31, 2001
PRINCIPAL MARKET
AMOUNT VALUE
U.S. DOLLAR DENOMINATED BONDS & NOTES-91.73%
AEROSPACE & DEFENSE-1.79%
Dunlop Standard Aerospace Holdings PLC
(United Kingdom), Sr. Unsec. Sub. Yankee
Notes, 11.88%, 05/15/09 $17,960,000 $ 19,127,400
---------------------------------------------------------------------------
Precision Partners, Inc., Sr. Unsec. Sub.
Notes, 12.00%, 03/15/09 17,895,000 8,142,225
===========================================================================
27,269,625
===========================================================================
AIRLINES-1.36%
Air Canada (Canada), Sr. Unsec. Yankee Notes,
10.25%, 03/15/11 11,795,000 10,202,675
---------------------------------------------------------------------------
Northwest Airlines Inc., Sr. Unsec. Gtd.
Notes, 8.88%, 06/01/06 10,650,000 10,561,392
===========================================================================
20,764,067
===========================================================================
ALTERNATIVE CARRIERS-4.65%
Global Crossing Holdings Ltd. (Bermuda), Sr.
Unsec. Gtd. Yankee Notes, 8.70%, 08/01/07 12,280,000 9,332,800
---------------------------------------------------------------------------
GT Group Telecom Inc. (Canada), Sr. Unsec.
Disc. Yankee Notes, 13.25%, 02/01/10(a) 28,900,000 8,814,500
---------------------------------------------------------------------------
IMPSAT Fiber Networks Inc., Sr. Unsec. Notes,
13.75%, 02/15/05 12,000,000 2,820,000
---------------------------------------------------------------------------
Intermedia Communications Inc.,
Sr. Notes, 8.88%, 11/01/07 2,000,000 2,090,000
---------------------------------------------------------------------------
Sr. Sub. Disc. Notes, 12.25%, 03/01/09(a) 2,910,000 2,531,700
---------------------------------------------------------------------------
Sr. Unsec. Notes,
8.60%, 06/01/08 2,830,000 2,929,050
---------------------------------------------------------------------------
12.50%, 05/15/06 6,010,000 6,408,162
---------------------------------------------------------------------------
Series B, Sr. Disc. Notes, 11.25%,
07/15/07(a) 32,620,000 32,171,475
---------------------------------------------------------------------------
Orion Network Systems, Inc., Sr. Gtd. Unsub.
Notes, 11.25%, 01/15/07(b) 9,230,000 3,738,150
===========================================================================
70,835,837
===========================================================================
APPAREL RETAIL-0.79%
Big 5 Corp.-Series B, Sr. Unsec. Notes,
10.88%, 11/15/07 12,215,000 12,031,775
===========================================================================
AUTO PARTS & EQUIPMENT-0.82%
Advance Stores Co., Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 10.25%, 04/15/08 12,710,000 12,519,350
---------------------------------------------------------------------------
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%, 03/15/07(c) 23,770,000 2,377
===========================================================================
12,521,727
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
BROADCASTING & CABLE TV-16.59%
Adelphia Communications Corp., Series B, Sr.
Unsec. Notes,
9.88%, 03/01/07 $ 4,220,000 $ 4,146,150
---------------------------------------------------------------------------
10.88%, 10/01/10 11,465,000 11,579,650
---------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.25%, 06/15/11 7,260,000 7,151,100
---------------------------------------------------------------------------
Allbritton Communications Co.,
Sr. Sub. Notes, 8.88%, 02/01/08 2,900,000 2,885,500
---------------------------------------------------------------------------
Sr. Unsec. Sub. Deb., 9.75%, 11/30/07 1,950,000 2,018,250
---------------------------------------------------------------------------
Callahan Nordrhein Westfalen (Germany), Sr.
Unsec. Yankee Notes, 14.00%, 07/15/10 17,540,000 12,891,900
---------------------------------------------------------------------------
CanWest Media Inc. (Canada), Sr. Sub. Yankee
Notes, 10.63%, 05/15/11(d) 3,875,000 4,068,750
---------------------------------------------------------------------------
Charter Communications Holdings, LLC/ Charter
Communications Holdings Capital Corp., Sr.
Unsec. Disc. Notes, 9.92%, 04/01/11(a) 39,150,000 27,013,500
---------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 11.13%, 01/15/11 3,900,000 4,163,250
---------------------------------------------------------------------------
CSC Holdings Inc.,
Sr. Unsec. Deb.,
7.63%, 07/15/18 3,934,000 3,742,768
---------------------------------------------------------------------------
7.88%, 02/15/18 4,580,000 4,462,889
---------------------------------------------------------------------------
Sr. Unsec. Notes, 7.63%, 04/01/11(d) 8,700,000 8,771,340
---------------------------------------------------------------------------
Diamond Cable Communications PLC (United
Kingdom),
Sr. Unsec. Disc. Yankee Notes, 10.75%,
02/15/07(a) 18,995,000 9,972,375
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 13.25%, 09/30/04 9,970,000 6,330,950
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Yankee Notes, 11.75%,
12/15/05 1,150,000 718,750
---------------------------------------------------------------------------
Echostar Broadband Corp., Sr. Unsec. Notes,
10.38%, 10/01/07 6,480,000 6,771,600
---------------------------------------------------------------------------
Fox Family Worldwide, Inc., Sr. Unsec. Disc.
Notes, 10.25%, 11/01/07(a) 21,240,000 20,762,100
---------------------------------------------------------------------------
FrontierVision Operating Partners, L.P., Sr.
Unsec. Sub. Notes, 11.00%, 10/15/06 7,000,000 7,280,000
---------------------------------------------------------------------------
Insight Midwest LP/Insight Capital Inc., Sr.
Unsec. Notes, 10.50%, 11/01/10(d) 6,435,000 6,933,712
---------------------------------------------------------------------------
Knology Holdings, Inc., Sr. Unsub. Disc.
Notes, 11.88%, 10/15/07(a) 24,745,000 7,732,812
---------------------------------------------------------------------------
Mediacom LLC/Mediacom Capital Corp., Sr.
Notes, 9.50%, 01/15/13(d) 8,140,000 8,262,100
---------------------------------------------------------------------------
NTL Communications Corp.,
Sr. Unsec. Disc. Notes, 12.38%, 10/01/08 12,030,000 5,473,650
---------------------------------------------------------------------------
Sr. Unsec. Notes, 11.50%, 10/01/08 19,570,000 12,916,200
---------------------------------------------------------------------------
NTL Inc.-Series B, Sr. Notes, 11.50%,
02/01/06 5,083,000 3,418,318
---------------------------------------------------------------------------
|
FS-3
PRINCIPAL MARKET
AMOUNT VALUE
BROADCASTING & CABLE TV-(CONTINUED)
ONO Finance PLC (United Kingdom), Sr. Unsec.
Gtd. Euro Notes, 13.00%, 05/01/09 $20,600,000 $ 15,347,000
---------------------------------------------------------------------------
Pegasus Communications Corp.-Series B, Sr.
Notes, 9.63%, 10/15/05 7,700,000 7,122,500
---------------------------------------------------------------------------
Pegasus Communications Corp.-Series B, Sr.
Unsec. Notes, 12.50%, 08/01/07 17,500,000 17,762,500
---------------------------------------------------------------------------
Radio One, Inc., Sr. Sub. Notes, 8.88%,
07/01/11(d) 5,600,000 5,740,000
---------------------------------------------------------------------------
Salem Communications Holding Corp., Sr. Sub.
Notes, 9.00%, 07/01/11(d) 4,530,000 4,631,925
---------------------------------------------------------------------------
United Pan-Europe Communications N.V.
(Netherlands)-Series B, Sr. Unsec. Yankee Notes,
11.25%, 02/01/10 21,290,000 9,048,250
---------------------------------------------------------------------------
11.50%, 02/01/10 8,200,000 3,485,000
===========================================================================
252,604,789
===========================================================================
BUILDING PRODUCTS-1.56%
Brand Scaffold Services, Inc., Sr. Unsec.
Notes, 10.25%, 02/15/08 9,930,000 9,259,725
---------------------------------------------------------------------------
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 15,190,000 14,506,450
===========================================================================
23,766,175
===========================================================================
CASINOS & GAMING-4.72%
Ameristar Casinos, Inc., Sr. Unsec. Gtd. Sub.
Notes, 10.75%, 02/15/09 13,530,000 14,409,450
---------------------------------------------------------------------------
Argosy Gaming Co., Sr. Unsec. Sub. Notes,
9.00%, 09/01/11 2,720,000 2,767,600
---------------------------------------------------------------------------
Boyd Gaming Corp.,
Sr. Unsec. Notes, 9.25%, 08/01/09(d) 6,000,000 6,015,000
---------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 9.50%, 07/15/07 2,400,000 2,352,000
---------------------------------------------------------------------------
Hollywood Casino Corp.-Class A, Sr. Sec. Gtd.
Notes, 11.25%, 05/01/07 8,880,000 9,412,800
---------------------------------------------------------------------------
Hollywood Casino Corp./Shreveport Capital
Corp., Sr. Unsec. Gtd. First Mortgage
Notes, 13.00%, 08/01/06 4,585,000 4,516,225
---------------------------------------------------------------------------
Isle of Capri Casinos, Inc., Unsec. Gtd. Sub.
Notes, 8.75%, 04/15/09 3,720,000 3,422,400
---------------------------------------------------------------------------
MGM Mirage Inc., Sr. Unsec. Gtd. Sub. Notes,
8.38%, 02/01/11 2,260,000 2,293,900
---------------------------------------------------------------------------
9.75%, 06/01/07 12,240,000 13,280,400
---------------------------------------------------------------------------
Park Place Entertainment Corp., Sr. Unsec.
Sub. Notes, 8.88%, 09/15/08 4,570,000 4,752,800
---------------------------------------------------------------------------
Resort at Summerlin LP-Series B, Sr. Sub.
Notes, 13.00%, 12/15/07(c) 25,769,000 386,535
---------------------------------------------------------------------------
Venetian Casino Resort LLC, Sec. Gtd.
Mortgage Notes, 12.25%, 11/15/04 7,690,000 8,189,850
===========================================================================
71,798,960
===========================================================================
COMMERCIAL PRINTING-0.20%
MDC Corp. Inc. (Canada), Sr. Unsec. Sub.
Yankee Notes, 10.50%, 12/01/06 3,295,000 3,080,825
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
COMMODITY CHEMICALS-0.83%
ISP Chemco Inc., Sr. Sub. Notes, 10.25%,
07/01/11(d) $ 9,870,000 $ 9,919,350
---------------------------------------------------------------------------
Millennium America Inc., Sr. Notes, 9.25%,
06/15/08(d) 2,720,000 2,767,600
===========================================================================
12,686,950
===========================================================================
CONSTRUCTION & ENGINEERING-0.83%
First Wave Marine, Inc., Sr. Unsec. Notes,
11.00%, 02/01/08(c) 22,835,000 1,826,800
---------------------------------------------------------------------------
Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes,
10.50%, 06/01/08 11,255,000 10,861,075
===========================================================================
12,687,875
===========================================================================
CONSTRUCTION & FARM MACHINERY-0.76%
AGCO Corp., Sr. Unsec. Notes, 9.50%,
05/01/08(d) 11,580,000 11,522,100
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.65%
Tekni-Plex, Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 12.75%, 06/15/10 11,325,000 9,966,000
===========================================================================
DIVERSIFIED FINANCIAL SERVICES-0.55%
Alamosa Delaware Inc., Sr. Notes, 12.50%,
02/01/11(d) 8,630,000 8,327,950
===========================================================================
DIVERSIFIED METALS & MINING-1.09%
Centaur Mining and Exploration Ltd.
(Australia), Sr. Gtd. Yankee Notes, 11.00%,
12/01/07(c) 28,800,000 3,024,000
---------------------------------------------------------------------------
Doe Run Resources Corp. (The)-Series B, Sr.
Unsec. Gtd. Sub. Notes, 11.25%, 03/15/05 15,000,000 5,325,000
---------------------------------------------------------------------------
Neenah Corp.-Series D, Sr. Sub. Notes,
11.13%, 05/01/07 15,000,000 8,175,000
===========================================================================
16,524,000
===========================================================================
DRUG RETAIL-0.10%
Rite Aid Corp., Sr. Unsec. Unsub. Notes,
7.13%, 01/15/07 1,765,000 1,500,250
===========================================================================
ELECTRIC UTILITIES-3.59%
AES Corp. (The),
Sr. Unsec. Notes, 9.50%, 06/01/09 5,480,000 5,562,200
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes,
8.75%, 06/15/08 10,690,000 10,529,650
---------------------------------------------------------------------------
9.38%, 09/15/10 7,880,000 7,978,500
---------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08 9,235,000 9,262,520
---------------------------------------------------------------------------
Calpine Corp., Sr. Unsec. Notes, 8.63%,
08/15/10 3,600,000 3,707,208
---------------------------------------------------------------------------
CMS Energy Corp., Sr. Unsec. Unsub. Notes,
8.90%, 07/15/08 9,000,000 9,277,380
---------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Notes,
13.50%, 07/15/08(d) 8,155,000 8,323,401
===========================================================================
54,640,859
===========================================================================
|
FS-4
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRICAL COMPONENTS & EQUIPMENT-2.25%
Cherokee International LCC-Series B, Sr.
Unsec. Sub. Notes, 10.50%, 05/01/09 $11,350,000 $ 8,001,750
---------------------------------------------------------------------------
Dayton Superior Corp., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 06/15/09 9,580,000 9,723,700
---------------------------------------------------------------------------
Flextronics International Ltd. (Singapore),
Sr. Unsec. Yankee Sub. Notes, 9.88%,
07/01/10 7,360,000 7,580,800
---------------------------------------------------------------------------
Knowles Electronics Inc., Sr. Unsec. Gtd.
Sub. Notes, 13.13%, 10/15/09 9,860,000 8,972,600
===========================================================================
34,278,850
===========================================================================
EMPLOYMENT SERVICES-0.77%
MSX International, Inc., Sr. Unsec. Gtd. Sub.
Notes, 11.38%, 01/15/08 12,675,000 11,724,375
===========================================================================
ENVIRONMENTAL SERVICES-0.79%
Allied Waste North America Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.00%, 08/01/09 11,455,000 12,027,750
===========================================================================
FOREST PRODUCTS-0.31%
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Yankee Notes, 9.88%, 05/15/08 4,930,000 4,683,500
===========================================================================
GENERAL MERCHANDISE STORES-0.93%
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 10/15/07 9,600,000 9,456,000
---------------------------------------------------------------------------
Travelcenters of America Inc., Sr. Unsec.
Gtd. Sub. Notes, 12.75%, 05/01/09 4,500,000 4,657,500
===========================================================================
14,113,500
===========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-1.26%
Fresenius Medical Care Capital Trust, Pfd.
Gtd. Notes, 7.88%, 06/15/11(d) 11,715,000 11,597,850
---------------------------------------------------------------------------
Omnicare, Inc., Sr. Sub. Notes, 8.13%,
03/15/11(d) 4,800,000 4,896,000
---------------------------------------------------------------------------
Vanguard Health Systems, Inc., Sr. Sub.
Notes, 9.75%, 08/01/11(d) 2,635,000 2,700,875
===========================================================================
19,194,725
===========================================================================
HEALTH CARE FACILITIES-0.83%
Magellan Health Services, Inc., Sr. Notes,
9.38%, 11/15/07(d) 3,545,000 3,642,488
---------------------------------------------------------------------------
Select Medical Corp., Sr. Sub. Notes, 9.50%,
06/15/09(d) 5,320,000 5,240,200
---------------------------------------------------------------------------
Triad Hospitals, Inc., Sr. Unsec. Gtd. Notes,
8.75%, 05/01/09(d) 3,575,000 3,700,125
===========================================================================
12,582,813
===========================================================================
HEALTH CARE SUPPLIES-0.57%
DJ Orthopedics, LLC, Sr. Unsec. Gtd. Sub.
Notes, 12.63%, 06/15/09 8,700,000 8,700,000
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
HOME FURNISHINGS-2.09%
Falcon Products, Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 11.38%, 06/15/09 $ 9,065,000 $ 8,747,725
---------------------------------------------------------------------------
Glenoit Corp., Sr. Unsec. Gtd. Sub. Notes,
11.00%, 04/15/07(c) 24,915,000 622,875
---------------------------------------------------------------------------
Imperial Home Decor Group-Series B, Sr.
Unsec. Gtd. Sub. Notes, 11.00%, 03/15/08(c) 19,100,000 191,000
---------------------------------------------------------------------------
O'Sullivan Industries, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 13.38%, 10/15/09 13,515,000 9,629,438
---------------------------------------------------------------------------
Sealy Mattress Co., Sr. Sub. Notes, 9.88%,
12/15/07(d) 10,830,000 10,775,850
---------------------------------------------------------------------------
Winsloew Furniture, Inc.-Series B, Sr. Gtd.
Sub. Notes, 12.75%, 08/15/07 2,025,000 1,893,375
===========================================================================
31,860,263
===========================================================================
HOMEBUILDING-2.72%
K Hovnanian Enterprises, Inc., Sr. Unsec.
Gtd. Notes, 10.50%, 10/01/07 9,165,000 9,577,425
---------------------------------------------------------------------------
Lennar Corp.-Series B, Sr. Unsec. Gtd. Notes,
9.95%, 05/01/10 9,860,000 10,796,700
---------------------------------------------------------------------------
Schuler Homes, Inc.,
Sr. Sub. Notes, 10.50%, 07/15/11(d) 4,530,000 4,665,900
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 9.00%, 04/15/08 3,800,000 3,781,000
---------------------------------------------------------------------------
WCI Communities Inc., Sr. Sub. Notes, 10.63%,
02/15/11(d) 11,770,000 12,593,900
===========================================================================
41,414,925
===========================================================================
HOUSEHOLD APPLIANCES-0.38%
Salton, Inc., Sr. Unsec. Gtd. Sub. Notes,
10.75%, 12/15/05 5,850,000 5,850,000
===========================================================================
INDUSTRIAL CONGLOMERATES-0.61%
Jordan Industries, Inc.-Series D, Sr. Unsec.
Notes, 10.38%, 08/01/07 10,550,000 9,231,250
===========================================================================
INDUSTRIAL MACHINERY-0.16%
Actuant Corp., Sr. Unsec. Gtd. Sub. Bonds,
13.00%, 05/01/09 2,280,000 2,365,500
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-4.34%
ICG Services, Inc., Sr. Unsec. Disc. Notes,
10.00%, 02/15/08(a)(c) 79,250,000 9,906,250
---------------------------------------------------------------------------
Jazztel PLC (United Kingdom), Sr. Unsec.
Yankee Notes, 14.00%, 04/01/09 2,000,000 730,000
---------------------------------------------------------------------------
KMC Telecom Holdings, Inc., Sr. Unsec. Notes,
13.50%, 05/15/09 21,100,000 3,692,500
---------------------------------------------------------------------------
Madison River Capital LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10 17,700,000 8,584,500
---------------------------------------------------------------------------
NTELOS Inc., Sr. Unsec. Notes, 13.00%,
08/15/10 15,155,000 10,684,275
---------------------------------------------------------------------------
PF.Net Communications, Inc., Sr. Unsec.
Notes, 13.75%, 05/15/10 18,200,000 5,551,000
---------------------------------------------------------------------------
|
FS-5
PRINCIPAL MARKET
AMOUNT VALUE
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
PTC International Finance II S.A.
(Luxembourg), Sr. Unsec. Gtd. Yankee Sub.
Notes, 11.25%, 12/01/09 $11,400,000 $ 11,001,000
---------------------------------------------------------------------------
Time Warner Telecom Inc., Sr. Unsec. Sub.
Notes, 10.13%, 02/01/11 6,800,000 6,154,000
---------------------------------------------------------------------------
Versatel Telecom International N.V.
(Netherlands),
Sr. Unsec. Yankee Notes, 13.25%, 05/15/08 12,810,000 3,907,050
---------------------------------------------------------------------------
Sr. Yankee Notes, 13.25%, 05/15/08 19,100,000 5,825,500
===========================================================================
66,036,075
===========================================================================
INTERNET SOFTWARE & SERVICES-0.92%
Equinix, Inc., Sr. Unsec. Notes, 13.00%,
12/01/07 15,110,000 6,081,775
---------------------------------------------------------------------------
Exodus Communications, Inc., Sr. Unsec.
Notes, 11.25%, 07/01/08 6,000,000 1,890,000
---------------------------------------------------------------------------
Globix Corp., Sr. Unsec. Notes, 12.50%,
02/01/10 19,750,000 5,974,375
===========================================================================
13,946,150
===========================================================================
LEISURE FACILITIES-0.12%
Six Flags, Inc., Sr. Unsec. Notes, 9.75%,
06/15/07 1,835,000 1,885,463
===========================================================================
LIFE & HEALTH INSURANCE-0.46%
Conseco, Inc., Sr. Unsec. Notes,
8.75%, 02/09/04 1,740,000 1,639,950
---------------------------------------------------------------------------
10.75%, 06/15/08 5,440,000 5,365,200
===========================================================================
7,005,150
===========================================================================
METAL & GLASS CONTAINERS-0.18%
Riverwood International Corp., Sr. Unsec.
Gtd. Notes, 10.25%, 04/01/06 2,690,000 2,763,975
===========================================================================
MOVIES & ENTERTAINMENT-1.02%
Alliance Atlantis Communications Inc.
(Canada), Sr. Unsec. Sub. Notes, 13.00%,
12/15/09 4,540,000 4,835,100
---------------------------------------------------------------------------
AMC Entertainment Inc., Sr. Unsec. Sub.
Notes, 9.50%, 02/01/11 6,595,000 6,001,450
---------------------------------------------------------------------------
Nextmedia Operating Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.75%, 07/01/11(d) 4,530,000 4,699,875
===========================================================================
15,536,425
===========================================================================
OIL & GAS DRILLING-0.70%
Pride International, Inc., Sr. Unsec. Notes,
10.00%, 06/01/09 9,765,000 10,595,025
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.41%
Lone Star Technologies, Inc., Sr. Sub. Notes,
9.00%, 06/01/11(d) 1,265,000 1,220,725
---------------------------------------------------------------------------
SESI LLC, Sr. Unsec. Gtd. Notes, 8.88%,
05/15/11(d) 5,350,000 5,082,500
===========================================================================
6,303,225
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
OIL & GAS EXPLORATION & PRODUCTION-6.55%
Abraxas Petroleum Corp.,
Series A, Sr. Unsec. Gtd. Notes, 11.50%,
11/01/04 $ 8,644,000 $ 7,736,380
---------------------------------------------------------------------------
Series B, Sr. Sec. Gtd. Notes, 12.88%,
03/15/03 14,250,000 14,606,250
---------------------------------------------------------------------------
Chesapeake Energy Corp., Sr. Unsec. Gtd.
Notes, 8.13%, 04/01/11 11,170,000 10,779,050
---------------------------------------------------------------------------
Comstock Resources, Inc., Sr. Unsec. Gtd.
Notes, 11.25%, 05/01/07 11,025,000 11,410,875
---------------------------------------------------------------------------
Forest Oil Corp., Sr. Notes, 8.00%,
06/15/08(d) 6,990,000 6,955,050
---------------------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec. Notes, 11.75%,
11/15/09 13,810,000 14,569,550
---------------------------------------------------------------------------
Pioneer Natural Resources Co., Sr. Unsec.
Gtd. Notes, 9.63%, 04/01/10 13,000,000 14,170,000
---------------------------------------------------------------------------
Pogo Producing Co.-Series B, Sr. Unsec. Sub.
Notes, 10.38%, 02/15/09 18,335,000 19,435,100
===========================================================================
99,662,255
===========================================================================
OIL & GAS REFINING & MARKETING-1.69%
Texas Petrochemical Corp., Sr. Unsec. Sub.
Notes, 11.13%, 07/01/06 14,670,000 12,982,950
---------------------------------------------------------------------------
Western Gas Resources, Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 06/15/09 12,000,000 12,780,000
===========================================================================
25,762,950
===========================================================================
PAPER PRODUCTS-0.46%
Tembec Industries Inc. (Canada), Sr. Unsec.
Gtd. Notes, 8.50%, 02/01/11 6,730,000 6,965,550
===========================================================================
PERSONAL PRODUCTS-0.72%
Elizabeth Arden, Inc., Sr. Sec. Notes,
11.75%, 02/01/11 4,040,000 4,282,400
---------------------------------------------------------------------------
Playtex Products Inc., Sr. Unsec. Gtd. Sub.
Notes, 9.38%, 06/01/11(d) 6,420,000 6,628,650
===========================================================================
10,911,050
===========================================================================
PHARMACEUTICALS-1.52%
Warner Chilcott, Inc.-Series B, Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08 20,650,000 23,128,000
===========================================================================
PHOTOGRAPHIC PRODUCTS-0.15%
Polaroid Corp., Sr. Unsec. Notes, 11.50%,
02/15/06(c) 12,760,000 2,233,000
===========================================================================
PUBLISHING & PRINTING-0.28%
Primedia Inc., Sr. Notes, 8.88%, 05/15/11(d) 4,450,000 4,294,250
===========================================================================
RAILROADS-2.08%
TFM S.A. de C.V. (Mexico), Sr. Gtd. Disc.
Yankee Notes, 11.75%, 06/15/09(a) 9,778,000 8,115,740
---------------------------------------------------------------------------
Kansas City Southern Railway, Sr. Unsec. Gtd.
Notes, 9.50%, 10/01/08 8,200,000 8,733,000
---------------------------------------------------------------------------
|
FS-6
PRINCIPAL MARKET
AMOUNT VALUE
RAILROADS-(CONTINUED)
Railamerica Transportation Corp., Sr. Unsec.
Gtd. Sub. Notes, 12.88%, 08/15/10 $14,375,000 $ 14,878,125
===========================================================================
31,726,865
===========================================================================
REAL ESTATE INVESTMENT TRUSTS-0.26%
Felcor Lodging LP, Sr. Notes, 8.50%,
06/01/11(d) 4,110,000 3,986,700
===========================================================================
SPECIALTY STORES-1.34%
CSK Auto Inc.-Series A, Sr. Gtd. Sub. Deb.,
11.00%, 11/01/06 10,860,000 8,199,300
---------------------------------------------------------------------------
United Rentals (North America) Inc., Sr.
Unsec. Gtd. Notes, 10.75%, 04/15/08(d) 11,350,000 12,144,500
===========================================================================
20,343,800
===========================================================================
TELECOMMUNICATIONS EQUIPMENT-2.43%
SBA Communications Corp., Sr. Unsec. Notes,
10.25%, 02/01/09 8,130,000 7,276,350
---------------------------------------------------------------------------
Spectrasite Holdings, Inc.,
Sr. Disc. Notes, 12.00%, 07/15/08(a) 30,300,000 14,695,500
---------------------------------------------------------------------------
Sr. Unsec. Disc. Notes, 11.25%, 04/15/09(a) 15,170,000 6,143,850
---------------------------------------------------------------------------
Series B, Sr. Unsec. Sub. Notes, 12.50%,
11/15/10 9,600,000 8,880,000
===========================================================================
36,995,700
===========================================================================
TEXTILES-0.67%
Cabot Safety Corp., Sr. Sub. Notes, 12.50%,
07/15/05 10,075,000 10,125,375
===========================================================================
TRUCKING-2.34%
Avis Group Holdings, Inc., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 05/01/09 15,630,000 17,622,825
---------------------------------------------------------------------------
North American Van Lines Inc., Sr. Sub.
Notes, 13.38%, 12/01/09(d) 19,450,000 17,991,250
===========================================================================
35,614,075
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-8.54%
AirGate PCS, Inc., Sr. Sub. Disc. Notes,
13.50%, 10/01/09(a)(b) 12,720,000 8,204,400
---------------------------------------------------------------------------
Alamosa Holdings, Inc., Sr. Unsec. Gtd. Disc.
Notes, 12.88%, 02/15/10(a) 3,635,000 1,890,200
---------------------------------------------------------------------------
American Tower Corp., Sr. Notes, 9.38%,
02/01/09 11,750,000 10,898,125
---------------------------------------------------------------------------
Crown Castle International Corp.,
Sr. Notes, 9.38%, 08/01/11(d) 1,000,000 900,000
---------------------------------------------------------------------------
Sr. Unsec. Disc. Notes, 10.63%, 11/15/07(a) 13,249,000 10,466,710
---------------------------------------------------------------------------
Sr. Unsec. Notes, 10.75%, 08/01/11 11,600,000 11,339,000
---------------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc.
Notes, 14.00%, 10/01/10(a) 27,500,000 9,487,500
---------------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%,
07/15/10(a) 5,900,000 2,212,500
---------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
IWO Holdings, Inc., Sr. Notes, 14.00%,
01/15/11(b)(d) $13,380,000 $ 11,573,700
---------------------------------------------------------------------------
Microcell Telecommunications Inc.-Series B,
(Canada), Sr. Disc. Yankee Notes, 14.00%,
06/01/06(a) 1,800,000 1,359,000
---------------------------------------------------------------------------
Nextel Communications, Inc.,
Sr. Notes, 12.00%, 11/01/08 29,040,000 27,297,600
---------------------------------------------------------------------------
Sr. Unsec. Notes, 9.50%, 02/01/11 5,210,000 4,324,300
---------------------------------------------------------------------------
Nextel International, Inc.,
Sr. Unsec. Disc. Notes, 12.13%, 04/15/08(a) 32,815,000 6,398,925
---------------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 12.75%,
08/01/10 17,600,000 4,928,000
---------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Notes,
10.38%, 01/15/11 8,410,000 7,779,250
---------------------------------------------------------------------------
Triton PCS Inc., Sr. Unsec. Gtd. Sub. Notes,
9.38%, 02/01/11 4,400,000 4,422,000
---------------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Unsec. Gtd.
Disc. Sub. Notes, 14.00%, 04/15/10(a) 20,930,000 6,592,950
===========================================================================
130,074,160
===========================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $1,842,689,969) 1,396,452,433
===========================================================================
MARKET
SHARES VALUE
STOCKS & OTHER EQUITY INTERESTS-3.25%
AEROSPACE & DEFENSE-0.00%
Earthwatch Inc.-$.30 PIK Conv. Pfd.- Series
C, (Acquired 09/15/99-12/15/00; Cost
$53,343)(e)(f) 1,882,602 $ 18,826
---------------------------------------------------------------------------
Earthwatch Inc.-Series C, $1.20, Conv. Pfd 117,221 2,344
===========================================================================
21,170
===========================================================================
AIR FREIGHT & COURIERS-0.00%
Pegasus Shipping Hellas Co. (Bermuda)(f) 15,000 0
===========================================================================
ALTERNATIVE CARRIERS-0.00%
Convergent Communications, Inc.(g) 179,280 1,614
===========================================================================
BROADCASTING & CABLE TV-0.04%
UnitedGlobalCom Inc.-Class A(g) 83,896 565,459
===========================================================================
HEALTH CARE FACILITIES-0.10%
Tenet Healthcare Corp.(g) 26,460 1,468,795
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.24%
Versatel Telecom International N.V.-ADR
(Netherlands)(g) 452,021 723,234
---------------------------------------------------------------------------
AT&T Latin America Corp.-Class A(g) 804,650 2,912,833
===========================================================================
3,636,067
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.20%
Abraxas Petroleum Corp.(g) 889,730 3,042,877
===========================================================================
|
FS-7
MARKET
SHARES VALUE
TELECOMMUNICATIONS EQUIPMENT-0.06%
World Access, Inc.-Series D, Conv. Pfd.
(Acquired 03/03/00; Cost $16,365,448)(e)(g) 16,707 $ 1,002,420
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.61%
Microcell Telecommunications Inc. (Canada)(g) 253,257 1,732,278
---------------------------------------------------------------------------
AirGate PCS, Inc.(g) 61,003 3,489,982
---------------------------------------------------------------------------
Celcaribe S.A., Ordinary Trust Ctfs.
(Acquired 05/17/94-01/23/97; Cost $0)(e)(g) 2,276,400
---------------------------------------------------------------------------
Crown Castle International Corp.(g) 25,342 247,084
---------------------------------------------------------------------------
Crown Castle International Corp.-$3.13 Conv.
Pfd(g) 248,000 6,263,488
---------------------------------------------------------------------------
Dobson Communications Corp.-$122.50 PIK Pfd 25,744 24,070,640
---------------------------------------------------------------------------
Nextel Communications, Inc.-Class A(g) 104,390 1,738,093
===========================================================================
39,817,965
===========================================================================
Total Stocks & Other Equity Interests
(Cost $67,129,575) 49,556,367
===========================================================================
MARKET
SHARES VALUE
WARRANTS-0.28%
AIR FREIGHT & COURIERS-0.00%
Pegasus Shipping Hellas Co. (Bermuda)- Wts.,
expiring 07/01/08 (Acquired 06/24/98; Cost
$0)(e)(h) 15,000 $ 0
===========================================================================
ALTERNATIVE CARRIERS-0.06%
Globalstar Telecom-Wts., expiring 02/15/04
(Acquired 01/05/00; Cost $11,790)(e)(h) 45 0
---------------------------------------------------------------------------
GT Group Telecom Inc. (Canada)-Wts., expiring
02/01/10 (Acquired 09/18/00; Cost
$3,113,913)(e)(h) 28,900 867,000
===========================================================================
867,000
===========================================================================
BROADCASTING & CABLE TV-0.00%
Knology Inc.-Wts., expiring 10/22/07
(Acquired 03/12/98-02/01/00; Cost
$270)(e)(h) 47,295 473
===========================================================================
CASINOS & GAMING-0.00%
Resort At Summerlin LP-Wts., expiring
12/15/07(h) 21,198 212
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.02%
Dayton Superior-Wts., expiring 06/15/09
(Acquired 08/07/00-01/30/01; Cost
$10,000)(e)(h) 9,580 196,390
===========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-0.00%
Electronic Retailing Systems International,
Inc.-Wts., expiring 02/01/04(h) 18,802 188
===========================================================================
|
MARKET
SHARES VALUE
GENERAL MERCHANDISE STORES-0.01%
Travelcenters of America Inc.-Wts., expiring
05/01/09 (Acquired 01/29/01; Cost $0)(e)(h) 13,500 $ 138,375
===========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.-Series B-Pfd.
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(e)(h) 20,195 11,107
---------------------------------------------------------------------------
O'Sullivan Industries, Inc.-Wts., expiring
11/15/09 (Acquired 06/13/00; Cost $0)(e)(h) 20,195 11,107
---------------------------------------------------------------------------
Winsloew Escrow Corp.-Wts., expiring 08/15/07
(Acquired 12/06/99; Cost $0)(e)(h) 2,025 21,262
===========================================================================
43,476
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
KMC Telecom Holdings, Inc.-Wts., expiring
4/15/08(h) 35 96
---------------------------------------------------------------------------
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(e)(h) 15,155 7,578
---------------------------------------------------------------------------
PF.Net Communications, Inc.-Wts., expiring
05/15/10 (Acquired 07/19/00; Cost $0)(e)(h) 18,200 36,400
===========================================================================
44,074
===========================================================================
INTERNET SOFTWARE & SERVICES- 0.02%
Equinix, Inc.-Wts., expiring 12/01/07
(Acquired 05/30/00; Cost $0)(e)(h) 15,110 322,750
---------------------------------------------------------------------------
ZNet Internet Services-Wts., expiring
07/01/09(h) 23,000 5,980
===========================================================================
328,730
===========================================================================
RAILROADS-0.06%
Railamerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(e)(h) 14,375 923,594
===========================================================================
SPECIALTY CHEMICALS-0.00%
Sterling Chemicals Holdings-Wts., expiring
08/15/08(h) 7,500 4,950
===========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.00%
Long Distance International, Inc.-Wts.,
expiring 04/13/08(h) 25,620 256
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.11%
Horizon PCS, Inc.-Wts., Expiring 10/01/10
(Acquired 05/02/01; Cost $0)(e)(h) 27,500 556,875
---------------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 7/15/10 (Acquired
01/29/01; Cost $0)(e)(h) 5,900 119,475
---------------------------------------------------------------------------
Nextel International, Inc.-Wts., expiring
04/15/07(h) 39,500 602,375
---------------------------------------------------------------------------
Ubiquitel Inc.-Wts., expiring 04/15/10
(Acquired 08/10/00; Cost $0)(e)(h) 25,930 388,950
===========================================================================
1,667,675
===========================================================================
Total Warrants (Cost $3,529,065) 4,215,393
===========================================================================
|
FS-8
MARKET
SHARES VALUE
MONEY MARKET FUNDS-1.73%
STIC Liquid Assets Portfolio(i) 13,185,294 $ 13,185,294
---------------------------------------------------------------------------
STIC Prime Portfolio(i) 13,185,294 $ 13,185,294
===========================================================================
Total Money Market Funds (Cost
$26,370,588) 26,370,588
===========================================================================
TOTAL INVESTMENTS-96.99% (Cost
$1,939,719,197) 1,476,594,781
===========================================================================
OTHER ASSETS LESS LIABILITIES-3.01% 45,825,292
===========================================================================
NET ASSETS-100.00% $1,522,420,073
___________________________________________________________________________
===========================================================================
|
Investment Abbreviations:
ADR -- American Depositary Receipt Conv. -- Convertible Ctfs. -- Certificates Deb. -- Debentures Disc. -- Discounted Gtd. -- Guaranteed Pfd. -- Preferred PIK -- Payment in Kind Sec. -- Secured Sr. -- Senior Sub. -- Subordinated Unsec. -- Unsecured Unsub. -- Unsubordinated Wts. -- Warrants |
Notes to Schedule of Investments:
(a) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(b) Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit includes warrants to purchase
common or preferred shares of the issuer.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended.
(e) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at
07/31/01 was $6,898,982, which represented 0.45% of the Fund's net assets.
(f) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(g) Non-income producing security.
(h) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(i) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-9
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2001
ASSETS:
Investments, at market value (cost
$1,939,719,197) $1,476,594,781
-------------------------------------------------------------
Receivables for:
Investments sold 10,442,492
-------------------------------------------------------------
Fund shares sold 4,426,618
-------------------------------------------------------------
Dividends and interest 43,896,070
-------------------------------------------------------------
Investment for deferred compensation plan 98,213
-------------------------------------------------------------
Other assets 182,284
=============================================================
Total assets 1,535,640,458
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 4,793,634
-------------------------------------------------------------
Dividends 7,084,580
-------------------------------------------------------------
Deferred compensation plan 98,213
-------------------------------------------------------------
Deferred interest income 6,260
-------------------------------------------------------------
Accrued administrative services fees 1,772
-------------------------------------------------------------
Accrued distribution fees 936,680
-------------------------------------------------------------
Accrued trustees' fees 989
-------------------------------------------------------------
Accrued transfer agent fees 151,268
-------------------------------------------------------------
Accrued operating expenses 146,989
=============================================================
Total liabilities 13,220,385
=============================================================
Net assets applicable to shares outstanding $1,522,420,073
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $ 683,844,858
_____________________________________________________________
=============================================================
Class B $ 756,704,103
_____________________________________________________________
=============================================================
Class C $ 81,871,112
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 138,934,599
_____________________________________________________________
=============================================================
Class B 153,408,566
_____________________________________________________________
=============================================================
Class C 16,644,877
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 4.92
-------------------------------------------------------------
Offering price per share:
(Net asset value of $4.92 divided by
95.25%) $ 5.17
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per
share $ 4.93
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per
share $ 4.92
_____________________________________________________________
=============================================================
|
STATEMENT OF OPERATIONS
For the year ended July 31, 2001
INVESTMENT INCOME:
Interest $ 229,547,412
------------------------------------------------------------
Dividends 5,829,430
------------------------------------------------------------
Dividends from affiliated money market funds 4,663,320
============================================================
Total investment income 240,040,162
============================================================
EXPENSES:
Advisory fees 9,230,307
------------------------------------------------------------
Administrative services fees 168,568
------------------------------------------------------------
Custodian fees 157,341
------------------------------------------------------------
Distribution fees -- Class A 2,103,766
------------------------------------------------------------
Distribution fees -- Class B 9,185,007
------------------------------------------------------------
Distribution fees -- Class C 911,721
------------------------------------------------------------
Transfer agent fees -- Class A 1,455,211
------------------------------------------------------------
Transfer agent fees -- Class B 1,653,634
------------------------------------------------------------
Transfer agent fees -- Class C 164,143
------------------------------------------------------------
Trustees' fees 14,256
------------------------------------------------------------
Other 968,232
============================================================
Total expenses 26,012,186
============================================================
Less: Fees waived (835)
------------------------------------------------------------
Expenses paid indirectly (110,822)
============================================================
Net expenses 25,900,529
============================================================
Net investment income 214,139,633
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (521,648,172)
============================================================
Change in net unrealized appreciation
(depreciation) of investment securities (132,633,058)
============================================================
Net gain (loss) from investment securities (654,281,230)
============================================================
Net increase (decrease) in net assets
resulting from operations $(440,141,597)
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-10
STATEMENT OF CHANGES IN NET ASSETS
For the year ended July 31, 2001, the seven months ended July 31, 2000 and the
year ended December 31, 2000.
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED
JULY 31, JULY 31, DECEMBER 31,
2001 2000 1999
-------------- ------------------ --------------
OPERATIONS:
Net investment income $ 214,139,633 $ 161,678,846 $ 332,131,498
--------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (521,648,172) (248,282,272) (269,838,431)
--------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (132,633,058) (113,824,748) 1,279,047
====================================================================================================================
Net increase (decrease) in net assets resulting from
operations (440,141,597) (200,428,174) 63,572,114
====================================================================================================================
Distributions to shareholders from net investment income:
Class A (101,172,746) (77,895,270) (159,655,684)
--------------------------------------------------------------------------------------------------------------------
Class B (102,753,707) (81,662,712) (165,609,472)
--------------------------------------------------------------------------------------------------------------------
Class C (10,213,180) (7,223,368) (12,356,480)
====================================================================================================================
Return of Capital
Class A (4,772,897) (2,891,943) (2,837,931)
--------------------------------------------------------------------------------------------------------------------
Class B (5,196,404) (3,303,456) (3,209,458)
--------------------------------------------------------------------------------------------------------------------
Class C (519,501) (292,296) (239,296)
====================================================================================================================
Distributions in excess of net investment income:
Class A (1,659,640) -- (520,904)
--------------------------------------------------------------------------------------------------------------------
Class B (1,806,903) -- (589,357)
--------------------------------------------------------------------------------------------------------------------
Class C (180,642) -- (43,823)
====================================================================================================================
Share transactions-net:
Class A (73,156,301) (141,076,710) (181,118,609)
--------------------------------------------------------------------------------------------------------------------
Class B (114,095,709) (163,296,867) (116,020,002)
--------------------------------------------------------------------------------------------------------------------
Class C 4,602,693 (2,482,351) 27,659,521
====================================================================================================================
Net increase (decrease) in net assets (851,066,534) (680,553,147) (550,969,381)
====================================================================================================================
NET ASSETS:
Beginning of year 2,373,486,607 3,054,039,754 3,605,009,135
====================================================================================================================
End of year $1,522,420,073 $2,373,486,607 $3,054,039,754
____________________________________________________________________________________________________________________
====================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $3,228,343,419 $3,422,514,855 $3,735,858,478
--------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (6,179,915) (3,613,421) (100,711)
--------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (1,236,619,015) (714,923,469) (465,051,403)
--------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (463,124,416) (330,491,358) (216,666,610)
====================================================================================================================
$1,522,420,073 $2,373,486,607 $3,045,039,754
____________________________________________________________________________________________________________________
====================================================================================================================
|
See Notes to Financial Statements.
FS-11
NOTES TO FINANCIAL STATEMENTS
July 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to achieve a high level of current
income. Debt securities of less than investment grade are considered "high-risk"
securities (commonly referred to as junk bonds). These bonds may involve special
risks in addition to the risks associated with higher rated debt securities.
High yield bonds may be more susceptible to real or perceived adverse economic
conditions than higher grade bonds. Also, the secondary market in which high
yield bonds are traded may be less liquid than the market for higher grade
bonds.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case
of debt obligations, the mean between the last bid and asked prices.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the customary
trading session of the NYSE which would not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On July 31, 2001, undistributed net investment income was increased by
$11,569,493, undistributed net realized gains decreased by $47,374 and
paid-in capital decreased by $11,522,119 as a result of differing book/tax
treatment of return of capital distribution reclass and other
reclassifications. Net assets of the Fund were unaffected by the
reclassifications.
C. Distributions -- Distributions from income are declared daily and paid monthly and are recorded on ex-dividend date. Distributions from net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements.
FS-12
The Fund has a capital loss carryforward of $845,107,522 as of July 31, 2001 which may be carried forward to offset future taxable gains, if any, which expires in varying increments, if not previously utilized, in the year 2009.
E. Bond Premiums -- It has been the policy of the Fund not to amortize market premiums on bonds for financial reporting purposes. In November 2000, a revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was issued and is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the Fund to amortize premium and discount on all fixed-income securities by the cumulative amount of amortization that would have been recognized had amortization been in effect from the purchase date of each holding. Adopting this accounting principle will not effect the Fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of Operations. The Fund expects that the impact of the adoption of this principle will not be material to the financial statements.
F. Expenses -- Distribution expenses and certain transfer agency expenses directly attributable to a class of shares are charged to those classes' operations. All other expenses which are attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.625% on the first
$200 million of the Fund's average daily net assets, plus 0.55% on the next $300
million of the Fund's average daily net assets, plus 0.50% on the next $500
million of the Fund's average daily net assets, plus 0.45% on the Fund's average
daily net assets in excess of $1 billion. For the year ended July 31, 2001, AIM
waived fees of $835.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2001, AIM was paid
$168,568 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended July 31, 2001, AFS was
paid $2,030,558 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended July 31, 2001,
the Class A, Class B and Class C shares paid AIM Distributors $2,103,766,
$9,185,007 and $911,721, respectively, as compensation under the Plans.
AIM Distributors received commissions of $388,238 from sales of the Class A
shares of the Fund during the year ended July 31, 2001. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended July 31, 2001, AIM
Distributors received $105,346 in contingent deferred sales charges imposed on
redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2001, the Fund paid legal fees of $7,066 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2001, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $35,627 and reductions in custodian fees of $75,195 under expense offset arrangements which resulted in a reduction of the Fund's expenses of $110,822.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an "interested person" of AIM. The Trust invests trustees' fees, if so elected by a trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2001,
the Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.09% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
FS-13
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended July 31, 2001 was $972,331,347 and $1,248,372,566, respectively.
The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of July 31, 2001 is as follows:
Aggregate unrealized appreciation of investment securities $ 54,805,726 ----------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (523,117,026) ============================================================================= Net unrealized appreciation (depreciation) of investment securities $(468,311,300) _____________________________________________________________________________ ============================================================================= Cost of investments for tax purposes is $1,944,906,081. |
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the year ended July 31, 2001, the seven-month period ended July 31, 2000 and the year ended December 31, 1999 were as follows:
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED
JULY 31, 2001 JULY 31, 2000 DECEMBER 31, 1999
----------------------------- ---------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------- ----------- ------------- ------------ ---------------
Sold:
Class A 88,790,617 $ 503,250,413 29,346,531 $ 221,060,411 87,500,179 $ 744,553,292
---------------------------------------------------------------------------------------------------------------------------------
Class B 36,141,916 204,218,189 18,742,023 140,014,267 46,805,949 400,392,138
---------------------------------------------------------------------------------------------------------------------------------
Class C 10,285,951 58,789,265 6,229,247 47,023,748 10,550,688 89,612,238
=================================================================================================================================
Issued as reinvestment of
dividends:
Class A 12,173,551 68,377,402 6,800,148 50,644,208 12,419,332 104,772,227
---------------------------------------------------------------------------------------------------------------------------------
Class B 8,839,237 49,784,875 5,317,053 39,676,757 10,055,937 84,833,641
---------------------------------------------------------------------------------------------------------------------------------
Class C 1,176,597 6,579,431 623,821 4,641,763 975,391 8,192,752
=================================================================================================================================
Reacquired:
Class A (112,890,159) (644,784,116) (54,468,978) (412,781,329) (121,294,314) (1,030,444,128)
---------------------------------------------------------------------------------------------------------------------------------
Class B (63,698,704) (368,098,773) (45,276,418) (342,987,891) (71,318,813) (601,245,781)
---------------------------------------------------------------------------------------------------------------------------------
Class C (10,589,223) (60,766,003) (7,191,956) (54,147,862) (8,365,761) (70,145,469)
=================================================================================================================================
(29,770,217) $(182,649,317) (39,878,529) $(306,855,928) (32,671,412) $ (269,479,090)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
FS-14
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
----------------------------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
JULY 31, JULY 31, ----------------------------------------------------
2001 2000 1999 1998 1997 1996
---------- ------------------ ---------- ---------- ---------- ----------
Net asset value, beginning of period $ 7.00 $ 8.07 $ 8.77 $ 10.16 $ 9.88 $ 9.43
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.68 0.47 0.85 0.92 0.90 0.92
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (2.03) (1.03) (0.66) (1.40) 0.28 0.46
=================================================================================================================================
Total from investment operations (1.35) (0.56) 0.19 (0.48) 1.18 1.38
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.69) (0.49) (0.87) (0.91) (0.90) (0.93)
---------------------------------------------------------------------------------------------------------------------------------
Returns of capital (0.03) (0.02) (0.02) -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income (0.01)
=================================================================================================================================
Total distributions (0.73) (0.51) (0.89) (0.91) (0.90) (0.93)
=================================================================================================================================
Net asset value, end of period $ 4.92 $ 7.00 $ 8.07 $ 8.77 $ 10.16 $ 9.88
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) (19.98)% (7.12)% 2.21% (5.10)% 12.52% 15.44%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $ 683,845 $1,056,453 $1,364,502 $1,670,863 $1,786,352 $1,272,974
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.99%(b) 0.93%(c) 0.92% 0.85% 0.90% 0.97%
=================================================================================================================================
Ratio of net investment income to
average net assets 11.98%(b) 10.79%(c) 10.06% 9.45% 9.08% 9.67%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 55% 23% 79% 76% 80% 77%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Does not include sales charges and is not annualized for periods less than
one year.
(b) Ratios are based on average daily net assets of $841,506,424.
(c) Annualized.
CLASS B
----------------------------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
JULY 31, JULY 31, ----------------------------------------------------
2001 2000 1999 1998 1997 1996
---------- ------------------ ---------- ---------- ---------- ----------
Net asset value, beginning of period $ 7.01 $ 8.07 $ 8.76 $ 10.16 $ 9.88 $ 9.42
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.64 0.44 0.79 0.84 0.83 0.85
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (2.03) (1.03) (0.66) (1.40) 0.28 0.47
=================================================================================================================================
Total from investment operations (1.39) (0.59) 0.13 (0.56) 1.11 1.32
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.65) (0.45) (0.80) (0.84) (0.83) (0.86)
---------------------------------------------------------------------------------------------------------------------------------
Returns of capital (0.03) (0.02) (0.02) -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income (0.01)
=================================================================================================================================
Total distributions (0.69) (0.47) (0.82) (0.84) (0.83) (0.86)
=================================================================================================================================
Net asset value, end of period $ 4.93 $ 7.01 $ 8.07 $ 8.76 $ 10.16 $ 9.88
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) (20.60)% (7.49)% 1.46% (5.90)% 11.71% 14.68%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $ 756,704 $1,206,737 $1,559,864 $1,820,899 $1,647,801 $1,068,060
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.75%(b) 1.69%(c) 1.68% 1.61% 1.65% 1.68%
=================================================================================================================================
Ratio of net investment income to
average net assets 11.22%(b) 10.03%(c) 9.30% 8.69% 8.33% 8.95%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 55% 23% 79% 76% 80% 77%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(b) Ratios are based on average daily net assets of $918,500,704.
(c) Annualized.
FS-15
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
--------------------------------------------------------------------------
AUGUST 4, 1997
YEAR ENDED (DATE SALES
YEAR ENDED SEVEN MONTHS ENDED DECEMBER 31, COMMENCED TO
JULY 31, JULY 31, -------------------- DECEMBER 31,
2001 2000 1999 1998(a) 1997
---------- ------------------ -------- -------- --------------
Net asset value, beginning of period $ 6.99 $ 8.05 $ 8.74 $ 10.14 $ 10.04
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.65 0.44 0.78 0.82 0.35
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.03) (1.03) (0.65) (1.38) 0.10
=================================================================================================================================
Total from investment operations (1.38) (0.59) 0.13 (0.56) 0.45
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.65) (0.45) (0.80) (0.84) (0.35)
---------------------------------------------------------------------------------------------------------------------------------
Returns of capital (0.03) (0.02) (0.02) -- --
---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)
=================================================================================================================================
Total distributions (0.69) (0.47) (0.82) (0.84) (0.35)
=================================================================================================================================
Net asset value, end of period $ 4.92 $ 6.99 $ 8.05 $ 8.74 $ 10.14
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (20.52)% (7.51)% 1.46% (5.92)% 4.49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $81,871 $110,297 $129,675 $113,246 $26,177
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.75%(c) 1.69%(d) 1.68% 1.61% 1.68%(d)
=================================================================================================================================
Ratio of net investment income to average net assets 11.22%(c) 10.03%(d) 9.30% 8.69% 8.30%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 55% 23% 79% 76% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $91,172,092.
(d) Annualized
FS-16
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM High Yield Fund II And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM High Yield Fund II (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2001, and the related statement of operations, statement of changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the year ended July 31, 2000, and the financial highlights for the year ended July 31, 2000 and the period from commencement of operations through July 31, 1999 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2001 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM High Yield Fund II at July 31, 2001, and the results of its operations, changes in its net assets, and financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 7, 2001
|
FS-17
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders AIM Investment Securities Funds:
We have audited the accompanying statement of changes in net assets of AIM High Yield Fund II (a portfolio of AIM Investment Securities Funds) for the year ended July 31, 2000, and the financial highlights for the year ended July 31, 2000 and for the period September 30, 1998 (date operations commenced) through July 31, 1999. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2000, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred to above present fairly, in all material respects, the changes in net assets of AIM High Yield Fund II for the year ended July 31, 2000, and the financial highlights for the year ended July 31, 2000 and for the period September 30, 1998 (date operations commenced) through July 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP September 1, 2000 Houston, Texas |
FS-18
SCHEDULE OF INVESTMENTS
July 31, 2001
PRINCIPAL MARKET
AMOUNT VALUE
BONDS & NOTES-87.39%
AEROSPACE & DEFENSE-1.00%
Dunlop Standard Aerospace Holdings PLC
(United Kingdom), Sr. Unsec. Sub. Yankee
Notes, 11.88%, 05/15/09 $1,150,000 $ 1,224,750
========================================================================
AIRLINES-1.36%
Air Canada (Canada), Sr. Unsec. Yankee Notes,
10.25%, 03/15/11 955,000 826,075
------------------------------------------------------------------------
Northwest Airlines Inc., Sr. Unsec. Gtd.
Notes, 8.88%, 06/01/06 850,000 842,928
========================================================================
1,669,003
========================================================================
ALTERNATIVE CARRIERS-5.82%
Global Crossing Holdings Ltd. (Bermuda), Sr.
Unsec. Gtd. Yankee Notes, 8.70%, 08/01/07 1,010,000 767,600
------------------------------------------------------------------------
GT Group Telecom Inc. (Canada), Sr. Unsec.
Disc. Yankee Notes, 13.25%, 02/01/10(a) 3,000,000 915,000
------------------------------------------------------------------------
IMPSAT Fiber Networks Inc.,
Sr. Gtd. Notes, 12.13%, 07/15/03 575,000 175,375
------------------------------------------------------------------------
Sr. Unsec. Notes, 13.75%, 02/15/05 1,725,000 405,375
------------------------------------------------------------------------
Intermedia Communications Inc.-Series B, Sr.
Disc. Notes, 11.25%, 07/15/07(a) 3,875,000 3,821,719
------------------------------------------------------------------------
KPNQwest N.V. (Netherlands), Sr. Notes,
8.88%, 02/01/08(b) EUR 1,180,000 729,722
------------------------------------------------------------------------
Orion Network Systems, Inc., Sr. Gtd. Unsub.
Notes, 11.25%, 01/15/07(c) 770,000 311,850
========================================================================
7,126,641
========================================================================
AUTO PARTS & EQUIPMENT-0.69%
Advance Stores Co., Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 10.25%, 04/15/08 860,000 847,100
------------------------------------------------------------------------
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%, 03/15/07(d) 2,540,000 254
========================================================================
847,354
========================================================================
BROADCASTING & CABLE TV-13.93%
Adelphia Communications Corp.,
Sr. Unsec. Notes, 10.88%, 10/01/10 560,000 565,600
------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.25%, 06/15/11 590,000 581,150
------------------------------------------------------------------------
Callahan Nordrhein Westfalen (Germany), Sr.
Unsec. Yankee Notes, 14.00%, 07/15/10 1,480,000 1,087,800
------------------------------------------------------------------------
CanWest Media Inc. (Canada), Sr. Sub. Yankee
Notes, 10.63%, 05/15/11(e) 555,000 582,750
------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp.,
Sr. Unsec. Disc. Notes, 9.92%, 04/01/11(a) 600,000 414,000
------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.75%, 10/01/09 430,000 453,650
------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 11.13%, 01/15/11 290,000 309,575
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
BROADCASTING & CABLE TV-(CONTINUED)
CSC Holdings Inc.,
Sr. Unsec. Deb.,
7.63%, 07/15/18 $ 295,000 $ 280,660
------------------------------------------------------------------------
7.88%, 02/15/18 345,000 336,178
------------------------------------------------------------------------
Sr. Unsec. Notes,
7.63%, 04/01/11(e) 700,000 705,740
------------------------------------------------------------------------
Diamond Cable Communications PLC
(United Kingdom),
Sr. Unsec. Unsub. Notes, 13.25%, 09/30/04 1,180,000 749,300
------------------------------------------------------------------------
Sr. Unsec. Unsub. Yankee Notes, 11.75%,
12/15/05 1,250,000 781,250
------------------------------------------------------------------------
Echostar Broadband Corp., Sr. Unsec. Notes,
10.38%, 10/01/07 425,000 444,125
------------------------------------------------------------------------
Fox Family Worldwide, Inc., Sr. Unsec. Disc.
Notes, 10.25%, 11/01/07(a) 1,500,000 1,466,250
------------------------------------------------------------------------
Insight Midwest LP/Insight Capital Inc., Sr.
Unsec. Notes, 10.50%, 11/01/10(e) 440,000 474,100
------------------------------------------------------------------------
Knology Holdings, Inc., Sr. Unsub. Disc.
Notes, 11.88%, 10/15/07(a) 1,800,000 562,500
------------------------------------------------------------------------
Mediacom LLC/Mediacom Capital Corp., Sr.
Notes, 9.50%, 01/15/13(e) 680,000 690,200
------------------------------------------------------------------------
NTL Communications Corp., Sr. Unsec. Notes,
11.50%, 10/01/08 750,000 495,000
------------------------------------------------------------------------
NTL Inc.-Series B, Sr. Notes, 11.50%,
02/01/06 1,000,000 672,500
------------------------------------------------------------------------
ONO Finance PLC (United Kingdom), Sr. Unsec.
Gtd. Euro Notes, 13.00%, 05/01/09 3,000,000 2,235,000
------------------------------------------------------------------------
Pegasus Communications Corp.-Series B, Sr.
Notes, 9.63%, 10/15/05 1,410,000 1,304,250
------------------------------------------------------------------------
Radio One, Inc., Sr. Sub. Notes, 8.88%,
07/01/11(e) 285,000 292,125
------------------------------------------------------------------------
Salem Communications Holding Corp., Sr. Sub.
Notes, 9.00%, 07/01/11(e) 365,000 373,212
------------------------------------------------------------------------
United Pan-Europe Communications N.V.
(Netherlands)-Series B, Sr. Unsec. Yankee Notes,
11.25%, 02/01/10 2,200,000 935,000
------------------------------------------------------------------------
11.50%, 02/01/10 650,000 276,250
========================================================================
17,068,165
========================================================================
BUILDING PRODUCTS-1.52%
Brand Scaffold Services, Inc., Sr. Unsec.
Notes, 10.25%, 02/15/08 885,000 825,262
------------------------------------------------------------------------
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 1,090,000 1,040,950
========================================================================
1,866,212
========================================================================
CASINOS & GAMING-4.96%
Ameristar Casinos, Inc., Sr. Unsec. Gtd. Sub.
Notes, 10.75%, 02/15/09 1,100,000 1,171,500
------------------------------------------------------------------------
|
FS-19
PRINCIPAL MARKET
AMOUNT VALUE
CASINOS & GAMING-(CONTINUED)
Argosy Gaming Co., Sr. Unsec. Sub. Notes,
9.00%, 09/01/11 $ 220,000 $ 223,850
------------------------------------------------------------------------
Boyd Gaming Corp.,
Sr. Unsec. Notes, 9.25%, 08/01/09(e) 650,000 651,625
------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 9.50%, 07/15/07 200,000 196,000
------------------------------------------------------------------------
Hollywood Casino Corp./Shreveport Capital
Corp., Sr. Unsec. Gtd. First Mortgage
Notes, 13.00%, 08/01/06 300,000 295,500
------------------------------------------------------------------------
Hollywood Casino Corp.-Class A, Sr. Sec. Gtd.
Notes, 11.25%, 05/01/07 1,000,000 1,060,000
------------------------------------------------------------------------
Isle of Capri Casinos, Inc., Unsec. Gtd. Sub.
Notes, 8.75%, 04/15/09 330,000 303,600
------------------------------------------------------------------------
MGM Mirage Inc., Sr. Unsec. Gtd. Sub. Notes
8.38%, 02/01/11 180,000 182,700
------------------------------------------------------------------------
9.75%, 06/01/07 1,110,000 1,204,350
------------------------------------------------------------------------
Venetian Casino Resort LLC, Sec. Gtd.
Mortgage Notes, 12.25%, 11/15/04 735,000 782,775
========================================================================
6,071,900
========================================================================
COMMODITY CHEMICALS-0.78%
ISP Chemco Inc., Sr. Sub. Notes, 10.25%,
07/01/11(e) 730,000 733,650
------------------------------------------------------------------------
Millennium America Inc., Sr. Notes, 9.25%,
06/15/08(e) 220,000 223,850
========================================================================
957,500
========================================================================
COMPUTER HARDWARE-0.09%
Candescent Technologies Corp., Sr. Conv.
Unsec. Gtd. Sub. Deb., 8.00%, 05/01/03
(Acquired 03/07/00; Cost $480,000)(d)(f)(g) 600,000 108,000
========================================================================
CONSTRUCTION & ENGINEERING-0.74%
Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes,
10.50%, 06/01/08 945,000 911,925
========================================================================
CONSTRUCTION & FARM MACHINERY-0.69%
AGCO Corp., Sr. Unsec. Notes, 9.50%,
05/01/08(e) 850,000 845,750
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.82%
Tekni-Plex, Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 12.75%, 06/15/10 1,140,000 1,003,200
========================================================================
DIVERSIFIED FINANCIAL SERVICES-0.48%
Alamosa Delaware Inc., Sr. Notes, 12.50%,
02/01/11(e) 610,000 588,650
========================================================================
DRUG RETAIL-0.10%
Rite Aid Corp., Sr. Unsec. Unsub. Notes,
7.13%, 01/15/07 145,000 123,250
========================================================================
ELECTRIC UTILITIES-4.24%
AES Corp. (The),
Sr. Unsec. Notes, 9.50%, 06/01/09 1,000,000 1,015,000
------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.75%, 06/15/08 840,000 827,400
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-(CONTINUED)
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Yankee Notes, 8.50%,
05/01/08 $ 750,000 $ 752,235
------------------------------------------------------------------------
Calpine Corp., Sr. Unsec. Notes, 8.63%,
08/15/10 1,200,000 1,235,736
------------------------------------------------------------------------
CMS Energy Corp., Sr. Unsec. Unsub. Notes,
8.90%, 07/15/08 750,000 773,115
------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Notes,
13.50%, 07/15/08(e) 585,000 597,080
========================================================================
5,200,566
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.96%
Cherokee International LCC-Series B, Sr.
Unsec. Sub. Notes, 10.50%, 05/01/09 1,000,000 705,000
------------------------------------------------------------------------
Dayton Superior Corp., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 06/15/09 1,130,000 1,146,950
------------------------------------------------------------------------
Flextronics International Ltd. (Singapore),
Sr. Unsec. Yankee Sub. Notes, 9.88%,
07/01/10 530,000 545,900
========================================================================
2,397,850
========================================================================
EMPLOYMENT SERVICES-0.62%
MSX International, Inc., Sr. Unsec. Gtd. Sub.
Notes, 11.38%, 01/15/08 825,000 763,125
========================================================================
ENVIRONMENTAL SERVICES-0.84%
Allied Waste North America Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.00%, 08/01/09 985,000 1,034,250
========================================================================
FOREST PRODUCTS-0.97%
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Yankee Notes, 9.88%, 05/15/08 1,250,000 1,187,500
========================================================================
GENERAL MERCHANDISE STORES-0.86%
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 10/15/07 650,000 640,250
------------------------------------------------------------------------
Travelcenters of America Inc., Sr. Unsec.
Gtd. Sub. Notes, 12.75%, 05/01/09 400,000 414,000
========================================================================
1,054,250
========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-1.24%
Fresenius Medical Care Capital Trust, Pfd.
Gtd. Notes, 7.88%, 06/15/11(e) 925,000 915,750
------------------------------------------------------------------------
Omnicare, Inc., Sr. Sub. Notes, 8.13%,
03/15/11(e) 400,000 408,000
------------------------------------------------------------------------
Vanguard Health Systems, Inc., Sr. Sub.
Notes, 9.75%, 08/01/11(e) 185,000 189,625
========================================================================
1,513,375
========================================================================
HEALTH CARE FACILITIES-0.80%
Magellan Health Services, Inc., Sr. Notes,
9.38%, 11/15/07(e) 285,000 292,838
------------------------------------------------------------------------
|
FS-20
PRINCIPAL MARKET
AMOUNT VALUE
HEALTH CARE FACILITIES-(CONTINUED)
Select Medical Corp., Sr. Sub. Notes, 9.50%,
06/15/09(e) $ 430,000 $ 423,550
------------------------------------------------------------------------
Triad Hospitals, Inc., Sr. Unsec. Gtd. Notes,
8.75%, 05/01/09(e) 255,000 263,925
========================================================================
980,313
========================================================================
HEALTH CARE SUPPLIES-1.31%
DJ Orthopedics, LLC, Sr. Unsec. Gtd. Sub.
Notes, 12.63%, 06/15/09 1,600,000 1,600,000
========================================================================
HOME FURNISHINGS-1.97%
Falcon Products, Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 11.38%, 06/15/09 935,000 902,275
------------------------------------------------------------------------
O'Sullivan Industries, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 13.38%, 10/15/09 640,000 456,000
------------------------------------------------------------------------
Sealy Mattress Co., Sr. Sub. Notes, 9.88%,
12/15/07(e) 900,000 895,500
------------------------------------------------------------------------
Winsloew Furniture, Inc.-Series B, Sr. Gtd.
Sub. Notes, 12.75%, 08/15/07 165,000 154,275
========================================================================
2,408,050
========================================================================
HOMEBUILDING-3.26%
K Hovnanian Enterprises, Inc., Sr. Unsec.
Gtd. Notes, 10.50%, 10/01/07 700,000 731,500
------------------------------------------------------------------------
Lennar Corp.-Series B, Sr. Unsec. Gtd. Notes,
9.95%, 05/01/10 830,000 908,850
------------------------------------------------------------------------
Schuler Homes, Inc.,
Sr. Sub. Notes, 10.50%, 07/15/11(e) 365,000 375,950
------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 9.00%, 04/15/08 950,000 945,250
------------------------------------------------------------------------
WCI Communities Inc., Sr. Sub. Notes, 10.63%,
02/15/11(e) 970,000 1,037,900
========================================================================
3,999,450
========================================================================
HOUSEHOLD APPLIANCES-0.41%
Salton, Inc., Sr. Unsec. Gtd. Sub. Notes,
10.75%, 12/15/05 500,000 500,000
========================================================================
INDUSTRIAL CONGLOMERATES-0.71%
Jordan Industries, Inc.-Series D, Sr. Unsec.
Notes, 10.38%, 08/01/07 1,000,000 875,000
========================================================================
INDUSTRIAL MACHINERY-0.17%
Actuant Corp., Sr. Unsec. Gtd. Sub. Bonds,
13.00%, 05/01/09 195,000 202,313
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-5.08%
ICG Services, Inc., Sr. Unsec. Disc. Notes,
10.00%, 02/15/08 (Acquired 12/08/99; Cost
$1,593,750)(a)(d)(f) 3,000,000 375,000
------------------------------------------------------------------------
Jazztel PLC (United Kingdom), Sr. Unsec.
Yankee Notes, 14.00%, 04/01/09 500,000 182,500
------------------------------------------------------------------------
KMC Telecom Holdings, Inc., Sr. Unsec. Notes,
13.50%, 05/15/09 1,500,000 262,500
------------------------------------------------------------------------
Madison River Capital LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10 2,000,000 970,000
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
NTELOS Inc., Sr. Unsec. Notes, 13.00%,
08/15/10 $1,400,000 $ 987,000
------------------------------------------------------------------------
PF.Net Communications, Inc., Sr. Unsec.
Notes, 13.75%, 05/15/10 1,500,000 457,500
------------------------------------------------------------------------
Song Networks Holding A.B., (Netherlands),
Sr. Notes, 12.38%, 02/01/08(b) EUR 1,500,000 605,838
------------------------------------------------------------------------
Time Warner Telecom Inc., Sr. Unsec. Sub.
Notes, 10.13%, 02/01/11 2,300,000 2,081,500
------------------------------------------------------------------------
Versatel Telecom International N.V.
(Netherlands), Sr. Yankee Notes, 13.25%,
05/15/08 1,000,000 305,000
========================================================================
6,226,838
========================================================================
INTERNET SOFTWARE & SERVICES-1.31%
Equinix, Inc., Sr. Unsec. Notes, 13.00%,
12/01/07 2,000,000 805,000
------------------------------------------------------------------------
Exodus Communications, Inc., Sr. Unsec.
Notes, 11.25%, 07/01/08 630,000 198,450
------------------------------------------------------------------------
Globix Corp., Sr. Unsec. Notes, 12.50%,
02/01/10 1,990,000 601,975
========================================================================
1,605,425
========================================================================
LEISURE FACILITIES-0.25%
Six Flags, Inc., Sr. Unsec. Notes, 9.75%,
06/15/07 300,000 308,250
========================================================================
LIFE & HEALTH INSURANCE-0.47%
Conseco, Inc., Sr. Unsec. Notes,
8.75%, 02/09/04 150,000 141,375
------------------------------------------------------------------------
10.75%, 06/15/08 440,000 433,950
========================================================================
575,325
========================================================================
METAL & GLASS CONTAINERS-0.18%
Riverwood International Corp., Sr. Unsec.
Gtd. Notes, 10.25%, 04/01/06 220,000 226,050
========================================================================
MOVIES & ENTERTAINMENT-1.03%
Alliance Atlantis Communications Inc.
(Canada), Sr. Unsec. Sub. Notes, 13.00%,
12/15/09 365,000 388,725
------------------------------------------------------------------------
AMC Entertainment Inc., Sr. Unsec. Sub.
Notes, 9.50%, 02/01/11 535,000 486,850
------------------------------------------------------------------------
Nextmedia Operating Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.75%, 07/01/11(e) 370,000 383,875
========================================================================
1,259,450
========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.41%
Lone Star Technologies, Inc., Sr. Sub. Notes,
9.00%, 06/01/11(e) 105,000 101,325
------------------------------------------------------------------------
SESI LLC, Sr. Unsec. Gtd. Notes, 8.88%,
05/15/11(e) 420,000 399,000
========================================================================
500,325
========================================================================
|
FS-21
PRINCIPAL MARKET
AMOUNT VALUE
OIL & GAS EXPLORATION & PRODUCTION-4.30%
Abraxas Petroleum Corp.-Series B, Sr. Sec.
Gtd. Notes, 12.88%, 03/15/03 $1,250,000 $ 1,281,250
------------------------------------------------------------------------
Chesapeake Energy Corp., Sr. Unsec. Gtd.
Notes, 8.13%, 04/01/11 895,000 863,675
------------------------------------------------------------------------
Comstock Resources, Inc., Sr. Unsec. Gtd.
Notes, 11.25%, 05/01/07 500,000 517,500
------------------------------------------------------------------------
Forest Oil Corp., Sr. Notes, 8.00%,
06/15/08(e) 535,000 532,325
------------------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec. Notes, 11.75%,
11/15/09 975,000 1,028,625
------------------------------------------------------------------------
Pioneer Natural Resources Co., Sr. Unsec.
Gtd. Notes, 9.63%, 04/01/10 955,000 1,040,950
========================================================================
5,264,325
========================================================================
OIL & GAS REFINING & MARKETING-0.87%
Texas Petrochemical Corp., Sr. Unsec. Sub.
Notes, 11.13%, 07/01/06 1,200,000 1,062,000
========================================================================
PAPER PRODUCTS-0.44%
Tembec Industries Inc. (Canada), Sr. Unsec.
Gtd. Notes, 8.50%, 02/01/11 520,000 538,200
========================================================================
PERSONAL PRODUCTS-0.99%
Elizabeth Arden, Inc., Sr. Sec. Notes,
11.75%, 02/01/11 750,000 795,000
------------------------------------------------------------------------
Playtex Products Inc., Sr. Unsec. Gtd. Sub.
Notes, 9.38%, 06/01/11(e) 400,000 413,000
========================================================================
1,208,000
========================================================================
PHARMACEUTICALS-1.37%
Warner Chilcott, Inc.-Series B, Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08 1,500,000 1,680,000
========================================================================
PHOTOGRAPHIC PRODUCTS-0.13%
Polaroid Corp., Sr. Unsec. Notes, 11.50%,
02/15/06(d) 930,000 162,750
========================================================================
PUBLISHING & PRINTING-0.29%
Primedia Inc., Sr. Notes, 8.88%, 05/15/11(e) 370,000 357,050
========================================================================
RAILROADS-2.78%
Kansas City Southern Railway, Sr. Unsec. Gtd.
Notes, 9.50%, 10/01/08 1,000,000 1,065,000
------------------------------------------------------------------------
Railamerica Transportation Corp., Sr. Unsec.
Gtd. Sub. Notes, 12.88%, 08/15/10 1,150,000 1,190,250
------------------------------------------------------------------------
TFM S.A. de C.V. (Mexico), Sr. Gtd. Disc.
Yankee Notes, 11.75%, 06/15/09(a) 1,380,000 1,145,400
========================================================================
3,400,650
========================================================================
REAL ESTATE INVESTMENT TRUSTS-0.93%
Felcor Lodging LP, Sr. Notes, 8.50%,
06/01/11(e) 320,000 310,400
------------------------------------------------------------------------
Host Marriott LP, Sr. Gtd. Notes, 9.25%,
10/01/07 825,000 831,188
========================================================================
1,141,588
========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
SPECIALTY STORES-1.03%
CSK Auto Inc.-Series A, Sr. Gtd. Sub. Deb.,
11.00%, 11/01/06 $ 750,000 $ 566,250
------------------------------------------------------------------------
United Rentals (North America) Inc., Sr.
Unsec. Gtd. Notes, 10.75%, 04/15/08(e) 650,000 695,500
========================================================================
1,261,750
========================================================================
TELECOMMUNICATIONS EQUIPMENT-3.12%
Corning Inc., Sr. Conv. Unsec. Deb., 2.07%,
11/08/15(a) 1,345,000 780,100
------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Notes,
10.25%, 02/01/09 750,000 671,250
------------------------------------------------------------------------
Spectrasite Holdings, Inc.,
Series B, Sr. Unsec. Sub. Notes, 12.50%,
11/15/10 1,625,000 1,503,125
------------------------------------------------------------------------
Sr. Unsec. Disc. Notes, 11.25%, 04/15/09(a) 2,145,000 868,725
========================================================================
3,823,200
========================================================================
TEXTILES-0.61%
Cabot Safety Corp., Sr. Sub. Notes, 12.50%,
07/15/05 740,000 743,700
========================================================================
TRUCKING-1.95%
Avis Group Holdings, Inc., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 05/01/09 1,320,000 1,488,300
------------------------------------------------------------------------
North American Van Lines Inc., Sr. Sub.
Notes, 13.38%, 12/01/09(e) 980,000 906,500
========================================================================
2,394,800
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-7.51%
AirGate PCS, Inc., Sr. Sub. Disc. Notes,
13.50%, 10/01/09(a)(c) 940,000 606,300
------------------------------------------------------------------------
Alamosa Holdings, Inc., Sr. Unsec. Gtd. Disc.
Notes, 12.88%, 02/15/10(a) 305,000 158,600
------------------------------------------------------------------------
American Tower Corp., Sr. Notes, 9.38%,
02/01/09 830,000 769,825
------------------------------------------------------------------------
Crown Castle International Corp.,
Sr. Unsec. Disc. Notes, 10.63%, 11/15/07(a) 1,914,000 1,512,060
------------------------------------------------------------------------
Sr. Unsec. Notes, 10.75%, 08/01/11 1,000,000 977,500
------------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc.
Notes, 14.00%, 10/01/10(a)(e) 2,000,000 690,000
------------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%,
07/15/10(a) 1,000,000 375,000
------------------------------------------------------------------------
IWO Holdings, Inc., Sr. Notes, 14.00%,
01/15/11(c)(e) 1,020,000 882,300
------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Unsec.
Notes, 9.50%, 02/01/11 1,000,000 830,000
------------------------------------------------------------------------
Nextel International Inc.,
Series B, Sr. Unsec. Notes, 12.75%, 08/01/10 1,250,000 350,000
------------------------------------------------------------------------
Sr. Unsec. Disc. Notes, 12.13%, 04/15/08(a) 2,185,000 426,075
------------------------------------------------------------------------
Triton PCS Inc., Sr. Unsec. Gtd. Sub. Notes,
9.38%, 02/01/11 500,000 502,500
------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Notes,
10.38%, 01/15/11 610,000 564,250
------------------------------------------------------------------------
|
FS-22
PRINCIPAL MARKET
AMOUNT VALUE
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
UbiquiTel Operating Co., Sr. Unsec. Gtd.
Disc. Sub. Notes, 14.00%, 04/15/10(a) $1,770,000 $ 557,550
========================================================================
9,201,960
========================================================================
Total Bonds & Notes (Cost $130,411,543) 107,069,978
========================================================================
|
SHARES
STOCKS & OTHER EQUITY INTERESTS-7.54%
AEROSPACE & DEFENSE-0.00%
Earthwatch Inc.-$.30 PIK Conv. Pfd.-Series C,
(Acquired 09/15/99-12/15/00; Cost $3,922)(f) 138,424 1,384
========================================================================
AIR FREIGHT & COURIERS-0.02%
Atlas Air, Inc.(h) 2,000 29,340
========================================================================
ALTERNATIVE CARRIERS-0.07%
Convergent Communications, Inc.(h) 1,620 15
------------------------------------------------------------------------
GT Group Telecom Inc.-Class B (Canada)(h) 18,000 89,460
========================================================================
89,475
========================================================================
APPLICATION SOFTWARE-0.63%
Amdocs Ltd. (United Kingdom)(h) 17,000 766,190
========================================================================
BROADCASTING & CABLE TV-0.50%
General Motors Corp.-Class H(h) 32,000 617,600
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.19%
EMC Corp.(h) 12,000 236,640
========================================================================
DIVERSIFIED FINANCIAL SERVICES-0.47%
Goldman Sachs Group, Inc. (The) 7,000 582,120
========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-0.58%
Flextronics International Ltd. (Singapore)(h) 26,000 706,940
========================================================================
ENVIRONMENTAL SERVICES-0.01%
Allied Waste Industries, Inc.(h) 1,000 18,840
========================================================================
GENERAL MERCHANDISE STORES-0.84%
Target Corp. 26,500 1,025,550
========================================================================
HOME IMPROVEMENT RETAIL-0.74%
Home Depot, Inc. (The) 17,900 901,623
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.31%
AT&T Latin America Corp.-Class A(h) 100,000 362,000
------------------------------------------------------------------------
Versatel Telecom International N.V.-ADR
(Netherlands)(h) 8,000 12,800
========================================================================
374,800
========================================================================
NETWORKING EQUIPMENT-0.81%
Brocade Communications Systems, Inc.(h) 14,700 483,777
------------------------------------------------------------------------
Cisco Systems, Inc.(h) 16,700 320,974
------------------------------------------------------------------------
Juniper Networks, Inc.(h) 7,000 179,830
------------------------------------------------------------------------
McDATA Corp.-Class A(h) 441 8,004
========================================================================
992,585
========================================================================
|
MARKET
SHARES VALUE
OIL & GAS DRILLING-0.13%
Pride International, Inc.(h) 10,000 $ 155,200
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.26%
Comstock Resources, Inc.(h) 20,000 146,400
------------------------------------------------------------------------
Pogo Producing Co. 7,000 173,320
========================================================================
319,720
========================================================================
PHARMACEUTICALS-0.44%
King Pharmaceuticals, Inc.(h) 12,000 542,400
========================================================================
SPECIALTY STORES-0.57%
CSK Auto Corp.(h) 110,000 693,000
========================================================================
SYSTEMS SOFTWARE-0.46%
VERITAS Software Corp.(h) 13,200 559,812
========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.11%
World Access, Inc.-Series D, Conv. Pfd.
(Acquired 03/03/00; Cost $1,900,625)(f)(h) 2,152 129,144
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.40%
AirGate PCS, Inc.(h) 923 52,805
------------------------------------------------------------------------
Alamosa Holdings, Inc.(h) 7,000 117,040
------------------------------------------------------------------------
Crown Castle International Corp.(h) 3,000 29,250
------------------------------------------------------------------------
Dobson Communications Corp.-Class A(h) 5,000 78,500
------------------------------------------------------------------------
Microcell Telecommunications Inc.-Class B
(Canada)(h) 12,000 82,080
------------------------------------------------------------------------
Nextel Communications, Inc.-Class A(h) 8,000 133,200
========================================================================
492,875
========================================================================
Total Stocks & Other Equity Interests
(Cost $13,071,620) 9,235,238
========================================================================
WARRANTS-0.28%
ALTERNATIVE CARRIERS-0.08%
GT Group Telecom Inc. (Canada)-Wts., expiring
02/01/10 (Acquired 09/18/00; Cost
$323,244)(f)(i) 3,000 90,000
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.02%
Dayton Superior-Wts., expiring 06/15/09
(Acquired 08/07/00; Cost $0)(f)(i) 1,200 24,600
========================================================================
GENERAL MERCHANDISE STORES-0.01%
Travelcenters of America Inc.-Wts., expiring
05/01/09 (Acquired 01/29/01; Cost $0)(f)(i) 1,200 12,300
========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.-Series B-Pfd.
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(f)(i) 960 528
------------------------------------------------------------------------
O'Sullivan Industries, Inc.-Wts., expiring
11/15/09 (Acquired 06/13/00; Cost $0)(f)(i) 960 528
------------------------------------------------------------------------
|
FS-23
MARKET
SHARES VALUE
HOME FURNISHINGS-(CONTINUED)
Winsloew Escrow Corp.-Wts., expiring 08/15/07
(Acquired 12/06/99; Cost 0)(f)(i) 165 $ 1,732
========================================================================
2,788
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/1 (Acquired
11/15/00; Cost $0)(f)(i) 1,400 700
------------------------------------------------------------------------
PF.Net Communications, Inc.-Wts., expiring
05/15/10 (Acquired 07/19/00; Cost $0)(f)(i) 1,500 3,000
========================================================================
3,700
========================================================================
INTERNET SOFTWARE & SERVICES-0.04%
Equinix, Inc.-Wts., expiring 12/01/07
(Acquired 08/25/00; Cost $340,000)(f)(i) 2,000 42,720
------------------------------------------------------------------------
ZNet Internet Services-Wts., expiring
07/01/09(i) 1,000 260
========================================================================
42,980
========================================================================
RAILROADS-0.06%
Railamerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(f)(i) 1,150 73,888
========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.00%
Long Distance International, Inc.-Wts.,
expiring 04/13/08(i) 670 7
========================================================================
|
MARKET
SHARES VALUE
TELECOMMUNICATIONS EQUIPMENT-(CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES-0.07%
Horizon PCS, Inc.-Wts., Expiring 10/01/10
(Acquired 05/02/01; Cost $0)(f)(i) 2,000 $ 40,500
------------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 7/15/10 (Acquired
01/29/01; Cost $0)(f)(i) 1,000 20,250
------------------------------------------------------------------------
Ubiquitel Inc.-Wts., expiring 04/15/10
(Acquired 08/10/00; Cost $0)(f)(i) 1,770 26,550
========================================================================
87,300
========================================================================
Total Warrants (Cost $663,244) 337,563
========================================================================
MONEY MARKET FUNDS-2.29%
STIC Liquid Assets Portfolio(j) 1,403,175 1,403,175
------------------------------------------------------------------------
STIC Prime Portfolio(j) 1,403,175 1,403,175
========================================================================
Total Money Market Funds (Cost
$2,806,350) 2,806,350
========================================================================
TOTAL INVESTMENTS-97.50% (Cost $146,952,757) 119,449,129
========================================================================
OTHER ASSETS LESS LIABILITIES-2.50% 3,065,370
========================================================================
NET ASSETS-100.00% $122,514,499
________________________________________________________________________
========================================================================
|
Investment Abbreviations:
ADR - American Depositary Receipt Conv. - Convertible Deb. - Debentures EUR - Euro Gtd. - Guaranteed Pfd. - Preferred PIK - Payment in Kind Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated Wts. - Warrants |
Notes to Schedule of Investments:
(a) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(b) Foreign denominated security. Par value is denominated in currency
indicated.
(c) Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit includes warrants to purchase
common or preferred shares of the issuer.
(d) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(e) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended.
(f) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at
07/31/01 was $950,824, which represented 2.38% of the Fund's net assets.
(g) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(h) Non-income producing security.
(i) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(j) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-24
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2001
ASSETS:
Investments, at market value (cost
$146,952,757) $119,449,129
------------------------------------------------------------
Receivables for:
Investments sold 293,119
------------------------------------------------------------
Fund shares sold 107,492
------------------------------------------------------------
Dividends and interest 3,539,908
------------------------------------------------------------
Principal paydowns 15,996
------------------------------------------------------------
Investment for deferred compensation plan 15,780
------------------------------------------------------------
Other assets 36,563
============================================================
Total assets 123,457,987
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 280,909
------------------------------------------------------------
Dividends 489,162
------------------------------------------------------------
Foreign currency contracts outstanding 55,026
------------------------------------------------------------
Deferred compensation plan 15,780
------------------------------------------------------------
Accrued distribution fees 80,334
------------------------------------------------------------
Accrued trustees' fees 757
------------------------------------------------------------
Accrued transfer agent fees 4,920
------------------------------------------------------------
Accrued operating expenses 16,600
============================================================
Total liabilities 943,488
============================================================
Net assets applicable to shares outstanding $122,514,499
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 48,214,091
____________________________________________________________
============================================================
Class B $ 60,440,676
____________________________________________________________
============================================================
Class C $ 13,859,732
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 6,592,917
____________________________________________________________
============================================================
Class B 8,266,222
____________________________________________________________
============================================================
Class C 1,897,001
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 7.31
------------------------------------------------------------
Offering price per share:
(Net asset value of $7.31 divided by
95.25%) $ 7.67
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 7.31
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 7.31
____________________________________________________________
============================================================
|
STATEMENT OF OPERATIONS
For the year ended July 31, 2001
INVESTMENT INCOME:
Interest $ 16,381,396
------------------------------------------------------------
Dividends 78,379
------------------------------------------------------------
Dividends from affiliated money market funds 402,622
============================================================
Total investment income 16,862,397
============================================================
EXPENSES:
Advisory fees 846,144
------------------------------------------------------------
Administrative services fees 50,000
------------------------------------------------------------
Custodian fees 31,561
------------------------------------------------------------
Distribution fees -- Class A 141,295
------------------------------------------------------------
Distribution fees -- Class B 654,377
------------------------------------------------------------
Distribution fees -- Class C 134,273
------------------------------------------------------------
Transfer agent fees -- Class A 82,255
------------------------------------------------------------
Transfer agent fees -- Class B 100,999
------------------------------------------------------------
Transfer agent fees -- Class C 20,724
------------------------------------------------------------
Trustees' fees 7,538
------------------------------------------------------------
Other 137,005
============================================================
Total expenses 2,206,171
============================================================
Less: Fees waived (228,922)
------------------------------------------------------------
Expenses paid indirectly (12,467)
============================================================
Net expenses 1,964,782
============================================================
Net investment income 14,897,615
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FOREIGN CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (21,746,417)
------------------------------------------------------------
Foreign currencies 46,920
------------------------------------------------------------
Foreign currency contracts 191,769
============================================================
(21,507,728)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (20,649,194)
------------------------------------------------------------
Foreign currencies (6,910)
------------------------------------------------------------
Foreign currency contracts (55,026)
============================================================
(20,711,130)
============================================================
Net gain (loss) from investment securities,
foreign currencies and foreign currency
contracts (42,218,858)
============================================================
Net increase (decrease) in net assets
resulting from operations $(27,321,243)
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-25
STATEMENT OF CHANGES IN NET ASSETS
For the years ended July 31, 2001 and 2000
JULY 31, JULY 31,
2001 2000
------------ ------------
OPERATIONS:
Net investment income $ 14,897,615 $ 10,007,994
------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and foreign currency contracts (21,507,728) (4,184,754)
------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and
foreign currency contracts (20,711,130) (8,210,697)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations (27,321,243) (2,387,457)
==========================================================================================
Distributions to shareholders from net investment income:
Class A (6,502,534) (4,862,629)
------------------------------------------------------------------------------------------
Class B (6,970,104) (4,371,506)
------------------------------------------------------------------------------------------
Class C (1,424,977) (688,979)
------------------------------------------------------------------------------------------
Return of capital:
Class A (166,464) --
------------------------------------------------------------------------------------------
Class B (192,923) --
------------------------------------------------------------------------------------------
Class C (39,895) --
------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A (159,661) --
------------------------------------------------------------------------------------------
Class B (185,039) --
------------------------------------------------------------------------------------------
Class C (38,264) --
------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A -- (812,826)
------------------------------------------------------------------------------------------
Class B -- (819,787)
------------------------------------------------------------------------------------------
Class C -- (117,753)
------------------------------------------------------------------------------------------
Share transactions-net:
Class A 6,201,212 31,472,427
------------------------------------------------------------------------------------------
Class B 14,137,773 52,638,735
------------------------------------------------------------------------------------------
Class C 6,632,306 9,369,182
==========================================================================================
Net increase (decrease) in net assets (16,029,813) 79,419,407
==========================================================================================
NET ASSETS:
Beginning of year 138,544,312 59,124,905
==========================================================================================
End of year $122,514,499 $138,544,312
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $176,001,653 $149,564,881
------------------------------------------------------------------------------------------
Undistributed net investment income (100,142) 100,666
------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and foreign currency
contracts (25,821,448) (4,266,801)
------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and foreign currency
contracts (27,565,564) (6,854,434)
==========================================================================================
$122,514,499 $138,544,312
__________________________________________________________________________________________
==========================================================================================
|
See Notes to Financial Statements.
FS-26
NOTES TO FINANCIAL STATEMENTS
July 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield II Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to achieve a high level of current
income. Debt securities of less than investment grade are considered "high-risk"
securities (commonly referred to as junk bonds). These bonds may involve special
risks in addition to the risks associated with higher rated debt securities.
High yield bonds may be more susceptible to real or perceived adverse economic
conditions than higher grade bonds. Also, the secondary market in which high
yield bonds are traded may be less liquid than the market for higher grade
bonds.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case
of debt obligations, the mean between the last bid and asked prices.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the customary
trading session of the NYSE which would not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On July 31, 2001, shares of beneficial interest was decreased by
$534,519, undistributed net investment income was increased by $581,438, and
undistributed net realized gain (loss) was decreased by $46,919 as a result
of differing book/tax treatment reclassifications. Net assets of the Fund
were unaffected by the reclassifications.
C. Distributions -- Distributions from income are declared daily and paid monthly and are recorded on ex-dividend date. Distributions from net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund has a capital
FS-27
loss carryforward of $5,962,162 as of July 31, 2001 which may be carried forward to offset future taxable gains, if any, which expires in varying increments, if not previously utilized, in the year 2009.
E. Foreign Currency Translations -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
Outstanding foreign currency contracts at July 31, 2001 were as follows:
CONTRACT TO UNREALIZED
SETTLEMENT ---------------------- APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
---------- -------- --------- ---------- ---------- --------------
09/25/01 EUR 2,600,000 $2,217,800 $2,272,826 $(55,026)
|
G. Bond Premiums -- It has been the policy of the Fund not to amortize market premiums on bonds for financial reporting purposes. In November 2000, a revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was issued and is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the Fund to amortize premium and discount on all fixed-income securities by the cumulative amount of amortization that would have been recognized had amortization been in effect from the purchase date of each holding. Adopting this accounting principle will not effect the Fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of Operations. The Fund expects that the impact of the adoption of this principle will not be material to the financial statements.
H. Expenses -- Distribution expenses and certain transfer agency expenses directly attributable to a class of shares are charged to those classes' operations. All other expenses which are attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% on
the first $500 million of the Fund's average daily net assets, plus 0.55% on the
next $500 million of Fund's average daily net assets, plus 0.50% on the Fund's
average daily net assets in excess of $1 billion. For the year ended July 31,
2001, AIM waived fees of $228,922.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2001, AIM was paid
$50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended July 31, 2001, AFS was
paid $123,607 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended July 31, 2001,
the Class A, Class B and Class C shares paid AIM Distributors $141,295, $654,377
and $134,273, respectively, as compensation under the Plans.
AIM Distributors received commissions of $112,921 from sales of the Class A
shares of the Fund during the year ended July 31, 2001. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended July 31, 2001, AIM
Distributors received $14,684 in contingent deferred sales charges imposed on
redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2001, the Fund paid legal fees of $4,105 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Trustees. A member of that firm is a trustee of the Trust.
FS-28
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2001, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $2,571 and reduction in custodian fees of $9,896 under expense offset arrangements which resulted in a reduction of the Fund's expenses of $12,467.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an "interested person" of AIM. The Trust invests trustees' fees, if so elected by a trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2001,
the Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.09% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2001 was
$114,864,045 and $92,309,239, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2001 was as follows:
Aggregate unrealized appreciation of investment securities $ 123,514 --------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (27,916,325) --------------------------------------------------------- Net unrealized appreciation (depreciation) of investment securities $(27,792,811) _________________________________________________________ ========================================================= Cost of investments for tax purposes is $147,241,940. |
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2001 and July 31, 2000 were as follows:
JULY 31, 2001 JULY 31, 2000
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold:
Class A 6,477,466 $ 54,810,413 6,219,653 $ 67,705,096
----------------------------------------------------------------------------------------------------------------------
Class B 4,623,941 39,963,991 6,916,159 75,069,344
----------------------------------------------------------------------------------------------------------------------
Class C 1,384,625 11,889,127 1,071,505 11,566,013
======================================================================================================================
Issued as reinvestment of dividends:
Class A 493,470 4,091,463 340,326 3,674,382
----------------------------------------------------------------------------------------------------------------------
Class B 486,103 4,041,879 294,647 3,168,494
----------------------------------------------------------------------------------------------------------------------
Class C 110,395 907,749 45,665 488,435
======================================================================================================================
Reacquired:
Class A (6,358,919) (52,700,664) (3,689,603) (39,907,051)
----------------------------------------------------------------------------------------------------------------------
Class B (3,554,516) (29,868,097) (2,369,468) (25,599,103)
----------------------------------------------------------------------------------------------------------------------
Class C (745,734) (6,164,570) (249,183) (2,685,266)
======================================================================================================================
2,916,831 $ 26,971,291 8,579,701 $ 93,480,344
______________________________________________________________________________________________________________________
======================================================================================================================
|
FS-29
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
------------------------------------------
SEPTEMBER 30, 1998
(DATE OPERATIONS
YEAR ENDED JULY 31, COMMENCED) TO
-------------------- JULY 31,
2001 2000 1999
-------- -------- ------------------
Net asset value, beginning of period $ 10.02 $ 11.25 $ 10.00
----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.97 1.12 0.90
----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.65) (1.00) 1.26
==========================================================================================================
Total from investment operations (1.68) 0.12 2.16
==========================================================================================================
Less distributions:
Dividends from net investment income (0.98) (1.12) (0.90)
----------------------------------------------------------------------------------------------------------
Returns of capital (0.03) -- --
----------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02) -- --
----------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.23) (0.01)
==========================================================================================================
Total distributions (1.03) (1.35) (0.91)
==========================================================================================================
Net asset value, end of period $ 7.31 $ 10.02 $ 11.25
__________________________________________________________________________________________________________
==========================================================================================================
Total return(a) (17.54)% 0.77% 22.39%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $48,214 $59,932 $34,992
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.02%(b) 1.00% 1.00%(c)
----------------------------------------------------------------------------------------------------------
Without fee waivers 1.19%(b) 1.25% 1.58%(c)
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of net investment income to average net assets 11.45%(b) 10.51% 9.74%(c)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate 73% 94% 223%
__________________________________________________________________________________________________________
==========================================================================================================
|
(a) Does not include sales charges and is not annualized for periods less than
one year.
(b) Ratios are based on average daily net assets of $56,518,107.
(c) Annualized.
FS-30
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-----------------------------------------
NOVEMBER 20, 1998
(DATE SALES
YEAR ENDED JULY 31, COMMENCED) TO
-------------------- JULY 31,
2001 2000 1999
-------- -------- -----------------
Net asset value, beginning of period $ 10.00 $ 11.23 $ 10.59
---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.91 1.03 0.68
---------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.65) (1.00) 0.65
=========================================================================================================
Total from investment operations (1.74) 0.03 1.33
=========================================================================================================
Less distributions:
Dividends from net investment income (0.90) (1.03) (0.68)
---------------------------------------------------------------------------------------------------------
Returns of capital (0.03) -- --
---------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02) -- --
---------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.23) (0.01)
=========================================================================================================
Total distributions (0.95) (1.26) (0.69)
=========================================================================================================
Net asset value, end of period $ 7.31 $ 10.00 $ 11.23
_________________________________________________________________________________________________________
=========================================================================================================
Total return(a) (18.09)% (0.03)% 13.03%
_________________________________________________________________________________________________________
=========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $60,441 $67,140 $20,994
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.78%(b) 1.75% 1.75%(c)
---------------------------------------------------------------------------------------------------------
Without fee waivers 1.95%(b) 2.00% 2.33%(c)
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of net investment income to average net assets 10.69%(b) 9.76% 8.99%(c)
_________________________________________________________________________________________________________
=========================================================================================================
Portfolio turnover rate 73% 94% 223%
_________________________________________________________________________________________________________
=========================================================================================================
|
(a) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(b) Ratios are based on average daily net assets of $65,437,725.
(c) Annualized.
FS-31
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
-----------------------------------------
NOVEMBER 20, 1998
(DATE SALES
YEAR ENDED JULY 31, COMMENCED) TO
-------------------- JULY 31,
2001 2000 1999
-------- -------- -----------------
Net asset value, beginning of period $ 10.00 $ 11.22 $10.59
---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.91 1.03 0.68
---------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.65) (0.99) 0.64
=========================================================================================================
Total from investment operations (1.74) 0.04 1.32
=========================================================================================================
Less distributions:
Dividends from net investment income (0.90) (1.03) (0.68)
---------------------------------------------------------------------------------------------------------
Returns of capital (0.03) -- --
---------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02) -- --
---------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.23) (0.01)
=========================================================================================================
Total distributions (0.95) (1.26) (0.69)
=========================================================================================================
Net asset value, end of period $ 7.31 $ 10.00 $11.22
_________________________________________________________________________________________________________
=========================================================================================================
Total return(a) (18.08)% 0.08% 12.93%
_________________________________________________________________________________________________________
=========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $13,860 $11,471 $3,139
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.78%(b) 1.75% 1.75%(c)
---------------------------------------------------------------------------------------------------------
Without fee waivers 1.95%(b) 2.00% 2.33%(c)
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of net investment income to average net assets 10.69%(b) 9.76% 8.99%(c)
_________________________________________________________________________________________________________
=========================================================================================================
Portfolio turnover rate 73% 94% 223%
_________________________________________________________________________________________________________
=========================================================================================================
|
(a) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(b) Ratios are based on average daily net assets of $13,427,240.
(c) Annualized.
FS-32
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Income Fund
And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM Income Fund (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2001, and the related statement of operations, statement of changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2001 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Income Fund at July 31, 2001, and the results of its operations, changes in its net assets, and financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 7, 2001
|
FS-33
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders AIM Income Fund:
We have audited the accompanying statement of changes in net assets of AIM Income Fund (a portfolio of AIM Investment Securities Funds) for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for the seven months ended July 31, 2000 and for each of the years in the four-year period ended December 31, 1999. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2000, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the changes in net assets of AIM Income Fund for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for the seven months ended July 31, 2000 and for each of the years in the four-year period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP September 1, 2000 Houston, Texas |
FS-34
SCHEDULE OF INVESTMENTS
July 31, 2001
PRINCIPAL MARKET
AMOUNT VALUE
U.S. DOLLAR DENOMINATED BONDS & NOTES-89.16%
AEROSPACE & DEFENSE-0.36%
Dunlop Standard Aerospace Holdings PLC
(United Kingdom), Sr. Unsec. Sub. Yankee
Notes, 11.88%, 05/15/09 $2,100,000 $ 2,236,500
========================================================================
AIRLINES-3.69%
Air 2 US-Series C, Equipment Trust Ctfs.,
10.13%, 10/01/20 (Acquired 10/28/99; Cost
$3,000,000)(a) 3,000,000 3,217,470
------------------------------------------------------------------------
American Airlines, Inc.-Class A2, Series
2001-01, Pass Through Ctfs., 6.82%,
05/23/11 (Acquired 06/28/01; Cost
$2,439,264)(a) 2,400,000 2,465,856
------------------------------------------------------------------------
Delta Air Lines, Inc.,
Deb., 10.38%, 12/15/22 4,000,000 4,399,920
------------------------------------------------------------------------
Equipment Trust Ctfs., 10.50%, 04/30/16 5,000,000 5,844,250
------------------------------------------------------------------------
Unsec. Notes, 7.90%, 12/15/09 1,500,000 1,473,555
------------------------------------------------------------------------
United Air Lines, Inc.-Series 002-Class A2,
Sec. Pass Through Ctfs., 7.19%, 04/01/11 3,100,000 3,241,639
------------------------------------------------------------------------
United Air Lines, Inc.-Series 95A2, Pass
Through Ctfs., 9.56%, 10/19/18 2,325,000 2,511,488
========================================================================
23,154,178
========================================================================
ALTERNATIVE CARRIERS-0.53%
Intermedia Communications Inc.,
Series B, Sr. Disc. Notes,
11.25%, 07/15/07(b) 2,300,000 2,268,375
------------------------------------------------------------------------
Sr. Sub. Disc. Notes, 12.25%, 03/01/09(b) 1,230,000 1,070,100
========================================================================
3,338,475
========================================================================
APPAREL RETAIL-0.25%
Big 5 Corp.-Series B, Sr. Unsec. Notes,
10.88%, 11/15/07 1,625,000 1,600,625
========================================================================
AUTO PARTS & EQUIPMENT-0.00%
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%, 03/15/07(c) 1,325,000 132
========================================================================
AUTOMOBILE MANUFACTURERS-0.23%
Ford Holdings, Inc., Unsec. Gtd. Unsub. Deb.,
9.30%, 03/01/30 1,200,000 1,441,740
========================================================================
BANKS-6.92%
Bank of America Corp., Sub. Notes, 9.38%,
09/15/09 3,200,000 3,766,848
------------------------------------------------------------------------
Bank United-Series A, Medium Term Notes,
8.00%, 03/15/09 2,500,000 2,718,300
------------------------------------------------------------------------
BB&T Corp., RAPS Sub. Notes, 6.38%, 06/30/05 2,000,000 2,044,780
------------------------------------------------------------------------
Crestar Financial Corp., Sub. Notes, 8.75%,
11/15/04 645,000 715,228
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
BANKS-(CONTINUED)
First Union Corp., Putable Unsec. Sub. Deb.,
6.55%, 10/15/35 $ 660,000 $ 683,093
------------------------------------------------------------------------
7.50%, 04/15/35 5,000,000 5,305,400
------------------------------------------------------------------------
Firstar Bank N.A., Unsec. Sub. Notes, 7.13%,
12/01/09 5,000,000 5,284,700
------------------------------------------------------------------------
Midland Bank PLC (United Kingdom), Unsec.
Putable Sub. Yankee Notes, 7.65%, 05/01/25 2,870,000 3,086,656
------------------------------------------------------------------------
NBD Bank N.A. Michigan, Putable Unsec. Sub.
Deb., 8.25%, 11/01/24 2,800,000 3,142,496
------------------------------------------------------------------------
Premium Asset Trust-Series 01-6, Sec. Notes,
5.25%, 07/19/04 (Acquired 07/11/01; Cost
$2,097,228)(a) 2,100,000 2,083,015
------------------------------------------------------------------------
Regions Financial Corp., Putable Sub. Notes,
7.75%, 09/15/24 3,650,000 3,860,860
------------------------------------------------------------------------
Sovereign Bancorp, Inc., Medium Term Sub.
Notes, 8.00%, 03/15/03 5,050,000 5,107,772
------------------------------------------------------------------------
St. Paul Bancorp, Inc., Sr. Unsec. Unsub.
Notes, 7.13%, 02/15/04 1,500,000 1,543,065
------------------------------------------------------------------------
Swiss Bank Corp.-NY, Sub. Notes, 7.38%,
06/15/17 1,300,000 1,383,837
------------------------------------------------------------------------
Washington Mutual, Inc., Jr. Unsec. Sub.
Notes, 8.25%, 04/01/10 2,500,000 2,773,875
========================================================================
43,499,925
========================================================================
BROADCASTING & CABLE TV-11.66%
Adelphia Communications Corp., Sr. Unsec.
Notes, 10.88%, 10/01/10 2,350,000 2,373,500
------------------------------------------------------------------------
AT&T Corp.-Liberty Media Corp., Sr. Unsec.
Notes, 7.88%, 07/15/09 3,600,000 3,463,632
------------------------------------------------------------------------
British Sky Broadcasting Group PLC (United
Kingdom), Sr. Unsec. Gtd. Yankee Notes,
8.20%, 07/15/09 3,000,000 3,061,020
------------------------------------------------------------------------
Callahan Nordrhein Westfalen (Germany), Sr.
Unsec. Yankee Notes, 14.00%, 07/15/10 2,145,000 1,576,575
------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp.,
Sr. Unsec. Notes, 9.63%, 11/15/09(d) 1,750,000 1,767,500
------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.75%, 10/01/09 1,965,000 2,073,075
------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 11.13%, 01/15/11 1,020,000 1,088,850
------------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 8.00%, 02/15/07
(Acquired 02/16/00; Cost $3,771,614)(a) 3,800,000 4,072,004
------------------------------------------------------------------------
CSC Holdings Inc.,
Sr. Unsec. Deb., 7.63%, 07/15/18 3,250,000 3,092,017
------------------------------------------------------------------------
Sr. Unsec. Deb., 7.88%, 02/15/18 1,000,000 974,430
------------------------------------------------------------------------
Sr. Unsec. Notes, 7.25%, 07/15/08 2,300,000 2,283,693
------------------------------------------------------------------------
Sr. Unsec. Notes, 7.63%, 04/01/11(d) 3,200,000 3,226,240
------------------------------------------------------------------------
Sr. Unsec. Notes, 7.88%, 12/15/07 6,850,000 7,102,491
------------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 8.13%, 07/15/09 3,575,000 3,723,541
------------------------------------------------------------------------
|
FS-35
PRINCIPAL MARKET
AMOUNT VALUE
BROADCASTING & CABLE TV-(CONTINUED)
Diamond Cable Communications PLC (United
Kingdom), Sr. Unsec. Unsub. Notes, 13.25%,
09/30/04 $1,000,000 $ 635,000
------------------------------------------------------------------------
Fox Family Worldwide, Inc., Sr. Unsec. Disc.
Notes, 10.25%, 11/01/07(b) 3,930,000 3,841,575
------------------------------------------------------------------------
Knology Holdings, Inc., Sr. Unsub. Disc.
Notes, 11.88%, 10/15/07(b) 2,590,000 809,375
------------------------------------------------------------------------
Lenfest Communications, Inc., Sr. Unsec. Sub.
Notes, 8.25%, 02/15/08 5,000,000 5,302,900
------------------------------------------------------------------------
NTL Inc.-Series B, Sr. Notes, 11.50%,
02/01/06 2,785,000 1,872,912
------------------------------------------------------------------------
Shaw Communications Inc. (Canada), Sr. Unsec.
Unsub. Yankee Notes, 7.25%, 04/06/11 1,800,000 1,806,084
------------------------------------------------------------------------
TCI Communications, Inc., Sr. Unsec. Deb.,
8.75%, 08/01/15 4,750,000 5,479,790
------------------------------------------------------------------------
Time Warner Inc.,
Sr. Unsec. Gtd. Deb., 7.57%, 02/01/24 2,000,000 2,032,220
------------------------------------------------------------------------
Unsec. Deb., 9.13%, 01/15/13 3,325,000 3,938,130
------------------------------------------------------------------------
Unsec. Deb., 9.15%, 02/01/23 6,500,000 7,695,155
========================================================================
73,291,709
========================================================================
CASINOS & GAMING-1.24%
Ameristar Casinos, Inc., Sr. Unsec. Gtd. Sub.
Notes, 10.75%, 02/15/09 1,850,000 1,970,250
------------------------------------------------------------------------
Hollywood Casino Corp.-Class A, Sr. Sec. Gtd.
Notes, 11.25%, 05/01/07 1,200,000 1,272,000
------------------------------------------------------------------------
Isle of Capri Casinos, Inc., Unsec. Gtd. Sub.
Notes, 8.75%, 04/15/09 600,000 552,000
------------------------------------------------------------------------
MGM Mirage Inc., Sr. Unsec. Gtd. Notes,
8.50%, 09/15/10 2,000,000 2,131,700
------------------------------------------------------------------------
Park Place Entertainment Corp., Sr. Unsec.
Sub. Notes, 8.88%, 09/15/08 1,800,000 1,872,000
========================================================================
7,797,950
========================================================================
CONSUMER FINANCE-1.81%
CitiFinancial Credit Co., Unsec. Putable
Notes, 7.88%, 02/01/25 1,400,000 1,554,000
------------------------------------------------------------------------
Ford Motor Credit Co.,
Notes, 7.88%, 06/15/10 1,500,000 1,625,910
------------------------------------------------------------------------
Unsec. Notes, 7.38%, 10/28/09 3,900,000 4,082,637
------------------------------------------------------------------------
Household Finance Corp., Sr. Unsec. Notes,
6.88%, 03/01/07 2,000,000 2,095,860
------------------------------------------------------------------------
7.20%, 07/15/06 1,900,000 2,023,614
========================================================================
11,382,021
========================================================================
DISTILLERS & VINTNERS-0.86%
Grand Metropolitan Investment Corp, Gtd.
Putable Bonds, 7.45%, 04/15/35 5,000,000 5,435,450
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.17%
Tekni-Plex, Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 12.75%, 06/15/10 1,180,000 1,038,400
========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
DIVERSIFIED FINANCIAL SERVICES-7.97%
AIG SunAmerica Global Financing VI, Sr. Sec.
Notes, 6.30%, 05/10/11 (Acquired 05/24/01;
Cost $494,930)(a) $ 500,000 $ 508,240
------------------------------------------------------------------------
Associates Corp. of North America, Sr. Deb.,
6.95%, 11/01/18 5,500,000 5,674,075
------------------------------------------------------------------------
CIT Group, Inc. (The), Notes, 6.50%, 02/07/06 3,000,000 3,108,540
------------------------------------------------------------------------
Citicorp Lease-Class A2, Series 1999-1, Pass
Through Ctfs., 8.04%, 12/15/19 (Acquired
06/01/00-01/25/01; Cost $3,603,676)(a) 3,600,000 3,785,220
------------------------------------------------------------------------
Citigroup Inc., Unsec. Sub. Notes, 7.25%,
10/01/10 1,500,000 1,606,740
------------------------------------------------------------------------
Fidelity Investments, Bonds, 7.57%, 06/15/29
(Acquired 04/10/01-05/09/01; Cost
$4,276,103)(a) 4,100,000 4,420,702
------------------------------------------------------------------------
General Electric Capital Corp.-Series A,
Medium Term Notes,
6.13%, 02/22/11 2,000,000 2,029,200
------------------------------------------------------------------------
6.88%, 11/15/10 2,000,000 2,134,340
------------------------------------------------------------------------
Lehman Brothers Holdings Inc.-Series E,
Medium Term Disc. Notes, 9.44%, 02/10/28(e) 8,700,000 1,080,714
------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co., Unsec.
Unsub. Bonds, 6.75%, 04/15/11 1,250,000 1,274,100
------------------------------------------------------------------------
National Rural Utilities Cooperative Finance
Corp., Sr. Notes, 6.00%, 05/15/06 1,800,000 1,843,920
------------------------------------------------------------------------
NiSource Finance Corp., Sr. Unsec. Gtd.
Notes, 5.75%, 04/15/03 9,800,000 9,948,862
------------------------------------------------------------------------
Pinnacle Partners, Sr. Notes, 8.83%, 08/15/04
(Acquired 08/02/00; Cost $3,000,000)(a) 3,000,000 3,130,890
------------------------------------------------------------------------
Qwest Capital Funding Inc., Unsec. Gtd.
Notes, 7.90%, 08/15/10 2,750,000 2,915,797
------------------------------------------------------------------------
Salomon Smith Barney Holdings Inc., Unsec.
Notes, 7.13%, 10/01/06 3,725,000 3,972,191
------------------------------------------------------------------------
Verizon Global Funding Corp.,-Series REGS,
Conv. Bonds, 4.25%, 09/15/05 2,700,000 2,653,895
========================================================================
50,087,426
========================================================================
DIVERSIFIED METALS & MINING-0.60%
Centaur Mining and Exploration Ltd.
(Australia), Sr. Gtd. Yankee Notes, 11.00%,
12/01/07(c) 1,720,000 180,600
------------------------------------------------------------------------
Rio Algom Ltd. (Canada), Unsec. Yankee Deb.,
7.05%, 11/01/05 3,500,000 3,564,715
========================================================================
3,745,315
========================================================================
ELECTRIC UTILITIES-12.29%
AES Corp. (The), Sr. Unsec. Notes,
8.75%, 12/15/02 5,425,000 5,519,938
------------------------------------------------------------------------
9.50%, 06/01/09 2,550,000 2,588,250
------------------------------------------------------------------------
Beaver Valley II Funding Corp., Security
Lease Obligations Deb., 9.00%, 06/01/17 1,500,000 1,623,585
------------------------------------------------------------------------
|
FS-36
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-(CONTINUED)
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Yankee Notes, 8.50%,
05/01/08 $4,300,000 $ 4,312,814
------------------------------------------------------------------------
CILCORP, Inc., Sr. Unsec. Bonds, 9.38%,
10/15/29 2,100,000 2,375,646
------------------------------------------------------------------------
Cleveland Electric Illuminating Co. (The),
First Mortgage Bonds, 6.86%, 10/01/08 1,700,000 1,706,409
------------------------------------------------------------------------
Series D, Sr. Sec. Notes, 7.88%, 11/01/17 3,800,000 3,938,548
------------------------------------------------------------------------
CMS Energy Corp., Sr. Unsec. Notes, 8.13%,
05/15/02 2,050,000 2,070,357
------------------------------------------------------------------------
CMS Energy Corp., Sr. Unsec. Unsub. Notes,
8.90%, 07/15/08 2,645,000 2,726,519
------------------------------------------------------------------------
Cogentrix Energy, Inc., Sr. Unsec. Gtd.
Notes, 8.75%, 10/15/08 3,200,000 3,348,320
------------------------------------------------------------------------
Commonwealth Edison Co.-Series 92, First
Mortgage Bonds, 7.63%, 04/15/13 5,000,000 5,347,200
------------------------------------------------------------------------
El Paso Electric Co.,
Series D, Sec. First Mortgage Bonds,
8.90%, 02/01/06 3,000,000 3,276,510
------------------------------------------------------------------------
Series E, Sec. First Mortgage Bonds, 9.40%,
05/01/11 3,000,000 3,292,500
------------------------------------------------------------------------
Indiana Michigan Power Co.-Series F, Security
Lease Obligations, 9.82%, 12/07/22 4,966,639 5,592,584
------------------------------------------------------------------------
Kincaid Generation LLC, Sec. Bonds, 7.33%,
06/15/20 (Acquired 04/30/98; Cost
$1,936,732)(a) 1,931,960 1,818,283
------------------------------------------------------------------------
Mirant Corp., Sr. Notes, 7.90%, 07/15/09
(Acquired 07/21/99-12/03/99; Cost
$5,978,820)(a) 6,000,000 6,100,920
------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Notes,
13.50%, 07/15/08(d) 930,000 949,205
------------------------------------------------------------------------
Niagara Mohawk Holdings Inc., First Mortgage
Notes, 7.75%, 05/15/06 4,300,000 4,590,422
------------------------------------------------------------------------
Niagara Mohawk Power Corp.-Series H, Sr.
Unsec. Disc. Notes, 8.50%, 07/01/10(b) 7,000,000 6,373,080
------------------------------------------------------------------------
PSEG Power LLC, Sr. Notes, 8.63%, 04/15/31
(Acquired 06/08/01; Cost $2,150,940)(a) 2,000,000 2,240,800
------------------------------------------------------------------------
Public Service Company of New Mexico- Series
A, Sr. Unsec. Notes, 7.10%, 08/01/05 1,200,000 1,193,424
------------------------------------------------------------------------
South Carolina Electric & Gas Co., First
Mortgage Bonds, 9.00%, 07/15/06 1,550,000 1,753,980
------------------------------------------------------------------------
Texas-New Mexico Power Co., Sr. Sec. Notes,
6.25%, 01/15/09 4,800,000 4,452,096
========================================================================
77,191,390
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.56%
Israel Electric Corp. Ltd. (Israel), Yankee
Deb., 7.75%, 12/15/27 (Acquired 06/09/00-
01/04/01; Cost $3,428,681)(a) 3,990,000 3,526,282
========================================================================
EMPLOYMENT SERVICES-0.25%
MSX International, Inc., Sr. Unsec. Gtd. Sub.
Notes, 11.38%, 01/15/08 1,680,000 1,554,000
========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
ENVIRONMENTAL SERVICES-2.14%
Allied Waste North America Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.00%, 08/01/09 $1,225,000 $ 1,286,250
------------------------------------------------------------------------
Browning-Ferris Industries, Inc.,
Deb., 9.25%, 05/01/21 2,570,000 2,535,896
------------------------------------------------------------------------
Unsec. Deb., 7.40%, 09/15/35 1,200,000 978,000
------------------------------------------------------------------------
Waste Management, Inc., Putable Unsec. Notes,
7.10%, 08/01/26 8,400,000 8,645,196
========================================================================
13,445,342
========================================================================
GAS UTILITIES-3.50%
Northern Border Partners, L.P., Sr. Unsec.
Gtd. Unsub. Notes, 7.10%, 03/15/11
(Acquired 03/14/01; Cost $3,595,248)(a) 3,600,000 3,649,824
------------------------------------------------------------------------
Nova Gas Transmission Ltd. (Canada), Yankee
Deb., 8.50%, 12/15/12 3,000,000 3,410,190
------------------------------------------------------------------------
ONEOK, Inc., Unsec. Notes, 7.75%, 08/15/06 3,500,000 3,723,195
------------------------------------------------------------------------
Sonat Inc., Sr. Unsec. Notes, 7.63%, 07/15/11 6,000,000 6,286,740
------------------------------------------------------------------------
TransCanada Pipelines Ltd. (Canada), Yankee
Deb., 8.63%, 05/15/12 4,310,000 4,916,934
========================================================================
21,986,883
========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-0.20%
Fresenius Medical Care Capital Trust, Pfd.
Gtd. Notes, 7.88%, 06/15/11(d) 1,240,000 1,227,600
========================================================================
HOME FURNISHINGS-0.01%
Glenoit Corp., Sr. Unsec. Gtd. Sub. Notes,
11.00%, 04/15/07(c) 2,310,000 57,750
========================================================================
HOMEBUILDING-0.29%
K Hovnanian Enterprises, Inc., Sr. Unsec.
Gtd. Notes, 10.50%, 10/01/07 1,750,000 1,828,750
========================================================================
INTEGRATED OIL & GAS-1.83%
El Paso CGP Co., Sr. Putable Unsec. Deb.,
6.70%, 02/15/27 1,750,000 1,763,440
------------------------------------------------------------------------
Husky Oil Ltd. (Canada), Sr. Unsec. Yankee
Notes, 7.13%, 11/15/06 3,000,000 3,106,740
------------------------------------------------------------------------
Occidental Petroleum Corp., Sr. Unsec. Notes,
7.38%, 11/15/08 2,100,000 2,222,052
------------------------------------------------------------------------
7.65%, 02/15/06 1,250,000 1,338,613
------------------------------------------------------------------------
Petro-Canada (Canada), Yankee Deb., 9.25%,
10/15/21 2,500,000 3,060,600
========================================================================
11,491,445
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-3.55%
AT&T Canada Inc. (Canada), Sr. Unsec. Yankee
Notes, 7.65%, 09/15/06 2,800,000 2,812,852
------------------------------------------------------------------------
Candescent Technologies Corp., Sr. Putable
Conv. Unsec. Gtd. Sub. Deb., 8.00%,
05/01/03 (Acquired 04/20/98; Cost
$2,000,000)(a)(c)(f) 2,000,000 360,000
------------------------------------------------------------------------
|
FS-37
PRINCIPAL MARKET
AMOUNT VALUE
INTEGRATED TELECOMMUNICATION
SERVICES-(CONTINUED)
MCI Communications Corp.,
Sr. Unsec. Notes, 6.95%, 08/15/06 $1,750,000 $ 1,769,583
------------------------------------------------------------------------
Sr. Unsec. Putable Deb., 7.13%, 06/15/27 5,500,000 5,637,665
------------------------------------------------------------------------
NTELOS Inc., Sr. Unsec. Notes, 13.00%,
08/15/10(a) 1,775,000 1,251,375
------------------------------------------------------------------------
Sprint Corp., Putable Deb., 9.00%, 10/15/19 2,500,000 2,646,075
------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07 5,000,000 5,253,050
------------------------------------------------------------------------
Versatel Telecom International N.V.
(Netherlands), Sr. Yankee Notes, 13.25%,
05/15/08 1,370,000 417,850
------------------------------------------------------------------------
WorldCom, Inc./WorldCom Group, Bonds, 8.25%,
05/15/31 2,110,000 2,158,488
========================================================================
22,306,938
========================================================================
INTERNET RETAIL-0.19%
Amazon.com, Inc., Conv. Unsec. Sub. Notes,
4.75%, 02/01/09 (Acquired 01/29/99; Cost
$2,507,500)(a) 2,500,000 1,218,750
========================================================================
INTERNET SOFTWARE & SERVICES-0.29%
Equinix, Inc., Sr. Unsec. Notes, 13.00%,
12/01/07 3,540,000 1,424,850
------------------------------------------------------------------------
Exodus Communications, Inc., Sr. Unsec.
Notes, 11.25%, 07/01/08 1,205,000 379,575
========================================================================
1,804,425
========================================================================
LIFE & HEALTH INSURANCE-1.53%
American General Finance Corp., Sr. Putable
Notes, 8.45%, 10/15/09 3,100,000 3,545,439
------------------------------------------------------------------------
Americo Life, Inc., Sr. Sub. Notes, 9.25%,
06/01/05 1,000,000 955,000
------------------------------------------------------------------------
Conseco, Inc., Sr. Unsec. Notes, 8.75%,
02/09/04 620,000 584,350
------------------------------------------------------------------------
John Hancock Global Funding Ltd.-Series 99-H,
R. Sec. Sub. Medium Term Notes, 6.75%,
02/15/06 1,700,000 868,113
------------------------------------------------------------------------
Prudential Funding, LLC, Medium Term Notes,
6.60%, 05/15/08 (Acquired 05/09/01; Cost
$1,578,167)(a) 1,580,000 1,622,739
------------------------------------------------------------------------
Sun Canada Financial Co., Gtd. Sub. Bonds,
6.63%, 12/15/07 (Acquired 10/14/99; Cost
$654,311)(a) 700,000 693,395
------------------------------------------------------------------------
Torchmark Corp., Notes, 7.88%, 05/15/23 1,325,000 1,367,188
========================================================================
9,636,224
========================================================================
MULTI-LINE INSURANCE-0.97%
AIG SunAmerica Global Financing II, Sr. Sec.
Notes, 7.60%, 06/15/05 (Acquired 06/08/00-
04/16/01; Cost $3,836,450)(a) 3,750,000 4,057,388
------------------------------------------------------------------------
AIG SunAmerica Global Financing IV, Sr.
Notes, 5.85%, 02/01/06 (Acquired 01/24/01;
Cost $1,989,700)(a) 2,000,000 2,041,940
========================================================================
6,099,328
========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
MULTI-UTILITIES-2.67%
Dynegy Inc., Sr. Unsec. Deb., 7.13%, 05/15/18 $2,850,000 $ 2,765,526
------------------------------------------------------------------------
Enron Corp., Sec. Notes, 8.00%, 08/15/05
(Acquired 06/05/01; Cost $3,099,090)(a) 3,000,000 3,137,670
------------------------------------------------------------------------
Western Resources, Inc., Sr. Unsec. Notes,
7.13%, 08/01/09 5,352,000 4,947,817
------------------------------------------------------------------------
Williams Cos., Inc. (The), Sr. Putable Unsec.
Notes, 6.75%, 01/15/06 2,300,000 2,328,934
------------------------------------------------------------------------
Williams Gas Pipeline Center Inc., Sr. Notes,
7.38%, 11/15/06 (Acquired 02/15/01; Cost
$3,511,520)(a) 3,400,000 3,594,412
========================================================================
16,774,359
========================================================================
OIL & GAS DRILLING-1.34%
Global Marine Inc., Sr. Unsec. Notes, 7.13%,
09/01/07 3,800,000 3,965,756
------------------------------------------------------------------------
R & B Falcon Corp.-Series B, Sr. Unsec.
Notes, 6.95%, 04/15/08 4,300,000 4,427,452
========================================================================
8,393,208
========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.02%
National-Oilwell, Inc., Sr. Unsec. Notes
6.50%, 03/15/11 4,000,000 3,935,600
------------------------------------------------------------------------
Petroleum Geo-Services A.S.A. (Norway),
Sr. Unsec. Yankee Notes, 7.13%, 03/30/28 4,465,000 3,766,183
------------------------------------------------------------------------
Yankee Notes, 7.50%, 03/31/07 3,000,000 2,987,400
------------------------------------------------------------------------
Smith International, Inc., Notes, 6.75%,
02/15/11 2,000,000 2,016,780
========================================================================
12,705,963
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-6.71%
Anadarko Petroleum Corp., Unsec. Putable
Deb., 7.73%, 09/15/96 1,200,000 1,295,964
------------------------------------------------------------------------
Anderson Exploration Ltd. (Canada), Unsec.
Sub. Yankee Notes, 6.75%, 03/15/11 2,400,000 2,420,064
------------------------------------------------------------------------
Burlington Resources Inc., Sr. Unsec. Gtd.
Notes, 6.68%, 02/15/11 3,000,000 3,057,300
------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Canada),
Yankee Notes, 6.70%, 07/15/11 2,300,000 2,316,514
------------------------------------------------------------------------
Canadian Occidental Petroleum (Canada),
Unsec. Unsub. Yankee Notes, 7.40%, 05/01/28 3,300,000 3,264,327
------------------------------------------------------------------------
Chesapeake Energy Corp., Sr. Unsec. Gtd.
Notes, 8.13%, 04/01/11 3,460,000 3,338,900
------------------------------------------------------------------------
Gulf Canada Resources Ltd. (Canada), Unsec.
Yankee Notes 7.13%, 01/15/11 1,800,000 1,891,332
------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Unsec.
Notes, 6.88%, 12/01/07 3,500,000 3,554,390
------------------------------------------------------------------------
Newfield Exploration Co., Sr. Unsec. Unsub.
Notes, 7.63%, 03/01/11 3,600,000 3,649,500
------------------------------------------------------------------------
Noble Affiliates Inc., Sr. Unsec. Deb.,
7.25%, 08/01/97 3,600,000 3,319,236
------------------------------------------------------------------------
|
FS-38
PRINCIPAL MARKET
AMOUNT VALUE
OIL & GAS EXPLORATION &
PRODUCTION-(CONTINUED)
Parker & Parsley Petroleum Co., Sr. Unsec.
Notes,
8.25%, 08/15/07 $4,900,000 $ 5,064,885
------------------------------------------------------------------------
8.88%, 04/15/05 3,045,000 3,196,032
------------------------------------------------------------------------
Talisman Energy Inc. (Canada), Unsec. Unsub.
Yankee Deb., 7.13%, 06/01/07 3,750,000 3,885,263
------------------------------------------------------------------------
Union Pacific Resources Group Inc., Unsec.
Notes, 6.75%, 05/15/08 1,850,000 1,901,874
========================================================================
42,155,581
========================================================================
OIL & GAS REFINING & MARKETING-1.04%
Petroleos Mexicanos (Mexico),
Series P, Unsec. Putable Unsub. Yankee
Notes, 9.50%, 09/15/27 3,600,000 3,839,832
------------------------------------------------------------------------
Sr. Putable Unsec. Gtd. Yankee Bonds,
9.38%, 12/02/08 2,500,000 2,671,575
========================================================================
6,511,407
========================================================================
PAPER PRODUCTS-0.20%
Tembec Industries Inc. (Canada), Sr. Unsec.
Gtd. Notes, 8.50%, 02/01/11 1,240,000 1,283,400
========================================================================
PHARMACEUTICALS-0.36%
Warner Chilcott, Inc.-Series B, Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08 2,000,000 2,240,000
========================================================================
PROPERTY & CASUALTY INSURANCE-1.42%
Allstate Financial Global Funding, Notes,
6.50%, 06/14/11 (Acquired 06/07/01; Cost
$2,995,410)(a) 3,000,000 3,056,940
------------------------------------------------------------------------
Florida Windstorm Underwriting Association-
Series 1999A, Sr. Sec. Notes, 7.13%,
02/25/19 (Acquired 04/25/01-05/03/01; Cost
$1,989,628)(a) 2,000,000 2,048,640
------------------------------------------------------------------------
Terra Nova Insurance (United Kingdom)
Holding, Sr. Unsec. Gtd. Yankee Notes,
7.00%, 05/15/08 2,000,000 1,795,740
------------------------------------------------------------------------
7.20%, 08/15/07 2,200,000 2,014,848
========================================================================
8,916,168
========================================================================
PUBLISHING & PRINTING-2.33%
News America Holdings, Inc.,
Putable Notes, 8.45%, 08/01/34 7,000,000 7,496,650
------------------------------------------------------------------------
Sr. Gtd. Deb., 9.25%, 02/01/13 5,250,000 6,090,315
------------------------------------------------------------------------
Sr. Unsec. Gtd. Putable Bonds, 7.43%,
10/01/26 1,000,000 1,032,180
========================================================================
14,619,145
========================================================================
RAILROADS-1.80%
Consolidated Rail Corp., Deb., 9.75%,
06/15/20 1,875,000 2,333,588
------------------------------------------------------------------------
CSX Corp., Sr. Unsec. Putable Deb., 7.25%,
05/01/27 7,250,000 7,606,845
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
RAILROADS-(CONTINUED)
Railamerica Transportation Corp., Sr. Unsec.
Gtd. Sub. Notes, 12.88%, 08/15/10 $1,300,000 $ 1,345,500
========================================================================
11,285,933
========================================================================
REAL ESTATE INVESTMENT TRUSTS-1.65%
ERP Operating L.P., Unsec. Notes, 7.13%,
10/15/17 2,400,000 2,299,176
------------------------------------------------------------------------
Health Care REIT, Inc., Sr. Unsec. Notes,
7.63%, 03/15/08 1,500,000 1,341,675
------------------------------------------------------------------------
Healthcare Realty Trust, Inc., Sr. Unsec.
Notes, 8.13%, 05/01/11 3,500,000 3,562,300
------------------------------------------------------------------------
Spieker Properties LP, Unsec. Deb., 7.50%,
10/01/27 1,200,000 1,163,652
------------------------------------------------------------------------
Spieker Properties, Inc., Unsec. Unsub. Deb.,
7.35%, 12/01/17 2,000,000 1,974,460
========================================================================
10,341,263
========================================================================
REINSURANCE-0.86%
GE Global Insurance Holdings Corp., Unsec.
Notes, 7.75%, 06/15/30 4,800,000 5,377,872
========================================================================
SOVEREIGN DEBT-0.62%
Quebec (Province of) (Canada), Yankee Deb.,
7.50%, 07/15/23 3,600,000 3,908,808
========================================================================
SPECIALTY STORES-0.26%
United Rentals (North America) Inc., Sr.
Unsec. Gtd. Notes, 10.75%, 04/15/08(d) 1,550,000 1,658,500
========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.28%
SBA Communications Corp., Sr. Unsec. Notes,
10.25%, 02/01/09 2,000,000 1,790,000
========================================================================
TRUCKING-0.56%
Avis Group Holdings, Inc., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 05/01/09 1,850,000 2,085,875
------------------------------------------------------------------------
North American Van Lines Inc., Sr. Sub.
Notes, 13.38%, 12/01/09(d) 1,570,000 1,452,250
========================================================================
3,538,125
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.15%
Crown Castle International Corp., Sr. Unsec.
Notes, 10.75%, 08/01/11 2,100,000 2,052,750
------------------------------------------------------------------------
Nextel Communications, Inc.,
Sr. Notes, 12.00%, 11/01/08 3,375,000 3,172,500
------------------------------------------------------------------------
Sr. Unsec. Notes, 9.50%, 02/01/11 2,100,000 1,743,000
------------------------------------------------------------------------
Nextel International Inc.-Series B, Sr.
Unsec. Notes, 12.75%, 08/01/10 1,000,000 280,000
========================================================================
7,248,250
========================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $565,266,852) 560,172,935
========================================================================
|
FS-39
PRINCIPAL MARKET
AMOUNT VALUE
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-4.60%
CANADA-1.64%
AT&T Canada Inc. (Integrated
Telecommunication Services), Sr. Unsec.
Unsub. Notes, 7.15%, 09/23/04 CAD 1,150,000 $ 743,503
------------------------------------------------------------------------
Bell Mobility Cellular Inc. (Wireless
Telecommunication Services), Unsec. Deb.,
6.55%, 06/02/08 CAD 2,250,000 1,463,592
------------------------------------------------------------------------
Canadian Pacific Ltd. (Railroads), Unsec.
Medium Term Notes, 5.85%, 03/30/09
(Acquired 03/24/99; Cost $2,149,250)(a) CAD 3,250,000 2,091,135
------------------------------------------------------------------------
Export Development Corp. (Sovereign Debt),
Sr. Unsec. Unsub. Bonds, 6.50%, 12/21/04NZD 2,150,000 882,178
------------------------------------------------------------------------
Microcell Telecommunications Inc. (Wireless
Telecommunication Services)-Series B, Sr.
Unsec. Disc. Notes, 11.13%, 10/15/07(b) CAD 3,500,000 1,263,930
------------------------------------------------------------------------
Ontario (Province of) (Sovereign Debt),
Unsec. Unsub. Notes, 6.25%, 12/03/08 NZD 2,500,000 969,520
------------------------------------------------------------------------
Rogers Cablesystems Ltd. (Broadcasting &
Cable TV), Sr. Sec. Second Priority Deb.,
9.65%, 01/15/14 CAD 3,300,000 2,205,464
------------------------------------------------------------------------
Westcoast Energy Inc. (Gas Utilities)-Series
V, Unsec. Deb., 6.45%, 12/18/06 CAD 1,000,000 667,564
========================================================================
10,286,886
========================================================================
CAYMAN ISLANDS-0.49%
Sutton Bridge Financing Ltd. (Electric
Utilities), Gtd. Notes, 8.63%,
06/30/22(d) GBP 2,000,000 3,078,329
========================================================================
FRANCE-0.40%
Vivendi Environnement (Environmental
Services), Sr. Conv. Gtd. Bonds, 1.50%,
01/01/05 EUR 1,050,000 2,549,288
========================================================================
GERMANY-0.10%
Bundesrepublik Deutschland (Sovereign Debt),
Bonds, 6.50%, 10/14/05 EUR 650,000 614,226
========================================================================
NETHERLANDS-1.17%
KPNQwest N.V. (Alternative Carriers), Sr.
Notes, 8.88%, 02/01/08 EUR 5,160,000 3,190,989
------------------------------------------------------------------------
Song Networks Holding A.B. (Alternative
Carriers), Sr. Euro Notes, 11.88%,
12/01/09 EUR 3,750,000 1,446,693
------------------------------------------------------------------------
Song Networks Holding A.B., (Integrated
Telecommunication Services), Sr. Euro
Notes, 12.38%, 02/01/08 EUR 2,370,000 957,224
------------------------------------------------------------------------
Tecnost International Finance N.V.
(Integrated Telecommunication
Services)-Series E, Gtd. Medium Term Euro
Notes, 6.58%, 07/30/09 EUR 2,050,000 1,756,400
========================================================================
7,351,306
========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
NEW ZEALAND-0.31%
Inter-American Development Bank (Banks),
Unsec. Bonds, 5.75%, 04/15/04 NZD 4,750,000 $ 1,928,244
========================================================================
UNITED KINGDOM-0.49%
British Sky Broadcasting Group PLC
(Broadcasting & Cable TV), Sr. Gtd. Unsec.
Unsub. Bonds, 7.75%, 07/09/09 GBP 1,750,000 2,307,640
------------------------------------------------------------------------
Jazztel PLC (Integrated Telecommunication
Services), Sr. Unsec. Notes, 13.25%,
12/15/09 EUR 2,260,000 772,589
========================================================================
3,080,229
========================================================================
Total Non-U.S. Dollar Denominated Bonds &
Notes (Cost $40,538,835) 28,888,508
========================================================================
SHARES
STOCKS & OTHER EQUITY INTERESTS-1.09%
BROADCASTING & CABLE TV-0.00%
Knology Inc.-Wts., expiring 10/22/07
(Acquired 03/12/98; Cost $0)(a)(g) 4,100 41
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.34%
Cendant Corp.(h) 105,409 2,145,073
========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-0.00%
Electronic Retailing Systems International,
Inc.- Wts., expiring 02/01/04(g) 3,630 36
========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.-Series B-Pfd.
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(a)(g) 5,770 3,174
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.01%
Enitel ASA (Norway)-Wts., expiring 04/03/05
(Acquired 07/14/00; Cost $0)(a)(g) 2,500 22
------------------------------------------------------------------------
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(a)(g) 1,775 888
------------------------------------------------------------------------
Versatel Telecom International N.V.-ADR
(Netherlands)(h) 17,663 28,261
========================================================================
29,171
========================================================================
INTERNET SOFTWARE & SERVICES-0.01%
Equinix, Inc.-Wts., expiring 12/01/07
(Acquired 05/30/00; Cost $0)(a)(g) 3,540 75,614
========================================================================
RAILROADS-0.01%
Railamerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(a)(g) 1,300 83,525
========================================================================
REAL ESTATE INVESTMENT TRUSTS-0.51%
First Republic Capital Corp.-Series A-Pfd.
(Acquired 05/26/99; Cost $3,500,000)(a) 3,500 3,180,625
========================================================================
|
FS-40
MARKET
SHARES VALUE
SYSTEMS SOFTWARE-0.21%
Microsoft Corp.(h) 20,291 $ 1,343,061
========================================================================
Total Stocks & Other Equity Interests
(Cost $8,370,999) 6,860,320
========================================================================
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITIES-1.41%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-0.35%
Jr. Unsec. Sub. Notes,
5.88%, 03/21/11 $1,000,000 990,290
------------------------------------------------------------------------
Unsec. Sub. Notes,
6.38%, 08/01/11 1,250,000 1,246,600
========================================================================
2,236,890
========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-1.06%
Unsec. Sub. Notes,
5.50%, 05/02/06 $1,900,000 $ 1,915,409
------------------------------------------------------------------------
6.25%, 02/01/11 4,650,000 4,725,516
========================================================================
6,640,925
========================================================================
Total U.S. Government Agency Securities
(Cost $8,790,926) 8,877,815
========================================================================
U.S. TREASURY SECURITIES-0.33%
U.S. TREASURY BONDS-0.33%
6.13%, 08/15/29 (Cost $2,124,281) 1,950,000 2,092,662
========================================================================
SHARES
MONEY MARKET FUNDS-1.18%
STIC Liquid Assets Portfolio(i) 3,689,218 3,689,218
------------------------------------------------------------------------
STIC Prime Portfolio(i) 3,689,218 3,689,218
========================================================================
Total Money Market Funds (Cost
$7,378,436) 7,378,436
========================================================================
TOTAL INVESTMENTS-97.77% (Cost $632,470,329) 614,270,676
========================================================================
OTHER ASSETS LESS LIABILITIES-2.23% 14,031,501
========================================================================
NET ASSETS-100.00% $628,302,177
________________________________________________________________________
========================================================================
|
Investment Abbreviations:
ADR - American Depositary Receipt AUD - Australian Dollar CAD - Canadian Dollars Conv. - Convertible Ctfs - Certificates Deb. - Debentures Disc. - Discounted EUR - Euro GBP - British Pound Sterling Gtd. - Guaranteed Jr. - Junior NZD - New Zealand Dollar Pfd. - Preferred RAPS - Redeemable & Putable Security REGS - Regulation S REIT - Real Estate Investment Trust Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated Wts. - Warrants |
Notes to Schedule of Investments:
(a) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at
07/31/01 was $69,537,779, which represented 11.07% of the Fund's net
assets.
(b) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended.
(e) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(f) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(g) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(h) Non-income producing security.
(i) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-41
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2001
ASSETS:
Investments, at market value (cost
$632,470,329) $614,270,676
------------------------------------------------------------
Foreign currencies, at value (cost $1,229,538) 1,236,636
------------------------------------------------------------
Receivables for:
Foreign currency contracts closed 60,211
------------------------------------------------------------
Investments sold 5,316,785
------------------------------------------------------------
Fund shares sold 1,567,888
------------------------------------------------------------
Dividends and interest 13,113,305
------------------------------------------------------------
Investment for deferred compensation plan 76,244
------------------------------------------------------------
Other assets 51,387
============================================================
Total assets 635,693,132
============================================================
LIABILITIES:
Payables for:
Investments purchased 3,805,088
------------------------------------------------------------
Fund shares reacquired 2,072,001
------------------------------------------------------------
Dividends 756,118
------------------------------------------------------------
Foreign currency contracts outstanding 171,984
------------------------------------------------------------
Deferred compensation plan 76,244
------------------------------------------------------------
Accrued advisory fees 599
------------------------------------------------------------
Accrued distribution fees 330,924
------------------------------------------------------------
Accrued trustees' fees 1,291
------------------------------------------------------------
Accrued transfer agent fees 68,574
------------------------------------------------------------
Accrued operating expenses 108,132
============================================================
Total liabilities 7,390,955
============================================================
Net assets applicable to shares outstanding $628,302,177
____________________________________________________________
============================================================
NET ASSETS:
Class A $346,967,378
____________________________________________________________
============================================================
Class B $237,118,348
____________________________________________________________
============================================================
Class C $ 44,216,451
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 50,193,292
____________________________________________________________
============================================================
Class B 34,262,197
____________________________________________________________
============================================================
Class C 6,402,820
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 6.91
------------------------------------------------------------
Offering price per share:
(Net asset value of $6.91 divided by
95.25%) $ 7.25
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 6.92
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 6.91
____________________________________________________________
============================================================
|
STATEMENT OF OPERATIONS
For the year ended July 31, 2001
INVESTMENT INCOME:
Interest $ 49,646,230
------------------------------------------------------------
Dividends 907,211
------------------------------------------------------------
Dividends from affiliated money market funds 554,970
============================================================
Total investment income 51,108,411
============================================================
EXPENSES:
Advisory fees 2,549,509
------------------------------------------------------------
Administrative services fees 123,589
------------------------------------------------------------
Custodian fees 69,078
------------------------------------------------------------
Distribution fees -- Class A 865,834
------------------------------------------------------------
Distribution fees -- Class B 2,199,570
------------------------------------------------------------
Distribution fees -- Class C 335,692
------------------------------------------------------------
Transfer agent fees -- Class A 617,709
------------------------------------------------------------
Transfer agent fees -- Class B 403,282
------------------------------------------------------------
Transfer agent fees -- Class C 61,548
------------------------------------------------------------
Trustees' fees 7,436
------------------------------------------------------------
Other 386,330
============================================================
Total expenses 7,619,577
============================================================
Less: Fees waived (109)
------------------------------------------------------------
Expenses paid indirectly (11,253)
------------------------------------------------------------
Net expenses 7,608,215
============================================================
Net investment income 43,500,196
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FOREIGN CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (44,760,583)
------------------------------------------------------------
Foreign currencies 120,355
------------------------------------------------------------
Foreign currency contracts 1,854,705
============================================================
(42,785,523)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 23,578,485
------------------------------------------------------------
Foreign currencies 38,810
------------------------------------------------------------
Foreign currency contracts (269,139)
============================================================
23,348,156
============================================================
Net gain (loss) from investment securities,
foreign currencies and foreign currency
contracts (19,437,367)
============================================================
Net increase in net assets resulting from
operations $ 24,062,829
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-42
STATEMENT OF CHANGES IN NET ASSETS
For the year ended July 31, 2001, the seven months ended July 31, 2000, and the
year ended December 31, 1999
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED
JULY 31, JULY 31, DECEMBER 31,
2001 2000 1999
------------ ------------------ ------------
OPERATIONS:
Net investment income $ 43,500,196 $ 27,629,143 $ 45,427,216
----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and foreign currency contracts (42,785,523) (28,922,119) (19,889,682)
----------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and foreign
currency contracts 23,348,156 (10,745,515) (47,810,615)
================================================================================================================
Net increase (decrease) in net assets resulting from
operations 24,062,829 (12,038,491) (22,273,081)
================================================================================================================
Distributions to shareholders from net investment income:
Class A (25,411,789) (12,352,865) (27,905,932)
----------------------------------------------------------------------------------------------------------------
Class B (14,235,384) (6,412,480) (14,665,005)
----------------------------------------------------------------------------------------------------------------
Class C (2,147,191) (772,178) (1,497,538)
----------------------------------------------------------------------------------------------------------------
Return of Capital:
Class A (937,652) (3,591,530) --
----------------------------------------------------------------------------------------------------------------
Class B (595,428) (2,203,866) --
----------------------------------------------------------------------------------------------------------------
Class C (90,938) (265,128) --
----------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 11,935,605 (24,315,697) 33,756,872
----------------------------------------------------------------------------------------------------------------
Class B 30,091,490 (17,373,034) 49,567,754
----------------------------------------------------------------------------------------------------------------
Class C 18,401,373 225,211 11,280,738
================================================================================================================
Net increase (decrease) in net assets 41,072,915 (79,100,058) 28,263,808
================================================================================================================
NET ASSETS:
Beginning of year 587,229,262 666,329,320 638,065,512
================================================================================================================
End of year $628,302,177 $587,229,262 $666,329,320
________________________________________________________________________________________________________________
================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $730,247,353 $671,562,117 $719,086,161
----------------------------------------------------------------------------------------------------------------
Undistributed net investment income (296,959) (405,470) (1,347,825)
----------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and foreign currency
contracts (83,285,278) (42,216,290) (20,443,436)
----------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and foreign currency
contracts (18,362,939) (41,711,095) (30,965,580)
================================================================================================================
$628,302,177 $587,229,262 $666,329,320
________________________________________________________________________________________________________________
================================================================================================================
|
See Notes to Financial Statements.
FS-43
NOTES TO FINANCIAL STATEMENTS
July 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Income Fund (the "Fund") is a series portfolio of AIM Investment Securities
Funds (the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of seven separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income
consistent with reasonable concern for safety of principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case
of debt obligations, the mean between the last bid and asked prices.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the customary
trading session of the NYSE which would not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On July 31, 2001, undistributed net investment income was increased by
$26,697, undistributed net realized gains increased by $1,716,535 and paid-in
capital decreased by $1,743,232 as a result of book/tax differences due to
foreign currency transactions and other reclassifications. Net assets of the
Fund were unaffected by the reclassifications.
C. Distributions -- Distributions from income are declared daily and paid monthly and are recorded on ex-dividend date. Distributions from net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $44,774,768 as of July 31, 2001
which may be carried forward to offset future taxable gains, if any, which
expires in varying increments, if not previously utilized, in the year 2009.
E. Foreign Currency Translations -- Portfolio securities and other assets and liabilities denominated in foreign currencies are
FS-44
translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
Outstanding foreign currency contracts at July 31, 2001 were as follows:
CONTRACT TO: UNREALIZED
SETTLEMENT ------------------------ APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
---------- -------- ---------- ----------- ----------- --------------
09/10/01 AUD 1,600,000 $ 819,200 $ 811,725 $ 7,475
-------------------------------------------------------------------------------
09/25/01 EUR 10,000,000 8,530,000 8,741,640 (211,640)
-------------------------------------------------------------------------------
10/05/01 NZD 8,800,000 3,643,200 3,611,019 32,181
===============================================================================
$12,992,400 $13,164,384 $(171,984)
_______________________________________________________________________________
===============================================================================
|
G. Bond Premiums -- It has been the policy of the Fund not to amortize market premiums on bonds for financial reporting purposes. In November 2000, a revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was issued and is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the Fund to amortize premium and discount on all fixed-income securities by the cumulative amount of amortization that would have been recognized had amortization been in effect from the purchase date of each holding. Adopting this accounting principle will not effect the Fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of Operations. The Fund expects that the impact of the adoption of this principle will not be material to the financial statements.
H. Expenses -- Distribution expenses and certain transfer agency expenses directly attributable to a class of shares are charged to those classes' operations. All other expenses which are attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on the Fund's average
daily net assets in excess of $1 billion. For the year ended July 31, 2001, AIM
waived fees of $109.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2001, AIM was paid
$123,589 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended July 31, 2001, AFS was
paid $636,035 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended July 31, 2001,
the Class A, Class B and Class C shares paid AIM Distributors $865,834,
$2,199,570, and $335,692, respectively, as compensation under the Plans.
AIM Distributors received commissions of $241,096 from sales of the Class A
shares of the Fund during the year ended July 31, 2001. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended July 31, 2001, AIM
Distributors received $52,982 in contingent deferred sales charges imposed on
redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2001, the Fund paid legal fees of $4,888 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
FS-45
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2001, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $11,253 under an expense offset arrangements which resulted in a reduction of the Fund's expenses of $11,253.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an "interested person" of AIM. The Trust invests trustees' fees, if so elected by a trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2001,
the Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.09% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2001 was
$533,461,355 and $484,475,087, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2001 is as follows:
Aggregate unrealized appreciation of investment securities $ 16,882,648 --------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (35,083,344) ========================================================= Net unrealized appreciation (depreciation) of investment securities $(18,200,696) _________________________________________________________ ========================================================= Cost of investments for tax purposes is $632,471,372. |
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the year ended July 31, 2001, the seven-month period ended July 31, 2000 and the year ended December 31, 1999 were as follows:
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED
JULY 31, 2001 JULY 31, 2000 DECEMBER 31, 1999
---------------------------- --------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ------------ ----------- -------------
Sold:
Class A 19,948,772 $ 139,192,236 7,718,634 $ 56,674,366 19,309,632 $ 154,855,498
--------------------------------------------------------------------------------------------------------------------------------
Class B 11,714,579 81,887,558 4,326,094 31,759,218 14,308,868 114,665,985
--------------------------------------------------------------------------------------------------------------------------------
Class C 4,180,883 29,145,850 1,046,350 7,655,971 2,744,473 21,843,332
================================================================================================================================
Issued as reinvestment of
dividends:
Class A 3,099,848 21,590,593 1,780,355 13,014,300 2,892,178 22,930,219
--------------------------------------------------------------------------------------------------------------------------------
Class B 1,543,513 10,761,821 880,732 6,435,623 1,404,212 11,107,962
--------------------------------------------------------------------------------------------------------------------------------
Class C 250,632 1,741,447 113,060 824,514 150,804 1,188,183
================================================================================================================================
Reacquired:
Class A (21,394,116) (148,847,224) (12,794,917) (94,004,363) (18,052,165) (144,028,845)
--------------------------------------------------------------------------------------------------------------------------------
Class B (8,963,733) (62,557,889) (7,508,184) (55,567,875) (9,612,004) (76,206,193)
--------------------------------------------------------------------------------------------------------------------------------
Class C (1,792,733) (12,485,924) (1,120,567) (8,255,274) (1,483,247) (11,750,777)
================================================================================================================================
8,587,645 $ 60,428,468 (5,558,443) $(41,463,520) 11,662,751 $ 94,605,364
________________________________________________________________________________________________________________________________
================================================================================================================================
|
FS-46
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
---------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
JULY 31, JULY 31, --------------------------------------------
2001 2000 1999 1998 1997 1996
---------- ------------- -------- -------- -------- --------
Net asset value, beginning of period $ 7.14 $ 7.59 $ 8.38 $ 8.57 $ 8.24 $ 8.17
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.53 0.34 0.57 0.57 0.55 0.57
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.23) (0.47) (0.81) (0.16) 0.39 0.09
=================================================================================================================================
Total from investment operations 0.30 (0.13) (0.24) 0.41 0.94 0.66
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.51) (0.25) (0.55) (0.55) (0.52) (0.59)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.05) (0.09) --
---------------------------------------------------------------------------------------------------------------------------------
Return of capital (0.02) (0.07) -- -- -- --
=================================================================================================================================
Total distributions (0.53) (0.32) (0.55) (0.60) (0.61) (0.59)
=================================================================================================================================
Net asset value, end of period $ 6.91 $ 7.14 $ 7.59 $ 8.38 $ 8.57 $ 8.24
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 4.42% (1.70)% (2.92)% 4.94% 11.92% 8.58%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $346,967 $346,482 $393,414 $399,701 $340,608 $286,183
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.95%(b) 0.97%(c) 0.91% 0.91% 0.94% 0.98%
=================================================================================================================================
Ratio of net investment income to average net assets 7.57%(b) 8.03%(c) 7.11% 6.69% 6.55% 7.13%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 83% 43% 78% 41% 54% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average daily net assets of
$346,333,670.
(c) Annualized.
CLASS B
--------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
JULY 31, JULY 31, -------------------------------------------
2001 2000 1999 1998 1997 1996
---------- ------------- -------- -------- -------- -------
Net asset value, beginning of period $ 7.14 $ 7.58 $ 8.37 $ 8.55 $ 8.23 $ 8.15
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.48 0.31 0.50 0.50 0.48 0.50
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.23) (0.47) (0.80) (0.15) 0.38 0.11
=================================================================================================================================
Total from investment operations 0.25 (0.16) (0.30) 0.35 0.86 0.61
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.45) (0.21) (0.49) (0.48) (0.45) (0.53)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.05) (0.09) --
---------------------------------------------------------------------------------------------------------------------------------
Return of capital (0.02) (0.07) -- -- -- --
=================================================================================================================================
Total distributions (0.47) (0.28) (0.49) (0.53) (0.54) (0.53)
=================================================================================================================================
Net asset value, end of period $ 6.92 $ 7.14 $ 7.58 $ 8.37 $ 8.55 $ 8.23
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 3.67% (2.09)% (3.72)% 4.20% 10.89% 7.87%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $237,118 $213,926 $244,713 $219,033 $125,871 $85,343
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.71%(b) 1.73%(c) 1.66% 1.66% 1.69% 1.80%
=================================================================================================================================
Ratio of net investment income to average net assets 6.81%(b) 7.28%(c) 6.36% 5.94% 5.80% 6.30%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 83% 43% 78% 41% 54% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$219,956,940.
(c) Annualized.
FS-47
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
-------------------------------------------------------------------
AUGUST 4, 1997
SEVEN MONTHS YEAR ENDED (DATE SALES
YEAR ENDED ENDED DECEMBER 31, COMMENCED) TO
JULY 31, JULY 31, ------------------ DECEMBER 31,
2001 2000 1999 1998 1997
---------- ------------- ------- ------- --------------
Net asset value, beginning of period $ 7.13 $ 7.57 $ 8.36 $ 8.54 $ 8.38
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.48 0.31 0.50 0.50 0.19
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.23) (0.47) (0.80) (0.15) 0.22
=================================================================================================================================
Total from investment operations 0.25 (0.16) (0.30) 0.35 0.41
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.45) (0.21) (0.49) (0.48) (0.16)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.05) (0.09)
---------------------------------------------------------------------------------------------------------------------------------
Return of capital (0.02) (0.07) -- -- --
=================================================================================================================================
Total distributions (0.47) (0.28) (0.49) (0.53) (0.25)
=================================================================================================================================
Net asset value, end of period $ 6.91 $ 7.13 $ 7.57 $ 8.36 $ 8.54
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 3.68% (2.09)% (3.71)% 4.21% 4.96%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $44,216 $26,821 $28,202 $19,332 $2,552
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.71%(b) 1.73%(c) 1.66% 1.66% 1.69%(c)
=================================================================================================================================
Ratio of net investment income to average net assets 6.81%(b) 7.28%(c) 6.36% 5.94% 5.80%(c)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 83% 43% 78% 41% 54%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $33,569,190.
(c) Annualized.
FS-48
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Intermediate Government Fund And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM Intermediate Government Fund (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2001, and the related statement of operations, statement of changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2001 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Intermediate Government Fund at July 31, 2001, and the results of its operations, changes in its net assets, and financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 7, 2001
|
FS-49
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders AIM Intermediate Government Fund:
We have audited the accompanying statement of changes in net assets of AIM Intermediate Government Fund (a portfolio of AIM Investment Securities Funds) for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for the seven months ended July 31, 2000 and for each of the years in the four-year period ended December 31, 1999. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2000, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the changes in net assets of AIM Intermediate Government Fund for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for the seven months ended July 31, 2000 and for each of the years in the four-year period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP September 1, 2000 Houston, Texas |
FS-50
SCHEDULE OF INVESTMENTS
July 31, 2001
PRINCIPAL MARKET
AMOUNT VALUE
U.S. GOVERNMENT AGENCY SECURITIES-72.54%
ELECTRIC UTILITIES-3.08%
Tennessee Valley Authority Bonds,
Series A, 5.63%, 01/18/11 $ 5,000,000 $ 4,912,500
--------------------------------------------------------------------------
Series G, 5.38%, 11/13/08 14,600,000 14,550,068
==========================================================================
19,462,568
==========================================================================
FEDERAL FARM CREDIT BANK-6.44%
Bonds,
6.00%, 06/11/08 to 03/07/11 21,000,000 21,136,500
--------------------------------------------------------------------------
Medium Term Notes,
5.70%, 01/18/05 10,000,000 10,219,000
--------------------------------------------------------------------------
5.75%, 12/07/28 10,000,000 9,326,800
==========================================================================
40,682,300
==========================================================================
FEDERAL HOME LOAN BANK-9.05%
Bonds,
7.36%, 07/01/04 2,800,000 3,016,244
--------------------------------------------------------------------------
Unsec. Bonds,
5.38%, 09/13/04 5,000,000 5,008,550
--------------------------------------------------------------------------
7.25%, 05/13/05 to 02/15/07 18,200,000 19,704,530
--------------------------------------------------------------------------
8.00%, 05/24/05 4,140,000 4,264,738
--------------------------------------------------------------------------
8.10%, 05/24/05 6,060,000 6,247,375
--------------------------------------------------------------------------
6.50%, 11/15/05 2,000,000 2,112,380
--------------------------------------------------------------------------
5.50%, 07/06/06 5,000,000 5,006,400
--------------------------------------------------------------------------
5.48%, 01/08/09 1,000,000 992,450
--------------------------------------------------------------------------
7.38%, 02/12/10 8,000,000 8,828,960
--------------------------------------------------------------------------
7.21%, 08/08/12 2,000,000 2,003,560
==========================================================================
57,185,187
==========================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-26.56%
Pass Through Certificates,
9.00%, 12/01/05 to 04/01/25 2,286,695 2,445,286
--------------------------------------------------------------------------
8.00%, 07/01/06 to 12/01/06 13,660 14,211
--------------------------------------------------------------------------
8.50%, 07/01/07 to 10/01/29 15,570,763 16,518,355
--------------------------------------------------------------------------
10.50%, 09/01/09 to 01/01/21 796,034 890,784
--------------------------------------------------------------------------
7.00%, 11/01/10 to 08/01/31(a) 48,024,111 49,031,319
--------------------------------------------------------------------------
6.50%, 02/01/11 to 08/01/31(a) 41,467,591 41,881,269
--------------------------------------------------------------------------
10.00%, 11/01/11 to 04/01/20 5,279,892 5,847,611
--------------------------------------------------------------------------
12.00%, 02/01/13 9,406 10,864
--------------------------------------------------------------------------
9.50%, 11/01/20 to 04/01/25 4,459,367 4,848,379
--------------------------------------------------------------------------
7.50%, 09/01/30 8,000,001 8,247,441
--------------------------------------------------------------------------
Unsec. Notes,
7.21%, 03/19/07 6,000,000 6,106,560
--------------------------------------------------------------------------
6.65%, 03/23/09 to 08/21/09 11,800,000 11,815,134
--------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-(CONTINUED)
6.63%, 09/15/09 $ 19,000,000 $ 20,222,460
==========================================================================
167,879,673
==========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-17.14%
Pass Through Certificates,
8.50%, 01/01/07 to 11/01/26 29,005,285 30,983,319
--------------------------------------------------------------------------
7.50%, 06/01/10 to 07/01/31 21,431,373 22,144,294
--------------------------------------------------------------------------
7.00%, 05/01/11 to 11/01/15 1,484,235 1,535,994
--------------------------------------------------------------------------
8.00%, 02/01/12 to 07/01/31 15,491,585 16,175,559
--------------------------------------------------------------------------
6.50%, 05/01/13 to 11/01/28(a) 27,482,483 27,947,483
--------------------------------------------------------------------------
6.00%, 10/01/13 to 04/01/24 63,239 62,574
--------------------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 863,955 944,393
--------------------------------------------------------------------------
10.00%, 12/20/19 to 12/20/21 4,787,153 5,318,190
--------------------------------------------------------------------------
Unsec. Notes,
6.63%, 09/15/09 3,000,000 3,194,010
==========================================================================
108,305,816
==========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-7.67%
Pass Through Certificates,
6.00%, 10/15/08 to 11/15/08 322,647 330,207
--------------------------------------------------------------------------
6.50%, 10/15/08 277,356 287,150
--------------------------------------------------------------------------
7.00%, 10/15/08 to 07/15/28 12,646,006 12,975,493
--------------------------------------------------------------------------
9.00%, 10/15/08 to 04/15/21 754,783 817,203
--------------------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 2,695,989 2,972,804
--------------------------------------------------------------------------
10.00%, 11/15/09 to 07/15/24 5,644,173 6,309,137
--------------------------------------------------------------------------
11.00%, 12/15/09 to 12/15/15 46,931 52,550
--------------------------------------------------------------------------
12.50%, 11/15/10 60,876 71,092
--------------------------------------------------------------------------
13.00%, 01/15/11 to 05/15/15 173,599 203,050
--------------------------------------------------------------------------
13.50%, 04/15/11 to 04/15/15 177,444 210,265
--------------------------------------------------------------------------
12.00%, 02/15/13 to 07/15/15 278,866 321,481
--------------------------------------------------------------------------
10.50%, 08/15/15 to 02/15/16 34,477 38,603
--------------------------------------------------------------------------
8.00%, 01/15/22 to 06/15/27 17,645,907 18,552,153
--------------------------------------------------------------------------
7.50%, 03/15/26 to 08/15/28 5,140,678 5,330,759
==========================================================================
48,471,947
==========================================================================
PRIVATE EXPORT FUNDING COMPANY-2.60%
Series J, Sec. Gtd. Notes,
7.65%, 05/15/06 7,000,000 7,757,610
--------------------------------------------------------------------------
Series UU, Sec. Gtd. Notes,
7.95%, 11/01/06 8,000,000 8,680,000
==========================================================================
16,437,610
==========================================================================
Total U.S. Government Agency Securities
(Cost $453,457,425) 458,425,101
==========================================================================
|
FS-51
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY SECURITIES-25.31%
U.S. TREASURY NOTES-21.33%
6.75%, 05/15/05 $ 35,000,000 $ 37,845,850
--------------------------------------------------------------------------
5.75%, 11/15/05 21,000,000 22,022,910
--------------------------------------------------------------------------
4.63%, 05/15/06(b) 29,800,000 29,944,530
--------------------------------------------------------------------------
6.50%, 02/15/10 40,750,000 44,972,515
==========================================================================
134,785,805
==========================================================================
U.S. TREASURY BONDS-2.51%
7.50%, 11/15/16 5,500,000 6,621,010
--------------------------------------------------------------------------
5.38%, 02/15/31 9,450,000 9,271,679
==========================================================================
15,892,689
==========================================================================
U.S. TREASURY STRIPS-1.47%(C)
5.38%, 05/15/06 8,000,000 6,428,960
--------------------------------------------------------------------------
6.79%, 11/15/18 7,750,000 2,858,820
==========================================================================
9,287,780
==========================================================================
Total U.S. Treasury Securities (Cost
$155,688,579) 159,966,274
==========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
MONEY MARKET FUNDS-17.27%
STIT Government & Agency Portfolio (Cost
$109,142,402)(d) 109,142,402 $109,142,402
==========================================================================
TOTAL INVESTMENTS-115.12% (Cost $718,288,406) 727,533,777
==========================================================================
OTHER ASSETS LESS LIABILITIES-(15.12%) (95,549,905)
==========================================================================
NET ASSETS-100.00% $631,983,872
__________________________________________________________________________
==========================================================================
|
Investment Abbreviations:
Gtd. - Guaranteed Sec. - Secured STRIPS - Separately Traded Registered Interest and Principal Security Unsec. - Unsecured |
Notes to Schedule of Investments:
(a) Security purchased on forward commitment basis. These securities are
subject to dollar roll transactions. See Note 1 Section B.
(b) Principal amount has been deposited in escrow with broker as collateral for
reverse repurchase agreements outstanding at 07/31/01.
(c) STRIPS are traded on a discount basis. In such cases, the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-52
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2001
ASSETS:
Investments, at market value (cost
$718,288,406) $727,533,777
------------------------------------------------------------
Receivables for:
Fund shares sold 8,383,157
------------------------------------------------------------
Dividends and interest 7,563,932
------------------------------------------------------------
Principal paydowns 337,245
------------------------------------------------------------
Investment for deferred compensation plan 52,808
------------------------------------------------------------
Other assets 66,647
============================================================
Total assets 743,937,566
============================================================
LIABILITIES:
Payables for:
Investments purchased 75,562,792
------------------------------------------------------------
Fund shares reacquired 4,988,986
------------------------------------------------------------
Dividends 739,531
------------------------------------------------------------
Reverse repurchase agreements 30,060,750
------------------------------------------------------------
Interest expense 1,942
------------------------------------------------------------
Deferred compensation plan 52,808
------------------------------------------------------------
Accrued advisory fees 15,777
------------------------------------------------------------
Accrued distribution fees 383,708
------------------------------------------------------------
Accrued trustees' fees 1,267
------------------------------------------------------------
Accrued transfer agent fees 24,042
------------------------------------------------------------
Accrued operating expenses 122,091
============================================================
Total liabilities 111,953,694
============================================================
Net assets applicable to shares outstanding $631,983,872
____________________________________________________________
============================================================
NET ASSETS:
Class A $302,391,196
____________________________________________________________
============================================================
Class B $269,677,443
____________________________________________________________
============================================================
Class C $ 59,915,233
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 33,285,242
____________________________________________________________
============================================================
Class B 29,603,255
____________________________________________________________
============================================================
Class C 6,598,611
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.08
------------------------------------------------------------
Offering price per share:
(Net asset value of $9.08 divided by
95.25%) $ 9.53
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 9.11
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 9.08
____________________________________________________________
============================================================
|
STATEMENT OF OPERATIONS
For the year ended July 31, 2001
INVESTMENT INCOME:
Interest $30,923,424
------------------------------------------------------------
Dividends from affiliated money market funds 4,655,797
============================================================
Total investment income 35,579,221
============================================================
EXPENSES:
Advisory fees 2,247,495
------------------------------------------------------------
Administrative services fees 120,488
------------------------------------------------------------
Custodian fees 71,268
------------------------------------------------------------
Distribution fees -- Class A 628,863
------------------------------------------------------------
Distribution fees -- Class B 2,166,723
------------------------------------------------------------
Distribution fees -- Class C 453,524
------------------------------------------------------------
Interest 1,991,886
------------------------------------------------------------
Transfer agent fees -- Class A 371,935
------------------------------------------------------------
Transfer agent fees -- Class B 339,417
------------------------------------------------------------
Transfer agent fees -- Class C 71,045
------------------------------------------------------------
Trustees' fees 9,242
------------------------------------------------------------
Other 306,837
============================================================
Total expenses 8,778,723
============================================================
Less: Fees waived (1,187)
------------------------------------------------------------
Expenses paid indirectly (9,377)
============================================================
Net expenses 8,768,159
============================================================
Net investment income 26,811,062
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 3,212,879
============================================================
Change in net unrealized appreciation of
investment securities 14,303,931
============================================================
Net gain from investment securities 17,516,810
============================================================
Net increase in net assets resulting from
operations $44,327,872
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-53
STATEMENT OF CHANGES IN NET ASSETS
For the year ended July 31, 2001, the seven months ended July 31, 2000, and the
year ended December 31, 1999
YEAR ENDED SEVEN MONTHS YEAR ENDED
JULY 31, ENDED JULY 31, DECEMBER 31,
2001 2000 1999
------------ -------------- ------------
OPERATIONS:
Net investment income $ 26,811,062 $ 16,142,998 $ 32,914,473
------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 3,212,879 (8,156,637) (27,037,801)
------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 14,303,931 6,328,795 (17,820,871)
============================================================================================================
Net increase (decrease) in net assets resulting from
operations 44,327,872 14,315,156 (11,944,199)
============================================================================================================
Distributions to shareholders from net investment income:
Class A (14,773,132) (8,371,950) (16,289,770)
------------------------------------------------------------------------------------------------------------
Class B (11,061,094) (6,448,874) (13,961,515)
------------------------------------------------------------------------------------------------------------
Class C (2,309,804) (1,172,877) (2,201,216)
------------------------------------------------------------------------------------------------------------
Distributions to shareholders in excess of net investment
income:
Class A (128,142) -- --
------------------------------------------------------------------------------------------------------------
Class B (110,507) -- --
------------------------------------------------------------------------------------------------------------
Class C (23,140) -- --
------------------------------------------------------------------------------------------------------------
Return of Capital
Class A -- -- (133,023)
------------------------------------------------------------------------------------------------------------
Class B -- -- (129,047)
------------------------------------------------------------------------------------------------------------
Class C -- -- (21,986)
------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 72,844,994 (16,487,253) 14,339,321
------------------------------------------------------------------------------------------------------------
Class B 85,911,151 (51,077,582) 11,152,000
------------------------------------------------------------------------------------------------------------
Class C 24,431,473 (4,681,894) 4,431,396
============================================================================================================
Net increase (decrease) in net assets 199,109,671 (73,925,274) (14,758,039)
============================================================================================================
NET ASSETS:
Beginning of year 432,874,201 506,799,475 521,557,514
------------------------------------------------------------------------------------------------------------
End of year $631,983,872 $432,874,201 $506,799,475
____________________________________________________________________________________________________________
============================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $664,652,890 $481,727,062 $553,973,791
------------------------------------------------------------------------------------------------------------
Undistributed net investment income (63,726) (19,532) (52,483)
------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (41,850,663) (43,774,769) (35,734,478)
------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities 9,245,371 (5,058,560) (11,387,355)
============================================================================================================
$631,983,872 $432,874,201 $506,799,475
____________________________________________________________________________________________________________
============================================================================================================
|
See Notes to Financial Statements.
FS-54
NOTES TO FINANCIAL STATEMENTS
July 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Intermediate Government Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to achieve a high level of current
income consistent with reasonable concern for safety of principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case
of debt obligations, the mean between the last bid and asked prices.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the customary
trading session of the NYSE which would not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
B. Securities Transactions and Investment Income -- Securities transactions are
accounted for on a trade date basis. The Fund may engage in dollar roll
transactions with respect to mortgage backed securities issued by GNMA, FNMA
and FHLMC. In a dollar roll transaction, the Fund sells a mortgage backed
security held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at a
later date at an agreed upon price. The mortgage backed securities that are
repurchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with prepayment
histories. During the period between the sale and repurchase, the Fund will
not be entitled to receive interest and principal payments on securities
sold. Proceeds of the sale will be invested in short-term instruments, and
the income from these investments, together with any additional fee income
received on the sale, could generate income for the Fund exceeding the yield
on the security sold.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities in a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale
of the securities may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation
to repurchase the securities.
Realized gains or losses on sales are computed on the basis of specific
identification of the securities sold. Interest income is recorded on the
accrual basis from settlement date. Dividend income is recorded on the
ex-dividend date.
FS-55
On July 31, 2001, undistributed net investment income was increased by $1,550,563, undistributed net realized gains decreased by $1,288,773 and paid in capital decreased by $261,790 as a result of differing book/tax treatment of paydowns and other reclassifications. Net assets of the Fund were unaffected by the reclassifications.
C. Distributions -- Distributions from income are declared daily and paid monthly and are recorded on ex-dividend date. Distributions from net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the
requirements of the Internal Revenue Code necessary to qualify as a regulated
investment company and, as such, will not be subject to federal income taxes
on otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $40,704,582 as of July 31, 2001
which may be carried forward to offset future taxable gains, if any, which
expires in varying increments, if not previously utilized, in the year 2008.
E. Bond Premiums -- It has been the policy of the Fund not to amortize market premiums on bonds for financial reporting purposes. In November 2000, a revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was issued and is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the Fund to amortize premium and discount on all fixed-income securities by the cumulative amount of amortization that would have been recognized had amortization been in effect from the purchase date of each holding. Adopting this accounting principle will not effect the Fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of Operations. The Fund expects that the impact of the adoption of this principle will not be material to the financial statements.
F. Expenses -- Distribution expenses and certain transfer agency expenses directly attributable to a class of shares are charged to those classes' operations. All other expenses which are attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on the Fund's average
daily net assets in excess of $1 billion. For the year ended July 31, 2001, AIM
waived fees of $1,187.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2001, AIM was paid
$120,488 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended July 31, 2001, AFS was
paid $396,824 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended July 31, 2001,
the Class A, Class B and Class C shares paid AIM Distributors $628,863,
$2,166,723, and $453,524, respectively, as compensation under the Plans.
AIM Distributors received commissions of $215,039 from sales of the Class A
shares of the Fund during the year ended July 31, 2001. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended July 31, 2001, AIM
Distributors received $209,395 in contingent deferred sales charges imposed on
redemptions of Fund shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AFS and AIM Distributors.
During the year ended July 31, 2001, the Fund paid legal fees of $4,727 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2001, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $9,377 under an expense offset arrangement which resulted in a reduction of the Fund's expenses of $9,377.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an "interested person" of AIM. The Trust invests trustees' fees, if so elected by a trustee, in mutual fund shares in accordance with a deferred compensation plan.
FS-56
NOTE 5-BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an agreed
upon price and date. The Fund will use the proceeds of a reverse repurchase
agreement (which are considered to be borrowings under the 1940 Act) to purchase
other permitted securities either maturing, or under an agreement to resell, at
a date simultaneous with or prior to the expiration of the reverse repurchase
agreement. The agreements are collateralized by the underlying securities and
are carried at the amount at which the securities will subsequently be
repurchased as specified in the agreements.
The maximum amount outstanding during the year ended July 31, 2001 was
$102,348,688, while borrowings averaged $41,480,563 per day with a weighted
average interest rate of 4.80%.
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2001,
the Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.09% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2001 was
$1,108,255,036 and $884,215,146, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2001 is as follows:
Aggregate unrealized appreciation of investment securities $9,466,345 --------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (220,974) ========================================================= Net unrealized appreciation of investment securities $9,245,371 _________________________________________________________ ========================================================= Investments have the same cost for tax and financial statement purposes. |
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the year ended July 31, 2001, the seven-month period ended July 31, 2000 and the year ended December 31, 1999 were as follows:
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED
JULY 31, 2001 JULY 31, 2000 DECEMBER 31, 1999
---------------------------- ---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ------------- ------------ -------------
Sold:
Class A 70,420,358 $ 634,206,122 14,428,306 $ 126,418,351 43,994,368 $ 405,966,986
--------------------------------------------------------------------------------------------------------------------------------
Class B 21,411,964 193,273,518 5,530,370 48,527,357 24,981,699 228,902,826
--------------------------------------------------------------------------------------------------------------------------------
Class C 7,928,891 71,408,489 2,386,392 20,861,222 4,401,944 40,514,763
================================================================================================================================
Issued as reinvestment of
dividends:
Class A 1,352,466 12,138,035 744,846 6,516,394 1,422,251 12,951,091
--------------------------------------------------------------------------------------------------------------------------------
Class B 904,111 8,138,588 457,487 4,009,997 1,015,685 9,277,928
--------------------------------------------------------------------------------------------------------------------------------
Class C 211,013 1,893,881 90,390 789,795 193,191 1,758,352
================================================================================================================================
Reacquired:
Class A (63,746,143) (573,499,163) (17,067,415) (149,421,998) (43,911,017) (404,578,756)
--------------------------------------------------------------------------------------------------------------------------------
Class B (12,844,788) (115,500,955) (11,813,222) (103,614,936) (24,856,772) (227,028,754)
--------------------------------------------------------------------------------------------------------------------------------
Class C (5,443,297) (48,870,897) (3,013,546) (26,332,911) (4,134,353) (37,841,719)
================================================================================================================================
20,194,575 $ 183,187,618 (8,256,392) $ (72,246,729) 3,106,996 29,922,717
________________________________________________________________________________________________________________________________
================================================================================================================================
|
FS-57
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
--------------------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
JULY 31, JULY 31, --------------------------------------------
2001(a) 2000 1999 1998 1997 1996
---------- ------------------ -------- -------- -------- --------
Net asset value, beginning of period $ 8.77 $ 8.80 $ 9.58 $ 9.46 $ 9.28 $ 9.70
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.50 0.34 0.60 0.62 0.63 0.63
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.35 (0.03) (0.78) 0.13 0.18 (0.42)
=================================================================================================================================
Total from investment operations 0.85 0.31 (0.18) 0.75 0.81 0.21
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.54) (0.34) (0.60) (0.63) (0.61) (0.59)
=================================================================================================================================
Returns of capital -- -- -- -- (0.02) (0.04)
=================================================================================================================================
Total distributions (0.54) (0.34) (0.60) (0.63) (0.63) (0.63)
=================================================================================================================================
Net asset value, end of period $ 9.08 $ 8.77 $ 8.80 $ 9.58 $ 9.46 $ 9.28
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.91% 3.55% (1.87)% 8.17% 9.07% 2.35%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $302,391 $221,636 $238,957 $245,613 $167,427 $174,344
=================================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 1.32%(c) 1.25%(d) 1.08% 1.20% 1.11% 1.08%
=================================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 0.93%(c) 0.98%(d) 0.89% 0.96% 1.00% 1.00%
=================================================================================================================================
Ratio of net investment income to average net
assets 5.61%(c) 6.61%(d) 6.60% 6.43% 6.77% 6.76%
=================================================================================================================================
Ratio of interest expense to average net assets 0.39%(c) 0.27%(d) 0.19% 0.24% 0.11% 0.08%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 194% 65% 141% 147% 99% 134%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Does not include sales charges and is not annualized for periods less than
one year.
(c) Ratios are annualized and based on average daily net assets of
$251,545,156.
(d) Annualized.
FS-58
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
------------------------------------------------------------------------------
YEAR ENDED
YEAR ENDED SEVEN MONTHS ENDED DECEMBER 31,
JULY 31, JULY 31, ------------------------------------------
2001(a) 2000 1999 1998 1997 1996
---------- ------------------ -------- -------- ------- -------
Net asset value, beginning of period $ 8.79 $ 8.82 $ 9.59 $ 9.46 $ 9.28 $ 9.69
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.44 0.30 0.53 0.55 0.56 0.55
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.35 (0.04) (0.77) 0.13 0.17 (0.41)
=================================================================================================================================
Total from investment operations 0.79 0.26 (0.24) 0.68 0.73 0.14
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.47) (0.29) (0.53) (0.55) (0.53) (0.51)
=================================================================================================================================
Returns of capital -- -- -- -- (0.02) (0.04)
=================================================================================================================================
Total distributions (0.47) (0.29) (0.53) (0.55) (0.55) (0.55)
=================================================================================================================================
Net asset value, end of period $ 9.11 $ 8.79 $ 8.82 $ 9.59 $ 9.46 $ 9.28
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.17% 3.05% (2.56)% 7.40% 8.16% 1.61%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $269,677 $177,032 $228,832 $237,919 $89,265 $79,443
=================================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 2.08%(c) 2.01%(d) 1.85% 1.96% 1.87% 1.84%
=================================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 1.69%(c) 1.74%(d) 1.66% 1.72% 1.76% 1.76%
=================================================================================================================================
Ratio of net investment income to average net
assets 4.85%(c) 5.85%(d) 5.83% 5.68% 6.01% 6.00%
=================================================================================================================================
Ratio of interest expense to average net assets 0.39%(c) 0.27%(d) 0.19% 0.24% 0.11% 0.08%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 194% 65% 141% 147% 99% 134%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$216,672,280.
(d) Annualized.
FS-59
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
------------------------------------------------------------------------
AUGUST 4, 1997
YEAR ENDED (DATE SALES
YEAR ENDED SEVEN MONTHS ENDED DECEMBER 31, COMMENCED TO
JULY 31, JULY 31, ------------------ DECEMBER 31,
2001(a) 2000 1999 1998 1997
---------- ------------------ ------- ------- --------------
Net asset value, beginning of period $ 8.77 $ 8.79 $ 9.56 $ 9.44 $ 9.33
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.44 0.30 0.53 0.56 0.24
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.34 (0.03) (0.77) 0.11 0.10
=================================================================================================================================
Total from investment operations 0.78 0.27 (0.24) 0.67 0.34
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.47) (0.29) (0.53) (0.55) (0.22)
=================================================================================================================================
Returns of capital -- -- -- -- (0.01)
=================================================================================================================================
Total distributions (0.47) (0.29) (0.53) (0.55) (0.23)
=================================================================================================================================
Net asset value, end of period $ 9.08 $ 8.77 $ 8.79 $ 9.56 $ 9.44
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.08% 3.18% (2.57)% 7.31% 3.64%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $59,915 $34,206 $39,011 $38,026 $1,851
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets (including
interest expense) 2.08%(c) 2.01%(d) 1.85% 1.96% 1.87%(d)
=================================================================================================================================
Ratio of expenses to average net assets (excluding
interest expense) 1.69%(c) 1.74%(d) 1.66% 1.72% 1.76%(d)
=================================================================================================================================
Ratio of net investment income to average net assets 4.85%(c) 5.85%(d) 5.83% 5.68% 6.01%(d)
=================================================================================================================================
Ratio of interest expense to average net assets 0.39%(c) 0.27%(d) 0.19% 0.24% 0.11%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 194% 65% 141% 147% 99%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $45,352,476.
(d) Annualized.
FS-60
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Limited Maturity Treasury Fund And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM Limited Maturity Treasury Fund (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2001, and the related statement of operations, statement of changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the year ended July 31, 2000, and the financial highlights for each of the four years in the period then ended were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2001 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Limited Maturity Treasury Fund at July 31, 2001, and the results of its operations, changes in its net assets, and financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 7, 2001
|
FS-61
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders AIM Investment Securities Funds:
We have audited the accompanying statement of changes in net assets of AIM Limited Maturity Treasury Fund (a series of AIM Investment Securities Funds) for the year ended July 31, 2000, and the financial highlights for each of the years in the four-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2000, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred to above present fairly, in all material respects, the changes in net assets of AIM Limited Maturity Treasury Fund for the year ended July 31, 2000, and the financial highlights for each of the years in the four-year period then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP September 1, 2000 Houston, Texas |
FS-62
SCHEDULE OF INVESTMENTS
July 31, 2001
PRINCIPAL
AMOUNT MARKET
MATURITY (000s) VALUE
U.S. TREASURY SECURITIES-96.31%
U.S. TREASURY NOTES-96.31%
6.13% 08/31/02 $40,600 $ 41,716,094
-----------------------------------------------------------------------------------
6.00% 09/30/02 40,400 41,534,028
-----------------------------------------------------------------------------------
5.75% 10/31/02 40,400 41,472,620
-----------------------------------------------------------------------------------
5.63% 11/30/02 40,100 41,153,828
-----------------------------------------------------------------------------------
5.13% 12/31/02 40,100 40,940,095
-----------------------------------------------------------------------------------
4.75% 01/31/03 40,500 41,144,760
-----------------------------------------------------------------------------------
4.63% 02/28/03 40,500 41,081,985
-----------------------------------------------------------------------------------
4.25% 03/31/03 40,400 40,765,216
-----------------------------------------------------------------------------------
4.00% 04/30/03 40,100 40,281,252
-----------------------------------------------------------------------------------
4.25% 05/31/03 40,100 40,443,256
-----------------------------------------------------------------------------------
3.88% 06/30/03 40,100 40,182,606
-----------------------------------------------------------------------------------
3.88% 07/31/03 40,000 40,074,800
===================================================================================
Total U.S. Treasury Securities (Cost
$484,881,894) 490,790,540
===================================================================================
TOTAL INVESTMENTS--96.31% 490,790,540
===================================================================================
OTHER ASSETS LESS LIABILITIES--3.69% 18,820,600
===================================================================================
NET ASSETS-100.00% $509,611,140
___________________________________________________________________________________
===================================================================================
|
See Notes to Financial Statements.
FS-63
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2001
ASSETS:
Investments, at market value (cost
$484,881,894) $490,790,540
------------------------------------------------------------
Receivables for:
Fund shares sold 34,315,336
------------------------------------------------------------
Interest 5,202,646
------------------------------------------------------------
Investment for deferred compensation plan 48,401
------------------------------------------------------------
Other assets 27,592
============================================================
Total assets 530,384,515
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 20,047,004
------------------------------------------------------------
Amount due custodian 145,973
------------------------------------------------------------
Dividends 348,261
------------------------------------------------------------
Deferred compensation plan 48,401
------------------------------------------------------------
Accrued advisory fees 1,995
------------------------------------------------------------
Accrued administrative services fees 200
------------------------------------------------------------
Accrued distribution fees 70,400
------------------------------------------------------------
Accrued trustees' fees 921
------------------------------------------------------------
Accrued transfer agent fees 63,325
------------------------------------------------------------
Accrued operating expenses 46,895
============================================================
Total liabilities 20,773,375
============================================================
Net assets applicable to shares outstanding $509,611,140
____________________________________________________________
============================================================
NET ASSETS:
Class A $507,798,864
____________________________________________________________
============================================================
Institutional Class $ 1,812,276
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 49,503,096
____________________________________________________________
============================================================
Institutional Class 176,708
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 10.26
------------------------------------------------------------
Offering price per share:
(Net asset value of $10.26 divided by
99.00%) $ 10.36
____________________________________________________________
============================================================
Institutional Class
Net asset value and offering price per share $ 10.26
____________________________________________________________
============================================================
|
STATEMENT OF OPERATIONS
For the year ended July 31, 2001
INVESTMENT INCOME:
Interest $20,332,704
============================================================
EXPENSES:
Advisory fees 712,990
------------------------------------------------------------
Administrative services fees 81,565
------------------------------------------------------------
Custodian fees 20,660
------------------------------------------------------------
Distribution fees -- Class A 532,019
------------------------------------------------------------
Transfer agent fees -- Class A 421,035
------------------------------------------------------------
Transfer agent fees--Institutional Class 2,149
------------------------------------------------------------
Trustees' fees 8,623
------------------------------------------------------------
Other 209,513
============================================================
Total expenses 1,988,554
============================================================
Less: Expenses reimbursed (1,600)
------------------------------------------------------------
Expenses paid indirectly (6,385)
============================================================
Net expenses 1,980,569
============================================================
Net investment income 18,352,135
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 3,891,256
------------------------------------------------------------
Change in net unrealized appreciation of
investment securities 6,182,255
============================================================
Net gain from investment securities 10,073,511
============================================================
Net increase in net assets resulting from
operations $28,425,646
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-64
STATEMENT OF CHANGES IN NET ASSETS
For the years ended July 31, 2001 and 2000
2001 2000
------------ -------------
OPERATIONS:
Net investment income $ 18,352,135 $ 17,912,729
-------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 3,891,256 (4,797,259)
-------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 6,182,255 2,049,768
===========================================================================================
Net increase in net assets resulting from operations 28,425,646 15,165,238
===========================================================================================
Distributions to shareholders from net investment income:
Class A (18,285,550) (17,525,848)
-------------------------------------------------------------------------------------------
Institutional Class (99,845) (416,635)
-------------------------------------------------------------------------------------------
Share transactions-net:
Class A 197,751,141 (87,282,579)
-------------------------------------------------------------------------------------------
Institutional Class (693,669) (14,575,249)
===========================================================================================
Net increase (decrease) in net assets 207,097,723 (104,635,073)
===========================================================================================
NET ASSETS:
Beginning of year 302,513,417 407,148,490
===========================================================================================
End of year $509,611,140 $ 302,513,417
___________________________________________________________________________________________
===========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $508,729,380 $ 311,671,908
-------------------------------------------------------------------------------------------
Undistributed net investment income (3,506) 29,754
-------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (5,023,381) (8,914,637)
-------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities 5,908,647 (273,608)
===========================================================================================
$509,611,140 $ 302,513,417
___________________________________________________________________________________________
===========================================================================================
|
See Notes to Financial Statements.
FS-65
NOTES TO FINANCIAL STATEMENTS
July 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management company consisting of seven separate
series portfolios each having an unlimited number of shares of beneficial
interests. The Fund currently offers two different classes of shares: Class A
shares and the Institutional Class. Matters affecting each portfolio or class
are voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to seek liquidity with minimum
fluctuation in principal value and, consistent with this objective, the highest
total return achievable.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Debt obligations that are issued or guaranteed by the U.S. Treasury are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value.
B. Securities Transactions and Investment Income -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date.
C. Distributions -- Distributions from income are declared daily and paid monthly and are recorded on ex-dividend date. Distributions from net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $4,955,896 as of July 31, 2001
which may be carried forward to offset future taxable gains, if any, which
expires in varying increments, if not previously utilized, in the year 2009.
E. Bond Premiums -- It has been the policy of the Fund not to amortize market premiums on bonds for financial reporting purposes. In November 2000, a revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was issued and is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the Fund to amortize premium and discount on all fixed-income securities by the cumulative amount of amortization that would have been recognized had amortization been in effect from the purchase date of each holding. Adopting this accounting principle will not effect the Fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of Operations. The Fund expects that the impact of the adoption of this principle will not be material to the financial statements.
F. Expenses -- Distribution expenses and certain transfer agency expenses directly attributable to a class of shares are charged to those classes' operations. All other expenses which are attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.20% on
the first $500 million of the Fund's average daily net assets, plus 0.175% on
the Fund's average daily net assets in excess of $500 million. During the year
ended July 31, 2001, AIM reimbursed the Institutional Class expenses of $1,600.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2001, AIM was paid
$81,565 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund.
FS-66
During the year ended July 31, 2001, AFS was paid $177,606 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Institutional Class. The Trust has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares. The Fund, pursuant to the Plan, pays AIM Distributors compensation at
the annual rate of 0.15% of the Fund's average daily net assets of Class A
shares. The Plan is designed to compensate AIM Distributors for certain
promotional and other sales related costs and provides periodic payments to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own the appropriate
class of shares of the Fund. Any amounts not paid as a service fee under the
Plan would constitute an asset-based sales charge. The Plan also imposes a cap
on the total sales charges, including asset-based sales charges that may be paid
by the Fund. For the year ended July 31, 2001, the Fund paid AIM Distributors
$532,019 as compensation under the Plan.
AIM Distributors received commissions of $100,352 from sales of the Class A
shares of the Fund during the year ended July 31, 2001. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2001, the Fund paid legal fees of $4,480 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2001, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $6,385 under expense offset arrangements which resulted in a reduction of the Fund's expenses of $6,385.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an "interested person" of AIM. The Trust invests trustees' fees, if so elected by a trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2001,
the Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.09% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2001 was
$673,543,779 and $492,556,658, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2001 was as follows:
Aggregate unrealized appreciation of investment securities $5,908,646 --------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (67,484) ========================================================= Net unrealized appreciation of investment securities $5,841,162 _________________________________________________________ ========================================================= Cost of investments for tax purposes is $484,949,378. |
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the year ended July 31, 2001 and 2000 were as follows:
2001 2000
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
Sold:
Class A 53,134,054 $ 540,139,806 20,491,334 $ 204,290,029
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 40,446 411,876 191,454 1,910,678
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,557,471 15,770,377 1,468,058 14,627,764
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 184 1,869 891 11,992
==========================================================================================================================
Reacquired:
Class A (35,304,325) (358,159,042) (30,726,141) (306,200,372)
--------------------------------------------------------------------------------------------------------------------------
Institutional Class (110,347) (1,107,414) (1,653,776) (16,497,919)
==========================================================================================================================
19,317,483 $ 197,057,472 (10,228,180) $(101,857,828)
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
FS-67
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
----------------------------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------
2001(a) 2000 1999 1998 1997
-------- -------- -------- -------- --------
Net asset value, beginning of period $ 9.96 $ 10.03 $ 10.07 $ 10.07 $ 9.97
------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.52 0.51 0.47 0.53 0.54
------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.31 (0.07) (0.04) -- 0.10
========================================================================================================================
Total from investment operations 0.83 0.44 0.43 0.53 0.64
========================================================================================================================
Less distributions from net investment income (0.53) (0.51) (0.47) (0.53) (0.54)
========================================================================================================================
Net asset value, end of period $ 10.26 $ 9.96 $ 10.03 $ 10.07 $ 10.07
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 8.53% 4.50% 4.32% 5.42% 6.55%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $507,799 $300,058 $390,018 $345,355 $389,812
========================================================================================================================
Ratio of expenses to average net assets 0.56%(c) 0.54% 0.54% 0.54% 0.54%
========================================================================================================================
Ratio of net investment income to average net assets 5.15%(c) 5.07% 4.61% 5.29% 5.35%
========================================================================================================================
Portfolio turnover rate 137% 122% 184% 133% 130%
________________________________________________________________________________________________________________________
========================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Does not include sales charges.
(c) Ratios are based on average daily net assets of $354,679,396.
FS-68
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Money Market Fund And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM Money Market Fund (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2001, and the related statement of operations, statement of changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2001 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Money Market Fund at July 31, 2001, and the results of its operations, changes in its net assets, and financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 7, 2001
|
FS-69
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders AIM Money Market Fund:
We have audited the accompanying statement of changes in net assets of AIM Money Market Fund (a portfolio of AIM Investment Securities Funds) for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for the seven months ended July 31, 2000 and for each of the years in the four-year period ended December 31, 1999. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2000, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the changes in net assets of AIM Money Market Fund for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for the seven months ended July 31, 2000 and for each of the years in the four-year period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP September 1, 2000 Houston, Texas |
FS-70
SCHEDULE OF INVESTMENTS
July 31, 2001
PAR
MATURITY (000) VALUE
COMMERCIAL PAPER-38.64%(A)
ASSET-BACKED SECURITIES- COMMERCIAL LOANS/
LEASES-7.17%
Atlantis One Funding Corp.
3.55% 10/29/01 $ 15,248 $ 15,114,178
-----------------------------------------------------------------------------------
Centric Capital Corp.
4.54% 09/19/01 6,100 6,062,305
-----------------------------------------------------------------------------------
4.54% 09/20/01 5,000 4,968,472
-----------------------------------------------------------------------------------
3.58% 10/09/01 18,000 17,876,490
-----------------------------------------------------------------------------------
3.57% 10/16/01 9,500 9,428,402
-----------------------------------------------------------------------------------
Stellar Funding Group, Inc.
3.75% 09/17/01 9,497 9,450,504
-----------------------------------------------------------------------------------
3.58% 10/23/01 4,000 3,966,984
-----------------------------------------------------------------------------------
3.72% 12/31/01 23,239 22,873,993
-----------------------------------------------------------------------------------
Sweetwater Capital Corp.
4.46% 10/02/01 15,345 15,227,133
===================================================================================
104,968,461
===================================================================================
ASSET-BACKED SECURITIES-FULLY BACKED-5.96%
CXC Inc.
3.74% 08/03/01 15,900 15,896,696
-----------------------------------------------------------------------------------
Newport Funding Corp.
4.67% 08/20/01 50,000 49,876,764
-----------------------------------------------------------------------------------
Old Slip Funding Corp.
3.77% 08/06/01 21,429 21,417,780
===================================================================================
87,191,240
===================================================================================
ASSET-BACKED SECURITIES-MULTI-PURPOSE-4.35%
Falcon Asset Securitization Corp.
3.75% 09/10/01 14,000 13,941,667
-----------------------------------------------------------------------------------
Sheffield Receivables Corp.
3.67% 09/17/01 50,000 49,760,757
===================================================================================
63,702,424
===================================================================================
BANKS-5.21%
Abbey National North America Corp.
4.54% 08/21/01 15,000 14,962,167
-----------------------------------------------------------------------------------
Fortis Funding LLC
5.02% 08/01/01 9,500 9,500,000
-----------------------------------------------------------------------------------
Halifax PLC (United Kingdom)
3.53% 11/21/01 13,000 12,857,231
-----------------------------------------------------------------------------------
Stadshypotek Delaware, Inc.
3.72% 09/14/01 14,000 13,936,347
-----------------------------------------------------------------------------------
TFM S.A. de C.V. (Mexico)
3.79% 08/29/01 25,000 24,926,306
===================================================================================
76,182,051
===================================================================================
|
PAR
MATURITY (000) VALUE
DIVERSIFIED FINANCIAL SERVICES-8.06%
Bills Securitisation Ltd. (Germany)
4.78% 08/24/01 $ 5,000 $ 4,984,731
-----------------------------------------------------------------------------------
3.72% 11/13/01 25,000 24,731,333
-----------------------------------------------------------------------------------
Diageo Capital PLC (United Kingdom)
4.07% 09/28/01 46,000 45,698,368
-----------------------------------------------------------------------------------
National Rural Utilities Corp.
4.48% 08/23/01 15,000 14,958,933
-----------------------------------------------------------------------------------
PACCAR Financial Corp.
3.68% 09/13/01 10,690 10,643,011
-----------------------------------------------------------------------------------
Sony Capital Corp.
4.87% 08/21/01 17,000 16,954,006
===================================================================================
117,970,382
===================================================================================
MOVIES & ENTERTAINMENT-1.36%
Walt Disney Co. (The)
4.20% 08/17/01 20,000 19,962,667
===================================================================================
MULTI-LINE INSURANCE-4.42%
GE Financial Assurance Holdings, Inc.
3.69% 09/07/01 65,000 64,753,487
===================================================================================
SPECIALTY CHEMICALS-2.11%
Henkel Corp.
5.02% 08/03/01 11,000 10,996,932
-----------------------------------------------------------------------------------
4.38% 09/12/01 20,000 19,897,800
===================================================================================
30,894,732
===================================================================================
Total Commercial Paper (Cost
$565,625,444) 565,625,444
===================================================================================
SHORT-TERM OBLIGATIONS-11.47%
BANKS-3.69%
Atlantic American Corp., Weekly VRD Series
Bonds (LOC-Wachovia Bank),
3.83%(b) 06/01/09 12,500 12,500,000
-----------------------------------------------------------------------------------
Capital One Funding Corp., Floating Rate
Notes, Weekly VRD Series Notes (LOC-Banc
One Capital Markets),
3.85%(b) 08/01/12 10,477 10,477,000
-----------------------------------------------------------------------------------
Family Express Corp., LLC, Loan Program
Notes, Monthly VRD Series Notes (LOC-First
of America Bank N.A.),
3.84%(b) 04/01/28 9,580 9,580,000
-----------------------------------------------------------------------------------
KBL Capital Fund Inc., Loan Program Notes,
Weekly VRD Series Notes (LOC-National City
Bank),
3.84%(b) 05/01/27 17,185 17,185,000
-----------------------------------------------------------------------------------
|
FS-71
PAR
MATURITY (000) VALUE
BANKS-(CONTINUED)
R.G. Ray Corp., Weekly VRD Series RB
(LOC-LaSalle Bank N.A.),
3.89%(b) 01/01/15 $ 4,325 $ 4,325,000
===================================================================================
54,067,000
===================================================================================
DIVERSIFIED FINANCIAL SERVICES-1.71%
Credit Suisse First Boston (Switzerland),
Gtd. Floating Rate Medium Term Notes,
3.98%(b)(c) 05/06/02 25,000 25,000,000
===================================================================================
U.S. GOVERNMENT AGENCIES-6.07%
Federal Home Loan Bank, Floating Rate Notes,
Unsec. Bonds,
3.76%(b) 08/13/02 25,000 24,991,326
-----------------------------------------------------------------------------------
Overseas Private Investment, Gtd. Floating
Rate Participation Ctfs.,
3.82%(b) 07/15/03 10,000 10,000,000
-----------------------------------------------------------------------------------
3.94%(b) 05/15/15 53,900 53,900,000
===================================================================================
88,891,326
===================================================================================
Total Short-Term Obligations (Cost
$167,958,326) 167,958,326
===================================================================================
TAXABLE MUNICIPAL BONDS-6.10%
HEALTH CARE FACILITIES-2.42%
Colorado Health Facilities Authority; Monthly
VRD Series E RB (LOC-KBC Bank N.V.),
3.85%(b) 03/01/30 9,750 9,750,000
-----------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Loyola University Health Systems); Monthly
VRD Series C RB.,
3.80%(b)(d) 07/01/24 9,500 9,500,000
-----------------------------------------------------------------------------------
SSM Health Care (SSMC Obligated
Group); Montana Health Facilities, Monthly
VRD Series E RB.,
3.80%(b)(d) 06/01/25 16,200 16,200,000
===================================================================================
35,450,000
===================================================================================
INDUSTRIAL CONGLOMERATE-3.17%
Mississippi Business Finance Corp. (GE
Plastics Project); Mississippi Industrial
Development, Monthly VRD Series RB,
3.84%(b) 02/01/23 10,000 10,000,000
-----------------------------------------------------------------------------------
Mississippi Business Finance Corp.
(Telepak Inc. Project); Mississippi
Industrial Development, Monthly VRD Series
RB (LOC-First Union National Bank),
3.83%(b) 09/01/15 20,000 20,000,000
-----------------------------------------------------------------------------------
|
PAR
MATURITY (000) VALUE
Mississippi Business Finance Corp.
(Viking Range Corp. Project); Mississippi
Industrial Development, Monthly VRD Series
RB
(LOC-Bank of America N.A.),
3.85%(b) 06/01/15 $ 16,365 $ 16,365,000
===================================================================================
46,365,000
===================================================================================
WATER UTILITIES-0.51%
Port Blakely Communities; Monthly VRD Series
C RB (LOC-Bank of America N.A.),
3.85%(b) 02/15/2021 7,500 7,500,000
===================================================================================
Total Taxable Municipal Bonds (Cost
$89,315,000) 89,315,000
===================================================================================
CERTIFICATES OF DEPOSIT-15.10%
BANKS-15.10%
Banque Nationale de Paris (France)
3.61% 12/21/01 40,000 40,000,000
-----------------------------------------------------------------------------------
Bayerische Hypo und Vereinsbank (Germany)
3.63% 10/03/01 50,000 50,000,000
-----------------------------------------------------------------------------------
First Union National Bank
4.03%(e) 02/06/02 41,000 41,000,000
-----------------------------------------------------------------------------------
Firstar Bank N.A.
3.78% 10/15/01 25,000 25,000,000
-----------------------------------------------------------------------------------
Svenska Handelsbanken A.B. (Sweden)
3.80% 05/13/02 15,000 14,969,938
-----------------------------------------------------------------------------------
UBS A.G. (Switzerland)
3.63% 12/14/01 50,000 50,000,000
===================================================================================
Total Certificates of Deposit (Cost
$220,969,938) 220,969,938
===================================================================================
MASTER NOTE AGREEMENTS-10.93%(F)
DIVERSIFIED FINANCIAL SERVICES-10.93%
Goldman Sachs Group, Inc. (The)
4.01%(g) 03/21/02 56,000 56,000,000
-----------------------------------------------------------------------------------
Merrill Lynch Mortgage Capital Inc.
4.07%(g) 08/20/01 59,000 59,000,000
-----------------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co.
3.98%(h) 09/10/01 45,000 45,000,000
===================================================================================
Total Master Note Agreements (Cost
$160,000,000) 160,000,000
===================================================================================
Total Investments (excluding Repurchase
Agreements) (Cost $1,203,868,708) 1,203,868,708
===================================================================================
|
FS-72
PAR
MATURITY (000) VALUE
REPURCHASE AGREEMENTS-16.17%(I)
CIBC World Market Corp.
3.86%(j) 08/01/01 $225,000 $ 225,000,000
-----------------------------------------------------------------------------------
Salomon Smith Barney Inc.
3.86%(k) 08/01/01 11,736 11,735,638
===================================================================================
Total Repurchase Agreements (Cost
$236,735,638) 236,735,638
===================================================================================
TOTAL INVESTMENTS-98.41% 1,440,604,346(l)
===================================================================================
OTHER ASSETS LESS LIABILITIES-1.59% 23,256,680
===================================================================================
NET ASSETS-100.00% $1,463,861,026
___________________________________________________________________________________
===================================================================================
|
Investment Abbreviations:
Ctfs. - Certificates Gtd. - Guaranteed LOC - Letter of Credit RB - Revenue Bonds Unsec. - Unsecured VRD - Variable Rate Demand |
Notes to Schedule of Investments:
(a) Some commercial paper is traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(b) Demand securities; payable upon demand by the Fund with usually no more
than seven calendar days' notice. Interest rates are redetermined
periodically. Rates shown are in effect on 07/31/01.
(c) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The market value of this security at 07/31/01 represented
1.71% of the Fund's net assets.
(d) Secured by bond insurance provided by MBIA Insurance Co.
(e) Interest rates are redetermined daily. Rate shown is the rate in effect on
07/31/01.
(f) The investments in master note agreements are through participation in
joint accounts with other mutual funds, private accounts, and certain
non-registered investment companies managed by the investment advisor or
its affiliates.
(g) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one business days notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
07/31/01.
(h) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon seven business days notice. Interest rates on
master notes are redetermined periodically. Rate shown is the rate of
effect on 7/31/01.
(i) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(j) Joint repurchase agreement entered into 07/31/01 with a maturing value of
$250,026,806. Collateralized by $238,247,000 par value of U.S. Government
obligations, 4.25% to 7.50% due 12/31/01 to 02/15/29 with an aggregate
market value at 07/31/01 of $255,001,138.
(k) Joint repurchase agreement entered into 07/31/01 with a maturing value of
$250,026,806. Collateralized by $251,950,000 par value of U.S. Government
obligations, 0% to 6.00% due 11/29/01 to 02/15/26 with an aggregate market
value at 07/31/01 of $255,621,878.
(l) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-73
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2001
ASSETS:
Investments, excluding repurchase agreements,
at value (amortized cost) $1,203,868,708
-------------------------------------------------------------
Repurchase Agreements (amortized cost) 236,735,638
-------------------------------------------------------------
Receivables for:
Investments sold 307,000
-------------------------------------------------------------
Fund shares sold 38,094,773
-------------------------------------------------------------
Interest 2,498,476
-------------------------------------------------------------
Investment for deferred compensation plan 97,296
-------------------------------------------------------------
Other assets 111,954
=============================================================
Total assets 1,481,713,845
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 16,408,270
-------------------------------------------------------------
Dividends 205,903
-------------------------------------------------------------
Deferred compensation plan 97,296
-------------------------------------------------------------
Accrued advisory fees 7,829
-------------------------------------------------------------
Accrued distribution fees 641,742
-------------------------------------------------------------
Accrued trustees' fees 1,281
-------------------------------------------------------------
Accrued transfer agent fees 387,958
-------------------------------------------------------------
Accrued operating expenses 102,540
=============================================================
Total liabilities 17,852,819
=============================================================
Net assets applicable to shares outstanding $1,463,861,026
_____________________________________________________________
=============================================================
NET ASSETS:
AIM Cash Reserve Shares $ 937,532,441
_____________________________________________________________
=============================================================
Class B $ 439,444,761
_____________________________________________________________
=============================================================
Class C $ 86,883,824
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
AIM Cash Reserve Shares 937,503,421
_____________________________________________________________
=============================================================
Class B 439,430,949
_____________________________________________________________
=============================================================
Class C 86,881,885
_____________________________________________________________
=============================================================
AIM Cash Reserve Shares:
Net asset value and offering price per
share $ 1.00
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per
share $ 1.00
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per
share $ 1.00
_____________________________________________________________
=============================================================
|
STATEMENT OF OPERATIONS
For the year ended July 31, 2001
INVESTMENT INCOME:
Interest $76,025,870
============================================================
EXPENSES:
Advisory fees 7,202,907
------------------------------------------------------------
Administrative services fees 150,215
------------------------------------------------------------
Custodian fees 62,868
------------------------------------------------------------
Distribution fees -- AIM Cash Reserve Shares 2,283,574
------------------------------------------------------------
Distribution fees -- Class B 3,621,846
------------------------------------------------------------
Distribution fees -- Class C 649,673
------------------------------------------------------------
Transfer agent fees -- AIM Cash Reserve Shares 1,877,277
------------------------------------------------------------
Transfer agent fees -- Class B 744,360
------------------------------------------------------------
Transfer agent fees -- Class C 133,521
------------------------------------------------------------
Trustees' fees 11,273
------------------------------------------------------------
Other 720,405
============================================================
Total expenses 17,457,919
============================================================
Less: Expenses paid indirectly (25,114)
============================================================
Net expenses 17,432,805
============================================================
Net investment income 58,593,065
============================================================
Net realized gain from investment securities 26,400
============================================================
Net increase in net assets resulting from
operations $58,619,465
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-74
STATEMENT OF CHANGES IN NET ASSETS
For the year ended July 31, 2001, the seven months ended July 31, 2000 and the
year ended December 31, 1999
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED
JULY 31, JULY 31, DECEMBER 31,
2001 2000 1999
-------------- ------------------- --------------
OPERATIONS:
Net investment income $ 58,593,065 $ 37,001,092 $ 54,728,601
---------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities 26,400 -- 83
=====================================================================================================================
Net increase in net assets resulting from operations 58,619,465 37,001,092 54,728,684
=====================================================================================================================
Distributions to shareholders from net investment income:
AIM Cash Reserve Shares (42,494,569) (27,493,666) (40,668,074)
---------------------------------------------------------------------------------------------------------------------
Class B (13,662,655) (8,335,400) (12,546,032)
---------------------------------------------------------------------------------------------------------------------
Class C (2,435,841) (1,172,026) (1,514,495)
---------------------------------------------------------------------------------------------------------------------
Share transactions-net:
AIM Cash Reserve Shares 25,475,028 (77,443,140) (189,587,232)
---------------------------------------------------------------------------------------------------------------------
Class B 150,107,943 (115,577,813) 94,371,540
---------------------------------------------------------------------------------------------------------------------
Class C 41,425,293 (11,177,934) 29,244,201
=====================================================================================================================
Net increase (decrease) in net assets 217,034,664 (204,198,887) (65,971,408)
=====================================================================================================================
NET ASSETS:
Beginning of year 1,246,826,362 1,451,025,249 1,516,996,657
=====================================================================================================================
End of year $1,463,861,026 $1,246,826,362 $1,451,025,249
_____________________________________________________________________________________________________________________
=====================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,463,797,435 $1,246,789,171 $1,450,988,058
---------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 63,591 37,191 37,191
=====================================================================================================================
$1,463,861,026 $1,246,826,362 $1,451,025,249
_____________________________________________________________________________________________________________________
=====================================================================================================================
|
See Notes to Financial Statements.
FS-75
NOTES TO FINANCIAL STATEMENTS
July 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Money Market Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers three different classes of shares: AIM Cash
Reserve shares, Class B shares and Class C shares. AIM Cash Reserve shares are
sold at net asset value. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to provide as high a level of
current income as is consistent with the preservation of capital and liquidity.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- The Fund's securities are valued on the basis of amortized cost which approximates market value as permitted under Rule 2a-7 of the 1940 Act. This method values a security at its cost on the date of purchase and thereafter, assumes a constant amortization to maturity of any discount or premiums.
B. Securities Transactions and Investment Income -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income, adjusted for amortization of premiums and discounts on investments, is recorded on the accrual basis from settlement date.
C. Distributions -- It is the policy of the Fund to declare dividends from net investment income daily and pay monthly. Distributions from net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements.
E. Expenses -- Distribution expenses and certain transfer agency expenses directly attributable to a class of shares are charged to those classes' operations. All other expenses which are attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.55% on the first $1
billion of the Fund's average daily net assets, plus 0.50% on the Fund's average
daily net assets in excess of $1 billion.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2001, AIM was paid
$150,215 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended July 31, 2001, AFS was
paid $1,344,055 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the AIM
Cash Reserve, 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 AIM
Cash Reserve shares, Class B shares and Class C shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.25% of the Fund's average daily net assets of AIM Cash
Reserve shares and 1.00% of the average daily net assets of Class B and C
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the AIM Cash Reserve, Class B or Class C shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own the appropriate class of shares
of the Fund. Any amounts not paid as a service fee under the Plans would
constitute an asset-based sales charge. The Plans also impose a cap on the total
sales charges, including asset-based sales charges that may be paid by the
respective classes. For the year ended July 31, 2001, the AIM Cash Reserve,
Class B and Class C shares paid AIM Distributors $2,283,574, $3,621,846 and
$649,673, respectively, as compensation under the Plans.
During the year ended July 31, 2001, AIM Distributors received $2,800,220 in
contingent deferred sales charges imposed on redemptions of Fund shares.
FS-76
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2001, the Fund paid legal fees of $6,064 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2001, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $24,964 and reductions in custodian fees of $150 under expense offset arrangements which resulted in a reduction of the Fund's expenses of $25,114.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an "interested person" of AIM. The Trust invests trustees' fees, if so elected by a trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2001,
the Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.09% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the year ended July 31, 2001, the
seven-month period ended July 31, 2000 and the year ended December 31, 1999 were
as follows:
YEAR ENDED SEVEN MONTHS ENDED
JULY 31, 2001 JULY 31, 2000
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
Sold:
Cash Reserve Class 5,502,283,046 $ 5,502,283,046 3,591,529,412 $ 3,591,529,412
---------------------------------------------------------------------------------------------------
Class B 805,015,989 805,015,989 509,744,331 509,744,331
---------------------------------------------------------------------------------------------------
Class C 362,537,320 362,537,320 156,197,199 156,197,199
===================================================================================================
Issued as reinvestment of
dividends:
Cash Reserve Class 37,043,906 37,043,906 24,814,673 24,814,673
---------------------------------------------------------------------------------------------------
Class B 11,949,832 11,949,832 7,211,243 7,211,243
---------------------------------------------------------------------------------------------------
Class C 2,121,575 2,121,575 1,019,008 1,019,008
===================================================================================================
Reacquired:
Cash Reserve Class (5,513,851,924) (5,513,851,924) (3,693,787,225) (3,693,787,225)
---------------------------------------------------------------------------------------------------
Class B (666,857,878) (666,857,878) (632,533,387) (632,533,387)
---------------------------------------------------------------------------------------------------
Class C (323,233,602) (323,233,602) (168,394,141) (168,394,141)
===================================================================================================
217,008,264 $ 217,008,264 (204,198,887) $ (204,198,887)
___________________________________________________________________________________________________
===================================================================================================
YEAR ENDED
DECEMBER 31, 1999
--------------------------------
SHARES AMOUNT
-------------- ---------------
Sold:
Cash Reserve Class 8,060,651,699 $ 8,060,651,699
----------------------------------------------------------------
Class B 1,129,278,732 1,129,278,732
----------------------------------------------------------------
Class C 387,953,922 387,953,922
================================================================
Issued as reinvestment of
dividends:
Cash Reserve Class 34,229,027 34,229,027
----------------------------------------------------------------
Class B 10,880,999 10,880,999
----------------------------------------------------------------
Class C 1,259,465 1,259,465
================================================================
Reacquired:
Cash Reserve Class (8,284,467,958) (8,284,467,958)
----------------------------------------------------------------
Class B (1,045,788,191) (1,045,788,191)
----------------------------------------------------------------
Class C (359,969,186) (359,969,186)
================================================================
(65,971,491) $ (65,971,491)
________________________________________________________________
================================================================
|
FS-77
NOTE 7-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CASH RESERVE
----------------------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
JULY 31, JULY 31, ----------------------------------------------
2001 2000(a) 1999 1998 1997 1996
---------- ------------------ -------- ---------- -------- --------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0467 0.0300 0.0414 0.0453 0.0456 0.0433
=================================================================================================================================
Less distributions from net investment
income (0.0467) (0.0300) (0.0414) (0.0453) (0.0456) (0.0433)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 4.77% 3.03% 4.22% 4.62% 4.66% 4.41%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $937,532 $912,042 $989,478 $1,179,072 $344,117 $315,470
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.06%(c) 1.07%(d) 1.04% 0.99% 1.05% 1.08%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average
net assets 4.61%(c) 5.15%(d) 4.16% 4.53% 4.55% 4.32%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $913,429,460.
(d) Annualized.
CLASS B
--------------------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
JULY 31, JULY 31, --------------------------------------------
2001 2000(a) 1999 1998 1997 1996
---------- ------------------ -------- -------- -------- --------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0392 0.0256 0.0339 0.0371 0.0378 0.0360
=================================================================================================================================
Less distributions from net investment income (0.0392) (0.0256) (0.0339) (0.0371) (0.0378) (0.0360)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 3.99% 2.59% 3.45% 3.78% 3.84% 3.66%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $439,445 $289,327 $404,911 $310,534 $116,058 $ 91,148
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.81%(c) 1.82%(d) 1.79% 1.81% 1.80% 1.81%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net
assets 3.86%(c) 4.40%(d) 3.41% 3.71% 3.80% 3.60%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $362,184,611.
(d) Annualized.
FS-78
NOTE 7-FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
-----------------------------------------------------------------------------------
AUGUST 4, 1997
YEAR ENDED (DATES SALES
YEAR ENDED SEVEN MONTHS ENDED DECEMBER 31, COMMENCED) TO
JULY 31, JULY 31, -------------------- DECEMBER 31,
2001 2000(a) 1999 1998 1997
---------- ------------------ -------- -------- -----------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0393 0.0256 0.0339 0.0371 0.0158
=================================================================================================================================
Less distributions from net investment
income (0.0393) (0.0256) (0.0339) (0.0371) (0.0158)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 4.00% 2.59% 3.44% 3.78% 3.92%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 86,884 $ 45,457 $ 56,636 $ 27,391 $ 8,287
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.81%(c) 1.82%(d) 1.79% 1.81% 1.80%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average
net assets 3.86%(c) 4.40%(d) 3.41% 3.71% 3.80%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $64,967,287.
(d) Annualized.
FS-79
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Municipal Bond Fund And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM Municipal Bond Fund (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2001, and the related statement of operations, statement of changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2001 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Municipal Bond Fund at July 31, 2001, and the results of its operations, changes in its net assets, and financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 7, 2001
|
FS-80
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders AIM Municipal Bond Fund:
We have audited the accompanying statement of changes in net assets of AIM Municipal Bond Fund (a portfolio of AIM Investment Securities Funds) for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for the seven months ended July 31, 2000 and for each of the years in the four-year period ended December 31, 1999. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2000, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the changes in net assets of AIM Municipal Bond Fund for the seven months ended July 31, 2000 and the year ended December 31, 1999, and the financial highlights for the seven months ended July 31, 2000 and for each of the years in the four-year period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP September 1, 2000 Houston, Texas |
FS-81
SCHEDULE OF INVESTMENTS
July 31, 2001
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
ALABAMA-0.91%
Alabama (State of) Public School & College
Authority; Capital Improvement Series 1999
C RB
5.75%, 07/01/17 AA Aa3 $1,400 $ 1,506,806
-------------------------------------------------------------------------------------
Courtland Industrial Development Board
(Champion International Corp. Project);
Refunding Environmental Improvement Series
IDR
6.40%, 11/01/26(b) -- Baa1 2,315 2,372,597
=====================================================================================
3,879,403
=====================================================================================
ALASKA-0.56%
Alaska (State of) Housing Finance Corp.;
Collateralized First Veterans' Home
Mortgage Series A-2 RB
6.75%, 12/01/24(b) AAA Aaa 2,165 2,226,529
-------------------------------------------------------------------------------------
Alaska (State of) Housing Finance Corp.;
Collateralized First Veterans' Mortgage
Program Series RB
6.88%, 06/01/33 AAA Aaa 140 142,124
=====================================================================================
2,368,653
=====================================================================================
ARIZONA-1.26%
Arizona (State of) Educational Loan Marketing
Corp.; RB 6.13%, 09/01/02(b) -- Aa2 1,900 1,948,374
-------------------------------------------------------------------------------------
Pima (County of) Unified School District No.
10 (Amphitheater); School Improvement
Series 1992 E GO
6.50%, 07/01/05 A+ A2 3,100 3,438,272
=====================================================================================
5,386,646
=====================================================================================
ARKANSAS-0.36%
Jefferson (County of) (Regional Medical
Center Project); Refunding & Improvement
Hospital Series 2001 RB
5.85%, 06/01/26 A -- 500 503,670
-------------------------------------------------------------------------------------
Van Buren (County of) Refunding Sales and Use
Tax Series 2000 RB
5.60%, 12/01/25(c) -- Aaa 1,000 1,048,020
=====================================================================================
1,551,690
=====================================================================================
CALIFORNIA-1.89%
Abag Financing Authority for Non-Profit
Corps. (Lincoln Glen Manor Senior
Citizens); Series 2000 COP
6.10%, 02/15/25 A+ -- 1,000 1,071,350
-------------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit
Corps. (Lytton Gardens Inc.); Series 1999
COP
6.00%, 02/15/19 A+ -- 2,085 2,184,183
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
CALIFORNIA-(CONTINUED)
Abag Financing Authority for Non-Profit
Corps. (Odd Fellows Home of California);
Series 1999 COP
6.00%, 08/15/24 A+ -- $1,000 $ 1,062,690
-------------------------------------------------------------------------------------
California (State of) Educational Facilities
Authority (Fresno Pacific University);
Series 2000 A RB
6.05%, 03/01/11 -- Baa3 1,350 1,501,605
-------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency (California
Toll Road Project); Senior Lien Series A RB
6.00%, 01/01/10(d)(e) AAA Aaa 400 460,656
-------------------------------------------------------------------------------------
Los Angeles (County of); Series 2001 RB
5.15%, 02/12/06(c)(f) -- -- 470 475,439
-------------------------------------------------------------------------------------
Sacramento (City of) California City
Financing Authority (Senior Convention
Center Hotel); Series 1999 A RB
6.25%, 01/01/30(f) -- -- 750 759,233
-------------------------------------------------------------------------------------
Sacramento (City of) California Cogeneration
Authority (Procter & Gamble Project);
Series 1995 RB
7.00%, 07/01/04 BBB -- 500 550,055
=====================================================================================
8,065,211
=====================================================================================
COLORADO-1.93%
Adams (County of) Colorado School District
No. 1; Unlimited Tax Series 1992 A GO
6.63%, 12/01/02(d)(e) AAA Aaa 500 529,820
-------------------------------------------------------------------------------------
Aurora (City of); Public Improvement Series
2000 COP
5.50%, 12/01/30(c) AAA Aaa 3,230 3,329,549
-------------------------------------------------------------------------------------
Colorado (State of) E-470 Public Highway
Authority; Series 2000 A RB
5.75%, 09/01/35(c) AAA Aaa 1,000 1,071,070
-------------------------------------------------------------------------------------
Highlands Ranch Metro District No. 1;
Unlimited Tax Refunding & Improvement
Series A GO
7.30%, 09/01/02(d)(e) NRR NRR 500 538,670
-------------------------------------------------------------------------------------
Mesa County School District No. 51; Series
1989 B COP
6.88%, 12/01/05(c) AAA Aaa 1,465 1,497,860
-------------------------------------------------------------------------------------
Mountain Village Metro District (San Miguel
County); Unlimited Tax Series GO
7.95%, Refunding, 12/01/02(d)(e) NRR NRR 50 53,762
-------------------------------------------------------------------------------------
7.95%, Unrefunded Balance, 12/01/03(f) -- -- 220 229,231
-------------------------------------------------------------------------------------
|
FS-82
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
COLORADO-(CONTINUED)
Northwest Parkway Public Highway Authority;
Sr. Series 2001 A RB
5.25%, 06/15/41(c) AAA Aaa $1,000 $ 999,930
=====================================================================================
8,249,892
=====================================================================================
CONNECTICUT-1.59%
Connecticut (State of); General Purpose
Public Improvement Series 1992-A GO
6.50%, 03/15/02(d)(e) NRR NRR 5,500 5,738,425
-------------------------------------------------------------------------------------
Connecticut (State of) (Bradley International
Airport); Special Obligation Parking Series
2000 A RB
6.60%, 07/01/24(b) A -- 1,000 1,032,910
=====================================================================================
6,771,335
=====================================================================================
DELAWARE-0.07%
Delaware (State of) Economic Development
Authority (Osteopathic Hospital
Association); Series 1993 A RB
6.75% 01/01/13(d) NRR Aaa 250 296,368
=====================================================================================
DISTRICT OF COLUMBIA-0.47%
District of Columbia (George Washington
University Project); Series 2001 A RB
5.13%, 09/15/31(c) AAA Aaa 1,000 979,650
-------------------------------------------------------------------------------------
District of Columbia (Gonzaga College High
School); Series 1999 RB
5.38%, 07/01/19(c) AAA Aaa 1,000 1,035,310
=====================================================================================
2,014,960
=====================================================================================
FLORIDA-3.63%
Broward (County of) School Board; Series 2001
A COP
5.25%, 07/01/24(c) AAA Aaa 1,000 1,012,390
-------------------------------------------------------------------------------------
Capital Trust Agency (Reliance Community
Revitalization Project); Multi-Family
Housing VRD Series 1999 B RB (Acquired
11/03/00; Cost $1,281,000)
2.79%, 12/01/32(g)(h) AAA -- 1,281 1,281,000
-------------------------------------------------------------------------------------
Crossings at Fleming Island (Community
Development District Special Assessment);
Refunding Series 2000 B RB
5.80%, 05/01/16(c) AAA Aaa 1,000 1,087,710
-------------------------------------------------------------------------------------
Escambia (County of) (Champion International
Corp. Project); PCR
6.90%, 08/01/22(b) BBB Baa1 1,125 1,179,742
-------------------------------------------------------------------------------------
Escambia (County of) Health Facilities
Authority (Health Care Facility
Loan-Veterans Hospital Project); Hospital
Series 2000 RB
5.95%, 07/01/20(c) -- Aaa 1,000 1,102,310
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
FLORIDA-(CONTINUED)
Jacksonville (City of) Electric Authority;
Water & Sewer Series 2000 A RB
5.30%, 10/01/30 AA- Aa3 $1,000 $ 1,002,510
-------------------------------------------------------------------------------------
Miami (City of) Dade County Florida Aviation
(Miami International Airport); Series 2000
B RB
5.75%, 10/01/29(c) AAA Aaa 2,000 2,126,300
-------------------------------------------------------------------------------------
Miami (City of) Parking Facilities; Series
1992 A RB
6.70%, 10/01/01(d)(e) NRR NRR 1,120 1,149,299
-------------------------------------------------------------------------------------
Orange (County of) Health Facilities
Authority (Presbyterian Retirement
Communities Project); VRD Series 1998 RB
(LOC-Bank of America N.A.)
2.70%, 11/01/28(g) -- -- 4,239 4,239,000
-------------------------------------------------------------------------------------
Plantation (City of) Health Facilities
Authority (Covenant Retirement Communities
Inc.); Series 1992 RB
7.75%, 12/01/02(d)(e) NRR NRR 250 270,858
-------------------------------------------------------------------------------------
Sunrise (City of) Utility System; Refunding
Series 1998 RB
5.20%, 10/01/22(c) AAA Aaa 1,000 1,027,450
=====================================================================================
15,478,569
=====================================================================================
GEORGIA-0.84%
Georgia (State of) Housing and Finance
Authority (Home Ownership Opportunity
Program); Series C RB
6.50%, 12/01/11 AA+ Aa2 535 556,705
-------------------------------------------------------------------------------------
Municipal Electric Authority (Project One);
VRD Series 1994 C RB (LOC-ABN Amro Bank
N.V.)
2.50%, 01/01/20(c)(g) AAA Aaa 2,000 2,000,000
-------------------------------------------------------------------------------------
Savannah (City of) Economic Development
Authority (Hershey Foods Corp. Project);
Refunding Series 1992 IDR
6.60%, 06/01/12 A+ -- 1,000 1,037,400
=====================================================================================
3,594,105
=====================================================================================
ILLINOIS-7.82%
Chicago (City of); Refunding Unlimited Tax GO
5.25%, Series 2001 A, 01/01/33(c) AAA Aaa 3,940 3,939,803
-------------------------------------------------------------------------------------
5.50%, Series 2000 C, 01/01/40(c) AAA Aaa 1,750 1,787,450
-------------------------------------------------------------------------------------
Chicago (City of) (Cottage View Terrace
Apartments); FHA/GNMA Collateralized
Multi-Family Housing Series 2000 A RB
6.13%, 02/20/42(b) AAA -- 1,580 1,629,754
-------------------------------------------------------------------------------------
Chicago (City of) Parks District; Refunding
Unlimited Tax Series 2001 B GO
5.25%, 01/01/25(c) AAA Aaa 2,500 2,510,925
-------------------------------------------------------------------------------------
|
FS-83
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
ILLINOIS-(CONTINUED)
Cook (County of); Unlimited Tax Series 1992 B
GO
5.75%, 11/15/02(d)(e) AAA Aaa $2,000 $ 2,112,620
-------------------------------------------------------------------------------------
Freeport (City of) (Sewer System
Improvements); Unlimited Tax Series 2000 GO
6.00%, 12/01/29(c) AAA Aaa 1,000 1,083,940
-------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (Adventist Health Systems
Project); Hospital Series 1997 A RB
6.00%, 11/15/11(c) AAA Aaa 2,500 2,835,025
-------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (American College of Surgeons);
VRD Series 1996 RB (LOC-Northern Trust Co.)
2.75%, 08/01/26(g) AA- -- 3,104 3,104,000
-------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (CPC International Project);
Refunding Series 1992 PCR
6.75%, 05/01/16 -- A1 2,000 2,063,160
-------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (Evanston Northwestern Project);
VRD Series 2001 C RB
2.75%, 05/01/31(g) AA+ Aa2 1,664 1,664,000
-------------------------------------------------------------------------------------
Illinois (State of) Educational Facilities
Authority (Northwestern University); VRD
Medium Term Series 1997 RB
5.25%, 11/01/14(e)(g) AA+ Aa1 1,000 1,065,910
-------------------------------------------------------------------------------------
Illinois (State of) Educational Facilities
Authority (Robert Morris College); Series
2000 RB
5.80%, 06/01/30(c) -- Aaa 1,000 1,041,760
-------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Blessing Hospital); Series 1999
A RB
6.00%, 11/15/19(c) AAA Aaa 1,000 1,078,300
-------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Evangelical Hospital Corp.); RB
6.25%, Refunding Series 1992 A,
04/15/22(d)(e) NRR NRR 1,000 1,148,690
-------------------------------------------------------------------------------------
6.25%, Series 1992 C, 04/15/22(d)(e) NRR NRR 1,150 1,316,175
-------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Franciscan Sisters Health Care);
Series 1992 RB
6.40%, 09/01/04(d) AAA Aaa 2,000 2,183,660
-------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Memorial Hospital); Hospital
Series 1992 RB
7.25%, 05/01/02(d)(e) NRR NRR 200 210,348
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
ILLINOIS-(CONTINUED)
Illinois State University (Auxiliary
Facilities System); Series 1993 RB
5.75%, 04/01/14(c) AAA Aaa $1,000 $ 1,038,950
-------------------------------------------------------------------------------------
Peoria and Pekin and Waukegan (Cities of);
GNMA Collateralized Mortgage Series 1990 RB
7.88%, 08/01/22(b) AA -- 45 46,011
-------------------------------------------------------------------------------------
Tazewell (County of) Community High School
District No. 303 (Pekin); Unlimited Tax
Series 1996 GO
5.63%, 01/01/14(c) AAA Aaa 1,435 1,500,493
=====================================================================================
33,360,974
=====================================================================================
INDIANA-3.96%
Carmel Retirement Rental Housing (Beverly
Enterprises Project); Refunding Series RB
8.75%, 12/01/08(f) -- -- 85 89,122
-------------------------------------------------------------------------------------
East Allen (City of) Multi-School Building
Corp.; First Mortgage Series 2000 RB
5.75%, 01/15/10(d)(e) AAA Aaa 735 815,872
-------------------------------------------------------------------------------------
Indiana (State of) (Special Program); Series
2000 A RB
5.90%, 02/01/14(c) AAA Aaa 1,000 1,103,290
-------------------------------------------------------------------------------------
Indiana (State of) Health Facilities
Financing Authority (Community Hospitals of
Indiana Inc. Project); VRD Hospital Series
2000 A RB (LOC-Bank of America N.A.)
2.65%, 07/01/28(g) AA- -- 5,137 5,137,000
-------------------------------------------------------------------------------------
Indiana (State of) Housing Finance Authority;
Series B-1 RB
6.15%, 07/01/17 -- Aaa 135 141,168
-------------------------------------------------------------------------------------
Indiana (State of) Transportation Finance
Authority; Highway Series 2000 RB
5.38%, 12/01/25 AA Aa2 2,000 2,029,880
-------------------------------------------------------------------------------------
Indiana (State of) Transportation Finance
Authority (Airport Lease Facility); Series
1992 A RB
6.25%, 11/01/02(d)(e) NRR Aaa 395 418,961
-------------------------------------------------------------------------------------
6.25%, 11/01/16 AA A1 105 110,028
-------------------------------------------------------------------------------------
Indianapolis (City of) (Lake Nora and Fox
Club Project); Series 1999 A Multi-Family
RB
5.90%, 10/01/19(c) -- Aaa 1,795 1,893,061
-------------------------------------------------------------------------------------
Indianapolis (City of) Thermal Energy System;
Series 2001 A RB
5.00%, 10/01/11(c) AAA Aaa 1,500 1,576,785
-------------------------------------------------------------------------------------
Petersburg (City of) (Indiana Power &
Lighting Project); Refunding Series 1991
PCR
5.75%, 08/01/21 BBB A3 2,500 2,517,225
-------------------------------------------------------------------------------------
|
FS-84
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
INDIANA-(CONTINUED)
Wa-Nee Middle School Building Corp.;
Unlimited Tax First Mortgage Series 2001 GO
5.50%, 01/15/20(c) AAA Aaa $1,000 $ 1,053,570
=====================================================================================
16,885,962
=====================================================================================
KANSAS-0.66%
Hutchinson Health Care Facilities (Wesley
Towers); Refunding & Improvement Series
1999 A RB
6.25%, 11/15/19(f) -- -- 1,500 1,327,035
-------------------------------------------------------------------------------------
Newton (City of) (Newton Healthcare Corp.);
Hospital Series A RB
7.38%, 11/15/04(d)(e) NRR NRR 250 286,013
-------------------------------------------------------------------------------------
Overland Park (City of) Development Corp.;
First Tier Series 2001 A RB
7.38%, 01/01/32 -- -- 1,135 1,194,826
=====================================================================================
2,807,874
=====================================================================================
KENTUCKY-1.75%
Jefferson (County of) (Beverly Enterprises
Project); Refunding Health Facilities
Series RB
5.88%, 05/01/08(f) -- -- 595 570,551
-------------------------------------------------------------------------------------
Kenton (County of) Airport Board (Delta
Airlines Project); Special Facilities
Series 1992 A RB
7.13%, 02/01/21(b) BBB- Baa3 3,635 3,746,086
-------------------------------------------------------------------------------------
Mount Sterling (City of); Lease Funding
Series 1993 A RB
6.15%, 03/01/13 -- Aa3 3,000 3,150,600
=====================================================================================
7,467,237
=====================================================================================
LOUISIANA-5.04%
Lafayette (City of) Public Improvement; Sales
Tax Series 2000 A RB
5.50%, 03/01/23(c) AAA Aaa 1,360 1,413,094
-------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities and Community
Development Authority (Capital Projects and
Equipment Acquisition); RB
6.55%, Series 2000, 09/01/25 A -- 6,000 6,604,560
-------------------------------------------------------------------------------------
6.30%, Series 2000 A, 07/01/30(c) AAA Aaa 3,000 3,551,370
-------------------------------------------------------------------------------------
Louisiana (State of) Public Facilities
Authority (Medical Center at New Orleans
Project); Series 1992 RB
6.13%, 10/15/07(c) AAA -- 2,775 2,855,752
-------------------------------------------------------------------------------------
Louisiana (State of) Public Facilities
Authority (Our Lady of the Lake Regional
Hospital); Refunding Hospital Series 1993 C
RB
6.00%, 12/01/01(d)(e) AAA Aaa 1,000 1,030,320
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
LOUISIANA-(CONTINUED)
Louisiana (State of) Public Facilities
Authority (Tulane University of Louisiana);
Series 1996 RB
6.00%, 10/01/16(c) AAA Aaa $2,500 $ 2,722,650
-------------------------------------------------------------------------------------
Ouachita (Parish of) Hospital Service
District No. 1 (Glenwood Regional Medical
Center); Refunding Series 1996 RB
5.70%, 05/15/16(c) AAA Aaa 1,000 1,063,800
-------------------------------------------------------------------------------------
St. John Baptist (Parish of) Sales Tax
District; Public Improvement Series 1987 RB
7.60%, 01/01/08(d) NRR NRR 500 599,865
-------------------------------------------------------------------------------------
7.60%, 01/01/09(d) NRR NRR 500 608,595
-------------------------------------------------------------------------------------
West Feliciana (Parish of) (Gulf States
Utilities); Series A PCR
7.50%, 05/01/15 BB+ Ba1 1,000 1,045,760
=====================================================================================
21,495,766
=====================================================================================
MAINE-0.54%
Maine (State of) Education Loan Authority;
Education Loan Series A-2 RB
6.95%, 12/01/07(b) -- -- 690 715,413
-------------------------------------------------------------------------------------
Maine (State of) Housing Authority; Series
1999 E-1 RB
5.85%, 11/15/20 AA Aa2 1,500 1,572,000
=====================================================================================
2,287,413
=====================================================================================
MASSACHUSETTS-1.68%
Massachusetts (State of) Development Finance
Agency (Briarwood Project); Series 2001 B
RB
7.88%, 12/01/15(f) -- -- 1,000 1,021,330
-------------------------------------------------------------------------------------
Massachusetts (State of) Health and Education
Facilities Authority (Winchester Hospital);
Series D RB
5.80%, 07/01/09(c) AAA -- 1,000 1,069,070
-------------------------------------------------------------------------------------
Massachusetts (State of) Housing Finance
Agency; Single Family Housing Series 1994
RB
6.60%, 12/01/26(b) AA Aa3 1,780 1,860,848
-------------------------------------------------------------------------------------
Massachusetts (State of) Industrial Finance
Agency (Beverly Enterprises); Refunding
Series RB
8.00%, 05/01/02(f) -- -- 75 75,591
-------------------------------------------------------------------------------------
Massachusetts (State of) Municipal Wholesale
Electric Cooperative Power Supply; System
Series 1992 A RB
6.75%, 07/01/08(c) AAA Aaa 3,000 3,151,110
=====================================================================================
7,177,949
=====================================================================================
MICHIGAN-4.50%
Anchor Bay School District; Unlimited Tax
Series 2001 GO
5.00%, 05/01/29 AAA Aaa 1,000 973,580
-------------------------------------------------------------------------------------
|
FS-85
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
MICHIGAN-(CONTINUED)
Detroit (City of) Water Supply System; Sr.
Lien RB
5.00%, Series 1997 A, 07/01/27(c) AAA Aaa $2,000 $ 1,962,860
-------------------------------------------------------------------------------------
5.25%, Series 2001 A, 07/01/33(c) AAA Aaa 3,500 3,510,570
-------------------------------------------------------------------------------------
Garden City Hospital Finance Authority
(Garden City Hospital); Hospital Refunding
Series A RB
5.63%, 09/01/10 -- B1 1,000 795,490
-------------------------------------------------------------------------------------
Lake Orion Community School District;
Refunding Unlimited Tax Series 1994 GO
7.00%, 05/01/05(d)(e) AAA Aaa 2,500 2,834,850
-------------------------------------------------------------------------------------
Lincoln Park (City of) School District;
Unlimited Tax Series 1996 GO
6.00%, 05/01/06(d)(e) AAA Aaa 1,210 1,347,432
-------------------------------------------------------------------------------------
Michigan (State of) Bullock Creek School
District; Unlimited Tax Series 2000 GO
5.50%, 05/01/22 AAA Aaa 1,000 1,033,550
-------------------------------------------------------------------------------------
Michigan (State of) Housing Development
Authority; Refunding Rental Housing Series
A RB
6.60%, 04/01/12 AA- -- 945 982,346
-------------------------------------------------------------------------------------
Michigan (State of) Municipal Bond Authority
(Drinking Water Revolving Fund); Series
2000 RB
5.50%, 10/01/22 AAA Aaa 1,000 1,040,190
-------------------------------------------------------------------------------------
Ypsilanti (City of) School District;
Refunding Unlimited Tax Series 1996 GO
5.75%, 05/01/07(d)(e) AAA Aaa 4,275 4,712,888
=====================================================================================
19,193,756
=====================================================================================
MINNESOTA-0.72%
Bloomington (City of) Independent School
District No. 271; Unlimited Tax Series 2001
A GO
5.13%, 02/01/22(c) -- Aaa 1,000 1,009,290
-------------------------------------------------------------------------------------
Minneapolis (City of) (Parking Ramp Project);
Unlimited Tax Series 2000 A GO
5.90%, 12/01/20 AAA Aa1 1,000 1,081,860
-------------------------------------------------------------------------------------
Minneapolis & St. Paul (Cities of)
Metropolitan Airports Commission (Northwest
Airlines Inc. Project); Special Facilities
Series 2001 A RB
7.00%, 04/01/25(b)(f) -- -- 1,000 968,480
=====================================================================================
3,059,630
=====================================================================================
MISSISSIPPI-1.57%
Mississippi (State of) Development Board
(Panola County Hospital); Special
Obligation Series RB
5.00%, 07/01/28 A -- 1,595 1,452,391
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
MISSISSIPPI-(CONTINUED)
Mississippi Higher Education Assistance
Corp.; Student Loan Sub-Series 1994 C RB
7.50%, 09/01/09(b) -- A2 $5,000 $ 5,250,450
=====================================================================================
6,702,841
=====================================================================================
MISSOURI-1.47%
Kansas City Industrial Development Authority
(General Motors Corp. Project); PCR
6.05%, 04/01/06 A A3 1,435 1,437,841
-------------------------------------------------------------------------------------
Kansas City Municipal Assistance Corp.
(Truman Medical Center Charitable
Foundation); Leasehold Improvement Series
1991 A RB
7.00%, 11/01/01(d)(e) NRR NRR 605 611,231
-------------------------------------------------------------------------------------
Missouri (State of) Environmental Improvement
and Energy Resources Authority; Series 1995
C PCR
5.85%, 01/01/10 -- Aaa 1,000 1,062,860
-------------------------------------------------------------------------------------
Missouri (State of) Health and Educational
Facilities Authority (Washington University
Project); Educational Facilities Series
2001 A RB
5.13%, 06/15/41 AA+ Aa1 3,250 3,182,205
=====================================================================================
6,294,137
=====================================================================================
NEVADA-2.18%
Boulder (City of) (Boulder City Hospital Inc.
Project); Hospital Refunding Series RB
5.85%, 01/01/22(f) -- -- 500 414,880
-------------------------------------------------------------------------------------
Clark (County of) (Nevada Power Co. Project);
Refunding Series 1992 C IDR
7.20%, 10/01/22 A- Baa1 1,500 1,554,945
-------------------------------------------------------------------------------------
Humboldt (County of) (Sierra Pacific
Project); Refunding Series 1987 PCR
6.55%, 10/01/13(c) AAA Aaa 3,000 3,116,970
-------------------------------------------------------------------------------------
Las Vegas (City of); Refunding 1992 Limited
Tax GO
6.50%, 04/01/02(d)(e) AAA Aaa 1,000 1,044,540
-------------------------------------------------------------------------------------
Reno Redevelopment Agency; Refunding
Sub-Series A Tax Allocation Notes
6.00%, 06/01/10 -- Baa3 1,185 1,224,461
-------------------------------------------------------------------------------------
Truckee Meadows Water Authority; Series 2001
A RB
5.13%, 07/01/30(c) AAA Aaa 2,000 1,962,920
=====================================================================================
9,318,716
=====================================================================================
|
FS-86
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
NEW JERSEY-3.42%
Hudson (County of) Correctional Facility;
Refunding Series 1992 COP
6.60%, 12/01/21(c) AAA Aaa $1,250 $ 1,295,825
-------------------------------------------------------------------------------------
New Jersey Economic Development Authority
(Atlantic City Sewer Co.); Sewer Facility
Series 1991 RB
7.25%, 12/01/11(b)(f) -- -- 1,540 1,576,529
-------------------------------------------------------------------------------------
New Jersey Economic Development Authority
(Continental Airlines Inc. Project);
Specialty Facilities RB
6.40%, Series 1999, 09/15/23(b) BB Ba2 1,000 985,720
-------------------------------------------------------------------------------------
6.25%, Series 1999, 09/15/29(b) BB Ba2 6,600 6,330,126
-------------------------------------------------------------------------------------
7.00%, Series 2000, 11/15/30(b) BB Ba2 4,000 4,147,800
-------------------------------------------------------------------------------------
New Jersey (State of) Health Care Facilities
Financing Authority (Raritan Bay Medical
Center Project); Series 1994 RB
7.25%, 07/01/27(f) -- -- 250 250,487
=====================================================================================
14,586,487
=====================================================================================
NEW MEXICO-1.17%
Las Cruces South Central Solid Waste
Authority; Environmental Services RB
5.65%, 06/01/09 -- A3 575 598,793
-------------------------------------------------------------------------------------
Los Alamos (County of); Utility Series A RB
6.00%, 07/01/15(c) AAA Aaa 2,000 2,141,600
-------------------------------------------------------------------------------------
Santa Fe (City of); Series 1994 A RB
6.25%, 06/01/04(d)(e) AAA Aaa 2,100 2,269,365
=====================================================================================
5,009,758
=====================================================================================
NEW YORK-8.67%
Metropolitan Transportation Authority;
Dedicated Tax Fund Series 2000 A RB
5.88%, 04/01/25(c) AAA Aaa 1,500 1,611,960
-------------------------------------------------------------------------------------
New York (City of); GO
8.25%, Unlimited Tax Series 1991 F,
11/15/01(d)(e) AAA Aaa 2,000 2,061,660
-------------------------------------------------------------------------------------
7.65%, Unlimited Tax Series 1992 F,
02/01/02(d)(e) NRR Aaa 4,775 4,966,095
-------------------------------------------------------------------------------------
7.00%, Unlimited Tax Series H,
02/01/02(d)(e) NRR NRR 350 362,894
-------------------------------------------------------------------------------------
7.20%, Unlimited Tax Series H,
02/01/02(d)(e) NRR NRR 500 518,910
-------------------------------------------------------------------------------------
7.70%, Unlimited Tax Series D,
02/01/02(d)(e) NRR Aaa 1,985 2,064,916
-------------------------------------------------------------------------------------
02/01/09 A A2 15 15,536
-------------------------------------------------------------------------------------
7.00%, Unlimited Tax Series C, Sub-Series
C-1, 08/01/02(d)(e) NRR Aaa 1,990 2,106,733
-------------------------------------------------------------------------------------
7.38%, Unlimited Tax Series B1,
08/15/04(d)(e) NRR Aaa 500 567,845
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
NEW YORK-(CONTINUED)
6.25%, Unlimited Tax Series A, 08/01/17 A A2 $3,035 $ 3,279,742
-------------------------------------------------------------------------------------
7.00%, Unlimited Tax Series C, Sub-Series
C-1, 08/01/17 A A2 10 10,450
-------------------------------------------------------------------------------------
7.00%, Unlimited Tax Series 1991 B,
02/01/18(c) AAA Aaa 830 855,315
-------------------------------------------------------------------------------------
7.00%, Unlimited Tax Series 1991 B,
02/01/02(d)(e) AAA Aaa 170 176,263
-------------------------------------------------------------------------------------
New York (City of) Industrial Development
Agency (The Lighthouse Inc. Project);
Series 1992 IDR (LOC-Chase Manhattan Bank)
6.50%, 07/01/02(d)(e) NRR NRR 1,500 1,582,125
-------------------------------------------------------------------------------------
New York (City of) Municipal Water Finance
Authority; Water & Sewer Systems RB
5.75%, Series 1997 B, 06/15/29 AA Aa2 3,850 4,052,356
-------------------------------------------------------------------------------------
5.00%, Series 1987 A, 06/15/17 AA Aa2 1,350 1,351,255
-------------------------------------------------------------------------------------
5.50%, Series 1996 A, 06/15/24(c) AAA Aaa 1,000 1,025,090
-------------------------------------------------------------------------------------
New York (State of) Dorm Authority (State
University Educational Facilities); Series
A RB
6.50%, 05/15/06 AA- A3 1,000 1,125,380
-------------------------------------------------------------------------------------
New York (State of) Environmental Facilities
Corp.; Water Revenue Series 1991 E PCR
6.88%, 06/15/10 AAA Aaa 1,100 1,137,114
-------------------------------------------------------------------------------------
New York (State of) Urban Development Corp.
(Correctional Capital Facilities); Series
1991-3 RB
7.38%, 01/01/02(d)(e) NRR Aaa 7,850 8,160,939
=====================================================================================
37,032,578
=====================================================================================
NORTH CAROLINA-1.37%
North Carolina Eastern Municipal Power
Agency; Series A RB
6.13%, 01/01/10(c) AAA Aaa 1,500 1,713,045
-------------------------------------------------------------------------------------
North Carolina Housing Finance Agency; Single
Family-Series II RB
6.20%, 03/01/16 AA Aa2 550 582,164
-------------------------------------------------------------------------------------
North Carolina Municipal Power Agency (No. 1
Catawba Electric Project); RB
7.25%, Refunding, 01/01/07 BBB+ Baa1 2,890 3,236,887
-------------------------------------------------------------------------------------
6.50%, Series 1990, 01/01/10(d) AAA Aaa 260 297,469
=====================================================================================
5,829,565
=====================================================================================
OHIO-1.78%
Cleveland (City of) Parking Facilities;
Improvement Series RB
8.00%, 09/15/02(d)(e) NRR NRR 500 537,420
-------------------------------------------------------------------------------------
Fairfield (City of) School District;
Unlimited Tax Series 1995 GO
6.10%, 12/01/05(d)(e) AAA Aaa 1,000 1,107,330
-------------------------------------------------------------------------------------
|
FS-87
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
OHIO-(CONTINUED)
Findlay (City of); Limited Tax Series 1996 GO
5.88%, 07/01/17 AA- Aa3 $1,000 $ 1,070,520
-------------------------------------------------------------------------------------
Lake Ohio School District; Unlimited Tax
Series 2000 GO
5.75%, 12/01/26(c) AAA Aaa 2,500 2,649,700
-------------------------------------------------------------------------------------
Montgomery (County of) Ohio Hospital
Authority (Grandview Hospital & Medical
Center); Refunding Hospital Series RB
5.50%, 12/01/09(d)(e) NRR NRR 1,000 1,095,650
-------------------------------------------------------------------------------------
Ohio Department of Transportation (Panhandle
Rail Line Project); Series 1992 COP
6.50%, 04/15/12(c) AAA Aaa 1,100 1,142,218
=====================================================================================
7,602,838
=====================================================================================
OKLAHOMA-1.94%
Mustang Improvement Utility Authority; Series
1999 RB
5.70%, 10/01/19(c) -- Aaa 1,500 1,593,810
-------------------------------------------------------------------------------------
Oklahoma Development Finance Authority (St.
John Health System); Refunding Series 1999
RB
5.75%, 02/15/18 AA Aa3 675 717,998
-------------------------------------------------------------------------------------
5.75%, 02/15/25 AA Aa3 1,750 1,851,448
-------------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority (St.
Johns Medical Center Project); Hospital
Series 1994 RB
6.25%, 02/15/06(d)(e) NRR NRR 2,000 2,219,840
-------------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority (Tulsa
Regional Medical Center); Hospital Series
RB
7.20%, 06/01/03(d)(e) AAA NRR 500 546,990
-------------------------------------------------------------------------------------
Tulsa (City of) Public Facilities
Authority-Capital Improvements-Water
System; Series 1988 B RB
6.00%, 03/01/08 A+ -- 1,305 1,371,464
=====================================================================================
8,301,550
=====================================================================================
OREGON-0.80%
Cow Creek Band Umpqua Tribe of Indians;
Series B RB
5.10%, 07/01/12(c) AAA Aaa 1,000 1,031,910
-------------------------------------------------------------------------------------
Portland (City of) Sewer System; Series 1994
A RB
6.20%, 06/01/04(d)(e) AAA NRR 1,200 1,306,140
-------------------------------------------------------------------------------------
6.25%, 06/01/04(d)(e) AAA NRR 1,000 1,089,790
=====================================================================================
3,427,840
=====================================================================================
PENNSYLVANIA-1.68%
Allegheny (County of) Port Authority; Special
Revenue Transportation Series 1999 RB
6.13% 03/01/09(c)(e) AAA Aaa 1,000 1,142,290
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
PENNSYLVANIA-(CONTINUED)
Clarion (County of) Industrial Development
Authority (Beverly Enterprises Inc.
Project); Refunding Series 2001 IDR
7.38% 12/01/08(f) -- -- $1,450 $ 1,459,555
-------------------------------------------------------------------------------------
Montgomery (County of) Industrial Development
Authority (Pennsburg Nursing &
Rehabilitation Center); Series 1993 RB
7.63%, 03/31/04(d)(e) NRR Aaa 100 113,690
-------------------------------------------------------------------------------------
Pennsylvania (State of); Unlimited Tax Third
Series GO 6.75%, 11/15/13(c) AAA Aaa 1,250 1,386,262
-------------------------------------------------------------------------------------
Pennsylvania Economic Development Finance
Authority (Colver Project); Resource
Recovery Series 1994 D RB
7.05%, 12/01/10(b) BBB- -- 2,900 3,055,005
=====================================================================================
7,156,802
=====================================================================================
RHODE ISLAND-0.56%
Rhode Island (State of) Depositors Economic
Protection Corp.; Special Obligation Series
1992 A RB
6.95%, 08/01/02(d)(e) AAA Aaa 1,250 1,326,500
-------------------------------------------------------------------------------------
Rhode Island (State of) Housing and Mortgage
Finance Corp.; Homeownership Opportunity
Series 15 B RB
6.00%, 10/01/04 AA+ Aa2 1,000 1,050,890
=====================================================================================
2,377,390
=====================================================================================
SOUTH CAROLINA-0.51%
Piedmont Municipal Power Agency; Refunding
Electric Series A RB
5.75%, 01/01/24 BBB- Baa3 1,150 1,095,720
-------------------------------------------------------------------------------------
South Carolina (State of) Jobs Economic
Development Authority (Palmetto Health
Alliance); Hospital Facilities Improvement
Series 2000 A RB
7.13%, 12/15/15 BBB Baa2 1,000 1,075,400
=====================================================================================
2,171,120
=====================================================================================
SOUTH DAKOTA-0.50%
Aberdeen (City of) School District No. 6-1;
Unlimited Tax Series 2000 GO
5.45%, 01/01/26(c) AAA Aaa 2,000 2,050,200
-------------------------------------------------------------------------------------
South Dakota Health and Educational Facility
Authority (Huron Regional Medical Center);
Series 1994 RB
7.25%, 04/01/20 BBB -- 100 103,896
=====================================================================================
2,154,096
=====================================================================================
|
FS-88
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TENNESSEE-1.78%
Clarksville (City of) Public Building
Authority; VRD Pooled Funding Series 1997
RB (LOC-Bank of America N.A.)
2.65%, 11/01/27(g) -- Aa1 $3,969 $ 3,969,000
-------------------------------------------------------------------------------------
Franklin Industrial Development Board
(Landings Apartment Project); Multifamily
Housing Series A RB
5.75%, 04/01/10(c) AAA Aaa 900 955,764
-------------------------------------------------------------------------------------
Robertson and Sumner (Counties of) White
House Utilities District; Water and Sewer
Series 2000 RB
6.00%, 01/01/10(c)(e) NRR Aaa 1,000 1,130,940
-------------------------------------------------------------------------------------
Shelby (County of) Health, Educational &
Housing Facilities Board (Kirby Pines);
Health Care Facilities Series A RB
6.25%, 11/15/16(f) -- -- 1,000 850,940
-------------------------------------------------------------------------------------
Tennessee (State of) Housing Development
Agency; Homeownership Progressive Series Q
RB
6.80%, 07/01/17 AA Aa2 675 695,196
=====================================================================================
7,601,840
=====================================================================================
TEXAS-21.74%
Alief (City of) Independent School District;
Unlimited Tax Series 2001 GO
5.00%, 02/15/19 AAA Aaa 1,260 1,251,256
-------------------------------------------------------------------------------------
Allen Independent School District; Unlimited
Tax Refunding Series 2000 GO
5.95%, 02/15/25(c) AAA Aaa 1,600 1,704,512
-------------------------------------------------------------------------------------
Arlington (City of) Independent School
District; Unlimited Tax Series 1995 GO
5.75%, 02/15/05(d)(e) NRR Aaa 705 758,735
-------------------------------------------------------------------------------------
5.75%, Unrefunded Balance, 02/15/21 -- Aaa 295 302,750
-------------------------------------------------------------------------------------
Austin Community College District; Combined
Fee Revenue Building and Refunding Series
1995 RB
6.10%, 02/01/05(d)(e) AAA Aaa 1,115 1,211,871
-------------------------------------------------------------------------------------
Austin Hotel Occupancy Tax; Refunding Sub.
Lien Series 1999 RB
5.80%, 11/15/29(c) AAA Aaa 1,100 1,150,644
-------------------------------------------------------------------------------------
Bellville (City of) Independent School
District; Unlimited Tax Series 1995 GO
6.13%, 02/01/06(d)(e) NRR Aaa 535 590,597
-------------------------------------------------------------------------------------
6.13%, Unrefunded Balance, 02/01/20 -- Aaa 295 311,608
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TEXAS-(CONTINUED)
Bexar (County of) Housing Finance Corp.
(Dymaxion & Marrach Park Apartments);
Multifamily Housing Series 2000 A RB
6.10%, 08/01/30(c) -- Aaa $1,000 $ 1,043,970
-------------------------------------------------------------------------------------
Bexar (County of) Metropolitan Water District
(Lease Purchase Project); Series 2001 RB
5.53%, 07/20/06(f) -- -- 825 825,184
-------------------------------------------------------------------------------------
Brazos (County of) Health Facilities
Development Corp. (Franciscan Services
Corp.); Series A RB
5.38%, 01/01/22(c) AAA Aaa 1,250 1,263,175
-------------------------------------------------------------------------------------
Brazos Higher Education Loan Authority Inc.;
Refunding Series 1992 C-1 RB
6.30%, 11/01/01(b) -- Aaa 325 327,564
-------------------------------------------------------------------------------------
6.45%, 11/01/02(b) -- Aaa 1,135 1,173,522
-------------------------------------------------------------------------------------
Carroll Independent School District;
Refunding Unlimited Tax Series 2001 GO
5.25%, 02/15/33 AAA Aaa 1,350 1,345,842
-------------------------------------------------------------------------------------
Carrollton (City of); Limited Tax Series 1996
GO
5.75%, 08/15/06(d)(e) NRR NRR 1,000 1,095,750
-------------------------------------------------------------------------------------
Cleveland (City of) Independent School
District; Unlimited Tax Series 2001 GO
5.13%, 02/01/31 AAA Aaa 2,000 1,953,900
-------------------------------------------------------------------------------------
Comal (County of) Independent School
District; Refunding Unlimited Tax GO
5.75%, Series 1999, 08/01/28(c) -- Aaa 1,000 1,047,580
-------------------------------------------------------------------------------------
5.25%, Series 2001, 02/01/28 -- Aaa 1,000 1,002,220
-------------------------------------------------------------------------------------
Dallas (City of); Waterworks and Sewer System
Series A RB
6.00%, 10/01/01(d)(e) NRR NRR 2,030 2,070,925
-------------------------------------------------------------------------------------
Dallas (City of) Area Rapid Transit; Sr. Lien
Series 2001 RB
5.00%, 12/01/31(c) AAA Aaa 2,750 2,654,135
-------------------------------------------------------------------------------------
De Soto (City of) Independent School
District; Refunding Unlimited Tax Series GO
5.13%, 08/15/17(c) AAA -- 1,000 1,000,050
-------------------------------------------------------------------------------------
Georgetown (City of); Utility System Series
1995 A RB
6.20%, 08/15/05(d)(e) AAA Aaa 1,500 1,651,680
-------------------------------------------------------------------------------------
Grapevine (City of); Limited Tax Series 2000
COP
5.88%, 08/15/26(c) AAA Aaa 1,610 1,711,366
-------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Memorial Hermann Health
Care Project); Hospital Series 2001 A RB
6.38%, 06/01/29 A- A3 750 787,320
-------------------------------------------------------------------------------------
|
FS-89
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TEXAS-(CONTINUED)
Harris (County of) Health Facilities
Development Corp. (St. Luke's Episcopal
Hospital Project); Series 1991 RB
6.70%, 02/15/03(d)(e) AAA NRR $1,000 $ 1,057,350
-------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Texas Childrens Hospital
Project); Hospital Series 1999 A RB
5.25%, 10/01/29 AA Aa2 2,000 1,973,780
-------------------------------------------------------------------------------------
Harris (County of) Houston Sports Authority;
Refunding Jr. Lien Series 2001 B RB
5.25%, 11/15/40(c) AAA Aaa 3,000 2,984,910
-------------------------------------------------------------------------------------
Harris (County of) Mental Health and Mental
Retardation Authority; Refunding Series
1992 RB
6.25%, 09/15/10(c) AAA Aaa 4,500 4,651,695
-------------------------------------------------------------------------------------
Houston (City of); Airport Sub. Lien Series
2000 B RB
5.50%, 07/01/30(c) AAA Aaa 1,000 1,018,270
-------------------------------------------------------------------------------------
Houston (City of); Limited Tax Series 1992 C
GO
6.25%, 03/01/02(d)(e) NRR NRR 1,470 1,499,929
-------------------------------------------------------------------------------------
Houston (City of); Water and Sewer System
Series 1997 C RB
5.38%, 12/01/27(c) AAA Aaa 2,495 2,522,345
-------------------------------------------------------------------------------------
Hurst-Euless-Bedford-Texas Independent School
District; Unlimited Tax Series 1994 GO
6.50%, Refunding, 08/15/04(d)(e) AAA Aaa 640 699,808
-------------------------------------------------------------------------------------
6.50%, Unrefunded Balance, 08/15/24(c) AAA Aaa 360 379,987
-------------------------------------------------------------------------------------
Katy (City of) Independent School District;
Limited Tax Series 1999 GO
6.13%, 02/15/32 AAA Aaa 1,500 1,607,730
-------------------------------------------------------------------------------------
Keller (City of) Independent School District;
Refunding Unlimited Tax Series 2001 GO
5.25%, 08/15/26 AAA Aaa 2,000 2,009,260
-------------------------------------------------------------------------------------
Keller (City of) Independent School District;
Series 1994 COP
6.00%, 08/15/05(c) AAA Aaa 1,000 1,090,520
-------------------------------------------------------------------------------------
Laredo (City of); Refunding Limited Tax
Series 1998 GO
5.13%, 08/15/14(c) AAA Aaa 800 821,976
-------------------------------------------------------------------------------------
Little Elm (City of) Independent School
District; Unlimited Tax Refunding GO
6.00%, Series 1999, 08/15/35 AAA -- 2,500 2,665,375
-------------------------------------------------------------------------------------
6.13%, Series 2000, 08/15/35 AAA -- 1,000 1,081,710
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TEXAS-(CONTINUED)
Lockhart (City of) Tax and Utility Systems;
Unlimited Tax Series 1996 GO
5.90%, Refunding, 08/01/06(d)(e) AAA Aaa $1,100 $ 1,214,708
-------------------------------------------------------------------------------------
5.85%, 08/01/11(c) AAA Aaa 605 648,149
-------------------------------------------------------------------------------------
Matagorda (County of) Navigation District No.
1 (Reliant Energy Project); Refunding
Series 1999 B IDR
5.95%, 05/01/30(b) BBB Baa1 2,000 1,978,060
-------------------------------------------------------------------------------------
Nacogdoches (City of) Independent School
District; Refunding Unlimited Tax Series
2001 GO
5.30%, 02/15/25 AAA Aaa 1,765 1,783,391
-------------------------------------------------------------------------------------
North Central Texas Health Facilities
Development Corp. (CC Young Memorial
Project); Hospital Series RB
5.38%, 02/15/25(c) A -- 1,000 936,050
-------------------------------------------------------------------------------------
North Texas Higher Education Authority Inc.;
Student Loan RB
6.10%, Series 1993 C, 04/01/08(b)(f) -- -- 1,000 1,039,740
-------------------------------------------------------------------------------------
6.30%, Series 1993 D, 04/01/09(b)(f) -- -- 500 519,165
-------------------------------------------------------------------------------------
Northside Independent School District;
Unlimited Tax Series 1999 A GO
5.50%, 08/15/24 AAA Aaa 1,000 1,027,400
-------------------------------------------------------------------------------------
Pflugerville (City of) Independent School
District; Unlimited Tax Series 2000 GO
5.50%, 08/15/23 AAA Aaa 1,615 1,664,807
-------------------------------------------------------------------------------------
Plano (City of); Limited Tax Series 2000 GO
5.88%, 09/01/19 AAA Aaa 850 915,272
-------------------------------------------------------------------------------------
Richardson (City of); Hotel Occupancy Limited
Tax Series 2000 A COP
5.75%, 02/15/21 AAA Aaa 2,000 2,105,960
-------------------------------------------------------------------------------------
Richardson (City of); Limited Tax Series 2001
GO
5.00%, 02/15/19 AA+ Aa1 1,720 1,698,225
-------------------------------------------------------------------------------------
Richardson (City of) Hospital Authority
(Richardson Medical Center); Hospital
Unrefunded Balance Series 1993 RB
6.50%, 12/01/12 BBB+ Baa2 945 969,173
-------------------------------------------------------------------------------------
6.75%, 12/01/23 BBB+ Baa2 1,000 1,007,310
-------------------------------------------------------------------------------------
San Angelo (City of) Waterworks & Sewer
System; Refunding & Improvement Series 2001
RB
5.25%, 04/01/19(c) AAA Aaa 1,000 1,018,130
-------------------------------------------------------------------------------------
San Antonio (City of) Independent School
District; Unlimited Tax Series 1999 GO
5.50%, 08/15/24 AAA Aaa 3,500 3,595,900
-------------------------------------------------------------------------------------
|
FS-90
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TEXAS-(CONTINUED)
Spring Branch Independent School District;
Limited Tax Series 2000 GO
5.75%, 02/01/24 AAA Aaa $1,700 $ 1,787,363
-------------------------------------------------------------------------------------
Texas (State of); Veteran's Land Unlimited
Tax Series 1994 GO
6.40%, 12/01/24(b) AA Aa1 2,000 2,108,480
-------------------------------------------------------------------------------------
Texas (State of) Department of Housing and
Community Affairs (Asmara Project);
Multifamily Housing Series 1996 A RB
6.30%, 01/01/16 A -- 310 331,951
-------------------------------------------------------------------------------------
Texas (State of) Public Property Finance
Corp. (Mental Health and Mental
Retardation); Series 1996 RB
6.20%, 09/01/16 BBB+ -- 735 755,257
-------------------------------------------------------------------------------------
Texas National Research Laboratory Community
Financing Corp. (Superconducting Super
Collider); Refunded Series 1991 RB
7.10%, 12/01/01(d)(e) AAA Aaa 600 620,430
-------------------------------------------------------------------------------------
Town Center Improvement District; Sales &
Hotel Occupancy Tax Series 2001 RB
5.13%, 03/01/23(c) AAA Aaa 1,000 994,150
-------------------------------------------------------------------------------------
5.25%, 03/01/27(c) AAA Aaa 2,800 2,808,232
-------------------------------------------------------------------------------------
5.50%, 03/01/13(c) AAA Aaa 1,725 1,848,251
-------------------------------------------------------------------------------------
Tyler (City of) Health Facilities Development
Corp. (Mother Frances Hospital); Hospital
Series A RB
5.63%, 07/01/13 -- Baa2 1,000 939,450
-------------------------------------------------------------------------------------
United Independent School District; Unlimited
Tax Series 2000 GO
5.13%, 08/15/26 AAA Aaa 1,000 988,170
-------------------------------------------------------------------------------------
University of Texas; Series 1999 B RB
5.70%, 08/15/20 AAA Aaa 1,000 1,055,300
-------------------------------------------------------------------------------------
Victoria (County of) (Texas Hospital Citizens
Medical Center); RB
6.20%, 01/01/10(c) AAA Aaa 1,000 1,066,550
-------------------------------------------------------------------------------------
Weatherford (City of) Independent School
District; Unlimited Tax Series 1994 GO
6.40%, 02/15/05(d)(e) NRR Aaa 900 987,912
-------------------------------------------------------------------------------------
6.40%, 02/15/12 -- Aaa 100 107,458
=====================================================================================
92,821,195
=====================================================================================
UTAH-1.97%
Intermountain Power Agency (Utah Power
Supply); Series 1986 B RB
5.00%, 07/01/16 A+ A1 3,150 3,185,886
-------------------------------------------------------------------------------------
Salt Lake (County of) (IHC Health Services
Inc. Project); Hospital Series 2001 RB
5.13%, 02/15/33(c) AAA Aaa 2,000 1,958,560
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
UTAH-(CONTINUED)
Salt Lake (County of) (Westminster College
Project); RB
5.75%, 10/01/27 BBB -- $1,000 $ 977,430
-------------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency;
Federally Insured Term Sub. Single Family
Mortgage RB
6.30%, Sub-Series 1994 E-1, 07/01/06 AA- -- 155 163,671
-------------------------------------------------------------------------------------
7.15%, Sub-Series 1994 G-1, 07/01/06 AA- A1 70 73,736
-------------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency;
Single Family Mortgage RB
6.05%, Series 1994 C, 07/01/06 -- Aa3 235 246,971
-------------------------------------------------------------------------------------
6.45%, Series G-2, 07/01/27(b) AAA Aaa 745 777,452
-------------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency;
Single Family Mortgage Sub-Series 2000 B-1
RB
6.00%, 07/01/10(b) AA- Aa3 980 1,016,476
=====================================================================================
8,400,182
=====================================================================================
VERMONT-0.25%
Vermont (State of) Educational and Health
Buildings Financing Agency (Fletcher Allen
Health); Hospital Series 2000 A RB
6.00%, 12/01/23(c) AAA Aaa 1,000 1,075,640
=====================================================================================
VIRGIN ISLANDS-0.70%
Virgin Islands Public Finance Authority;
Matching Fund Loan Notes Series 1992 A RB
7.25%, 10/01/02(d)(e) AAA NRR 1,000 1,072,810
-------------------------------------------------------------------------------------
Virgin Islands Territory (Hugo Insurance
Claims Fund); Special Tax Bond Series 1991
7.75%, 10/01/01(d)(e) NRR NRR 1,875 1,923,656
=====================================================================================
2,996,466
=====================================================================================
VIRGINIA-0.06%
Covington-Alleghany (County of) Industrial
Development Authority (Beverly
Enterprises); Refunding Series RB
9.38%, 09/01/01(f) -- -- 15 15,028
-------------------------------------------------------------------------------------
Virginia (State of) Housing Development
Authority; Commonwealth Mortgage Series A
RB
7.10%, 01/01/17 AA+ Aa1 250 256,183
=====================================================================================
271,211
=====================================================================================
WASHINGTON-1.84%
Clark (County of) School District No. 117;
Unlimited Tax Series 1995 GO
6.00%, 12/01/05(d)(e) AAA Aaa 1,000 1,097,850
-------------------------------------------------------------------------------------
King (County of); Unlimited Tax GO
5.50%, 07/01/07(d) AAA Aaa 500 545,160
-------------------------------------------------------------------------------------
|
FS-91
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
WASHINGTON-(CONTINUED)
King (County of) Washington Sewer Authority;
Series 1999 RB
5.50%, 01/01/22(c) AAA Aaa $1,000 $ 1,026,550
-------------------------------------------------------------------------------------
Pend Oreille (County of) Public Utility
District No. 1; Electric Series B RB
6.30%, 01/01/17 A- A3 1,400 1,496,572
-------------------------------------------------------------------------------------
Washington (State of) Health Care Facilities
Authority (Providence Health System
Project); Series 2001 A RB
5.25%, 10/01/21(c) AAA Aaa 1,000 1,003,830
-------------------------------------------------------------------------------------
Washington (State of) Public Power Supply
System (Nuclear Project No. 1); Refunding
Series A RB
5.75%, 07/01/12(c) AAA Aaa 2,000 2,142,960
-------------------------------------------------------------------------------------
West Richland (City of); Water & Sewer
Refunding Series RB
7.00%, 12/01/04(d)(e) AAA Aaa 500 558,825
=====================================================================================
7,871,747
=====================================================================================
WISCONSIN-1.21%
Wisconsin (State of) Health and Educational
Facilities Authority (Prohealth Care Inc.
Project); Series 2001 A RB
5.25%, 08/15/29(c) AAA Aaa 1,000 994,170
-------------------------------------------------------------------------------------
Wisconsin Health and Educational Facilities
Authority (Sinai Samaritan Medical Center);
Series 1996 F RB
5.75%, 08/15/16(c) AAA Aaa 1,500 1,577,790
-------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
WISCONSIN-(CONTINUED)
Wisconsin Health and Educational Facilities
Authority (Sisters of Sorrowful Mother);
Series 1997 A RB
5.90%, 08/15/24(c) AAA Aaa $2,500 $ 2,612,625
=====================================================================================
5,184,585
=====================================================================================
WYOMING-0.56%
Laramie (County of) (Memorial Hospital
Project); Hospital Series RB
6.70%, 05/01/12(c) AAA Aaa 250 263,325
-------------------------------------------------------------------------------------
Natrona (County of) Wyoming Medical Center;
RB
6.00%, 09/15/11(c) AAA Aaa 1,000 1,086,100
-------------------------------------------------------------------------------------
Sweetwater (County of) (Idaho Power Company
Project); Refunding Series 1996 A PCR
6.05%, 07/15/26 A A3 1,000 1,036,630
=====================================================================================
2,386,055
=====================================================================================
TOTAL INVESTMENTS (Cost $396,963,060)-97.91% 417,968,032
=====================================================================================
OTHER ASSETS LESS LIABILITIES-2.09% 8,923,048
=====================================================================================
NET ASSETS-100.00% $426,891,080
_____________________________________________________________________________________
=====================================================================================
|
Investment Abbreviations:
COP - Certificates of Participation FHA - Federal Housing Administration GO - General Obligation Bonds IDR - Industrial Development Revenue Bonds Jr. - Junior LOC - Letter of Credit NRR - Not Re-Rated PCR - Pollution Control Revenue Bonds RB - Revenue Bonds Sr. - Senior Sub. - Subordinate VRD - Variable Rate Demand GNMA - Government National Mortgage Association |
Notes to Schedule of Investments:
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"). NRR indicates a security that is not
re-rated subsequent to funding of an escrow fund (consisting of U.S.
Treasury obligations); this funding is pursuant to an advance refunding of
the security. Ratings are not covered by the Report of the Independent
Auditors.
(b) Security subject to the alternative minimum tax.
(c) Secured by bond insurance provided by one of the following companies: Ambac
Assurance Corp., Financial Guaranty Insurance Co., Financial Security
Assurance, or MBIA Insurance Co.
(d) Secured by an escrow fund of U.S. Treasury obligations.
(e) Security has an irrevocable call or mandatory put by the issuer. Maturity
date reflects such call or put.
(f) 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.
(g) Demand security, payable upon demand by the Fund at specified time
intervals no greater than thirteen months. Interest rate is redetermined
periodically. Rate shown is the rate in effect on 07/31/01.
(h) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144a under the Securities Act of
1933, as amended. The market value of this security at 07/31/01 was
$1,281,000, which represented 0.30% of the Fund's net assets.
See Notes to Financial Statements.
FS-92
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2001
ASSETS:
Investments, at market value (cost
$396,963,060) $417,968,032
------------------------------------------------------------
Cash 51,053
------------------------------------------------------------
Receivables for:
Investments sold 11,372,042
------------------------------------------------------------
Fund shares sold 414,891
------------------------------------------------------------
Interest 6,561,573
------------------------------------------------------------
Investment for deferred compensation plan 69,323
------------------------------------------------------------
Other assets 33,539
============================================================
Total assets 436,470,453
============================================================
LIABILITIES:
Payables for:
Investments purchased 8,207,751
------------------------------------------------------------
Fund shares reacquired 340,988
------------------------------------------------------------
Dividends 687,476
------------------------------------------------------------
Deferred compensation plan 69,323
------------------------------------------------------------
Accrued advisory fees 1,266
------------------------------------------------------------
Accrued administrative services fees 63
------------------------------------------------------------
Accrued distribution fees 173,898
------------------------------------------------------------
Accrued trustees' fees 924
------------------------------------------------------------
Accrued transfer agent fees 26,993
------------------------------------------------------------
Accrued operating expenses 70,691
============================================================
Total liabilities 9,579,373
============================================================
Net assets applicable to shares outstanding $426,891,080
____________________________________________________________
============================================================
NET ASSETS:
Class A $322,437,360
____________________________________________________________
============================================================
Class B $ 86,565,136
____________________________________________________________
============================================================
Class C $ 17,888,584
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 40,023,859
____________________________________________________________
============================================================
Class B 10,728,342
____________________________________________________________
============================================================
Class C 2,220,988
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 8.06
------------------------------------------------------------
Offering price per share:
(Net asset value of $8.06 divided by
95.25%) $ 8.46
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 8.07
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 8.05
____________________________________________________________
============================================================
|
STATEMENT OF OPERATIONS
For the year ended July 31, 2001
INVESTMENT INCOME:
Interest $22,622,978
============================================================
EXPENSES:
Advisory fees 1,729,991
------------------------------------------------------------
Administrative services fees 96,500
------------------------------------------------------------
Custodian fees 16,691
------------------------------------------------------------
Distribution fees -- Class A 737,036
------------------------------------------------------------
Distribution fees -- Class B 757,423
------------------------------------------------------------
Distribution fees -- Class C 119,410
------------------------------------------------------------
Transfer agent fees -- Class A 159,115
------------------------------------------------------------
Transfer agent fees -- Class B 43,829
------------------------------------------------------------
Transfer agent fees -- Class C 6,910
------------------------------------------------------------
Trustees' fees 8,803
------------------------------------------------------------
Other 243,944
============================================================
Total expenses 3,919,652
============================================================
Less: Expenses paid indirectly (7,150)
============================================================
Net expenses 3,912,502
============================================================
Net investment income 18,710,476
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 84,203
============================================================
Change in net unrealized appreciation of
investment securities 10,776,758
============================================================
Net gain from investment securities 10,860,961
============================================================
Net increase in net assets resulting from
operations $29,571,437
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-93
STATEMENT OF CHANGES IN NET ASSETS
For the year ended July 31, 2001, the seven months ended July 31, 2000 and the
year ended December 31, 1999
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED
JULY 31, JULY 31, DECEMBER 31,
2001 2000 1999
------------ ------------------ ------------
OPERATIONS:
Net investment income $ 18,710,476 $ 10,797,233 $ 19,807,361
----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 84,203 (6,118,133) (3,713,985)
----------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 10,776,758 9,924,682 (26,831,659)
================================================================================================================
Net increase in net assets resulting from operations 29,571,437 14,603,782 (10,738,283)
================================================================================================================
Distributions to shareholders from net investment income:
Class A (14,953,354) (8,732,079) (16,158,034)
----------------------------------------------------------------------------------------------------------------
Class B (3,257,124) (1,770,019) (3,218,044)
----------------------------------------------------------------------------------------------------------------
Class C (511,438) (222,272) (435,134)
----------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- -- (288,606)
----------------------------------------------------------------------------------------------------------------
Class B -- -- (67,461)
----------------------------------------------------------------------------------------------------------------
Class C -- -- (9,104)
----------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 30,618,904 (14,365,926) (8,643,725)
----------------------------------------------------------------------------------------------------------------
Class B 17,088,547 (5,621,856) 5,334,838
----------------------------------------------------------------------------------------------------------------
Class C 9,301,793 (1,486,944) 857,965
================================================================================================================
Net increase (decrease) in net assets 67,858,765 (17,595,314) (33,365,588)
================================================================================================================
NET ASSETS:
Beginning of year 359,032,315 376,627,629 409,993,217
================================================================================================================
End of year $426,891,080 $359,032,315 $376,627,629
________________________________________________________________________________________________________________
================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $416,536,814 $359,527,570 $381,002,296
----------------------------------------------------------------------------------------------------------------
Undistributed net investment income (18,974) (7,534) (80,397)
----------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (10,631,732) (10,715,935) (4,597,802)
----------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 21,004,972 10,228,214 303,532
================================================================================================================
$426,891,080 $359,032,315 $376,627,629
________________________________________________________________________________________________________________
================================================================================================================
|
See Notes to Financial Statements.
FS-94
NOTES TO FINANCIAL STATEMENTS
July 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Municipal Bond Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to achieve a high level of current
income exempt from federal income taxes, consistent with the preservation of
principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Portfolio securities are valued on the basis of prices provided by an independent pricing service approved by the Board of Trustees. Securities with a demand feature exercisable within one to seven days are valued at par. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Portfolio securities for which prices are not provided by the pricing service are valued at the mean between the last available bid and asked prices, unless the Board of Trustees, or persons designated by the Board of Trustees, determines that the mean between the last available bid and asked prices does not accurately reflect the current market value of the security. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Notwithstanding the above, short-term obligations with maturities of 60 days or less are valued at amortized cost.
B. Securities Transactions and Investment Income -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date.
C. Bond Premiums -- It has been the policy of the Fund not to amortize market premiums on bonds for financial reporting purposes. In November 2000, a revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was issued and is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the Fund to amortize premium and discount on all fixed-income securities by the cumulative amount of amortization that would have been recognized had amortization been in effect from the purchase date of each holding. Adopting this accounting principle will not affect the Fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of Operations. The Fund expects that the impact of the adoption of this principle will not be material to the financial statements.
D. Distributions -- Distributions from income are declared daily and paid monthly and are recorded on ex-dividend date. Distributions from net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
E. Federal Income Taxes -- The Fund intends to comply with the
requirements of the Internal Revenue Code necessary to qualify as a regulated
investment company and, as such, will not be subject to federal income taxes
on otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $10,631,732 as of July 31, 2001
which may be carried forward to offset future taxable gains, if any, which
expires in varying increments, if not previously utilized, in the year 2008.
F. Expenses -- Distribution expenses and certain transfer agency expenses directly attributable to a class of shares are charged to those classes' operations. All other expenses which are attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $200 million of the Fund's average daily net assets, plus 0.40% on the next $300 million of the Fund's average daily net assets, plus 0.35% on the next $500 million of the Fund's average daily net assets, plus 0.30% on the Fund's average daily net assets in excess of $1 billion.
FS-95
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2001, AIM was paid
$96,500 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended July 31, 2001, AFS was
paid $117,914 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended July 31, 2001,
the Class A, Class B and Class C shares paid AIM Distributors $737,036, $757,423
and $119,410, respectively, as compensation under the Plans.
AIM Distributors received commissions of $94,615 from sales of the Class A
shares of the Fund during the year ended July 31, 2001. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended July 31, 2001, AIM
Distributors received $25,351 in contingent deferred sales charges imposed on
redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2001, the Fund paid legal fees of $4,538 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2001, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $7,150 under an expense offset arrangement which resulted in a reduction of the Fund's expenses of $7,150.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an "interested person" of AIM. The Trust invests trustees' fees, if so elected by a trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2001,
the Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.09% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2001 was
$130,408,455 and $103,016,772, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2001 is as follows:
Aggregate unrealized appreciation of investment securities $21,788,992 --------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (784,020) ========================================================= Net unrealized appreciation of investment securities $21,004,972 _________________________________________________________ ========================================================= Investments have the same cost for tax and financial statement purposes. |
FS-96
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the year ended July 31, 2001, the seven-month period ended July 31, 2000 and the year ended December 31, 1999 were as follows:
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED
JULY 31, 2001 JULY 31, 2000 DECEMBER 31, 1999
---------------------------- -------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------ ----------- -------------
Sold:
Class A 17,360,190 $ 138,325,073 2,678,233 $ 20,753,046 10,431,994 $ 85,813,744
--------------------------------------------------------------------------------------------------------------------------------
Class B 5,218,248 41,564,270 1,323,354 10,242,284 3,700,766 30,098,258
--------------------------------------------------------------------------------------------------------------------------------
Class C 2,036,726 16,215,773 1,196,822 9,264,086 851,082 6,903,087
================================================================================================================================
Issued as reinvestment of dividends:
Class A 995,116 7,907,174 600,193 4,643,890 1,102,784 8,919,262
--------------------------------------------------------------------------------------------------------------------------------
Class B 250,418 1,993,001 149,624 1,159,114 264,015 2,137,326
--------------------------------------------------------------------------------------------------------------------------------
Class C 40,422 321,603 17,331 134,046 31,375 254,074
================================================================================================================================
Reacquired:
Class A (14,519,194) (115,613,343) (5,145,569) (39,762,862) (12,703,387) (103,376,731)
--------------------------------------------------------------------------------------------------------------------------------
Class B (3,329,032) (26,468,724) (2,201,952) (17,023,254) (3,338,570) (26,900,746)
--------------------------------------------------------------------------------------------------------------------------------
Class C (910,042) (7,235,583) (1,407,096) (10,885,076) (780,440) (6,299,196)
================================================================================================================================
7,142,852 $ 57,009,244 (2,789,060) $(21,474,726) (440,381) $ (2,450,922)
________________________________________________________________________________________________________________________________
================================================================================================================================
|
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
--------------------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
JULY 31, JULY 31, --------------------------------------------
2001 2000(a) 1999 1998 1997 1996
---------- ------------------ -------- -------- -------- --------
Net asset value, beginning of period $ 7.83 $ 7.74 $ 8.35 $ 8.34 $ 8.19 $ 8.31
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.40 0.24 0.41 0.42 0.42 0.43
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.23 0.09 (0.61) 0.01 0.16 (0.12)
=================================================================================================================================
Total from investment operations 0.63 0.33 (0.20) 0.43 0.58 0.31
=================================================================================================================================
Less dividends from net investment income (0.40) (0.24) (0.41) (0.42) (0.43) (0.43)
=================================================================================================================================
Net asset value, end of period $ 8.06 $ 7.83 $ 7.74 $ 8.35 $ 8.34 $ 8.19
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 8.28% 4.32% (2.45)% 5.28% 7.27% 3.90%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $322,437 $283,416 $294,720 $327,705 $318,469 $278,812
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.85%(c) 0.85%(d) 0.84% 0.82% 0.90% 0.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net
assets 5.06%(c) 5.32%(d) 5.01% 5.00% 5.14% 5.29%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 28% 18% 28% 19% 24% 26%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Does not include sales charges and is not annualized for periods less than
one year.
(c) Ratios are based on average daily net assets of $294,814,404.
(d) Annualized.
FS-97
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
----------------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
JULY 31, JULY 31, ----------------------------------------
2001 2000(a) 1999 1998 1997 1996
---------- ------------------ ------- ------- ------- -------
Net asset value, beginning of period $ 7.84 $ 7.75 $ 8.37 $ 8.36 $ 8.19 $ 8.31
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.34 0.21 0.35 0.36 0.36 0.37
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.23 0.08 (0.62) 0.01 0.17 (0.13)
=================================================================================================================================
Total from investment operations 0.57 0.29 (0.27) 0.37 0.53 0.24
=================================================================================================================================
Less dividends from net investment income (0.34) (0.20) (0.35) (0.36) (0.36) (0.36)
=================================================================================================================================
Net asset value, end of period $ 8.07 $ 7.84 $ 7.75 $ 8.37 $ 8.36 $ 8.19
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.46% 3.84% (3.28)% 4.48% 6.59% 2.99%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $86,565 $67,363 $72,256 $72,723 $47,185 $33,770
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.60%(c) 1.61%(d) 1.59% 1.57% 1.66% 1.61%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net
assets 4.31%(c) 4.56%(d) 4.26% 4.25% 4.38% 4.49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 28% 18% 28% 19% 24% 26%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $75,742,286.
(d) Annualized.
CLASS C
----------------------------------------------------------------------
AUGUST 4, 1997
YEAR ENDED (DATE SALES
YEAR ENDED SEVEN MONTHS ENDED DECEMBER 31, COMMENCED) TO
JULY 31, JULY 31, ---------------- DECEMBER 31,
2001 2000(a) 1999 1998 1997
---------- ------------------ ------ ------ --------------
Net asset value, beginning of period $ 7.83 $ 7.74 $ 8.35 $ 8.35 $ 8.30
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.34 0.21 0.35 0.36 0.15
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.22 0.08 (0.61) -- 0.04
=================================================================================================================================
Total from investment operations 0.56 0.29 (0.26) 0.36 0.19
=================================================================================================================================
Less dividends from net investment income (0.34) (0.20) (0.35) (0.36) (0.14)
=================================================================================================================================
Net asset value, end of period $ 8.05 $ 7.83 $ 7.74 $ 8.35 $ 8.35
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.34% 3.85% (3.16)% 4.36% 2.36%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,889 $8,252 $9,652 $9,565 $ 825
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.60%(c) 1.61%(d) 1.59% 1.57% 1.67%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net assets 4.31%(c) 4.56%(d) 4.26% 4.25% 4.37%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 28% 18% 28% 19% 24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $11,940,992.
(d) Annualized.
NOTE 9-SUBSEQUENT EVENT
The Board of Trustees of AIM Tax-Exempt Funds ("ATEF") unanimously approved, on June 13, 2001, an Agreement and Plan of Reorganization ("Plan") pursuant to which AIM Tax-Exempt Bond Fund of Connecticut ("Tax-Exempt Bond Fund of Connecticut"), a series of ATEF, would transfer substantially all of its assets to AIM Municipal Bond Fund ("Municipal Bond Fund"), a series of AIM Investment Securities Funds. As a result of the transaction, shareholders of Tax-Exempt Bond Fund of Connecticut would receive shares of Municipal Bond Fund in exchange for their shares of Tax-Exempt Bond Fund of Connecticut, and Tax-Exempt Bond Fund of Connecticut would cease operations.
Shareholders approved the Plan at a meeting held on August 16, 2001, and consummation of the Plan occurred on September 10, 2001.
FS-98
PART C
OTHER INFORMATION
Item 23. Exhibits
a (1) (a) Amended and Restated Agreement and Declaration of Trust of
Registrant, dated November 5, 1998.(6)
(b) First Amendment, dated March 8, 2000 to the Amended and
Restated Agreement and Declaration of Trust of Registrant.(8)
(c) Amendment No. 2 dated May 10, 2000 to the Amended and
Restated Agreement and Declaration of Trust of Registrant.(9)
(d) Amendment No. 3, dated December 13, 2000, to the Amended
and Restated Agreement and Declaration of Trust of
Registrant.(11)
(e) Amendment No. 4, dated March 14, 2001, to the Amended and
Restated Agreement and Declaration of Trust of Registrant.(11)
(f) Amendment No. 5, dated September 28, 2001, to the Amended
and Restated Agreement and Declaration of Trust of
Registrant.11)
b (1) (a) Amended and Restated Bylaws of Registrant, dated effective
November 5, 1998.(6)
(b) First Amendment to the Amended and Restated Bylaws of
Registrant, dated June 9, 1999.(7)
(c) Amendment No. 2 to the Amended and Restated Bylaws of
Registrant, dated June 14, 2000.(10)
c Articles II, VI, VII and VIII of the Amended and Restated
Agreement and Declaration of Trust, as amended, and Articles IV
and VI of the Amended and Restated Bylaws, as amended, as
previously filed, define rights of holders of shares.
d (1) (a) Master Investment Advisory Agreement, dated June 1, 2000,
between Registrant and A I M Advisors, Inc.(10)
(b) Amendment No. 1, dated December 28, 2001, to Master
Investment Advisory Agreement, dated June 1, 2000. (13)
e (1) (a) Third Amended and Restated Master Distribution Agreement,
dated November 28, 2000, between the Registrant (on behalf of
its Class A Shares, Class C Shares, AIM Cash Reserve Shares and
Institutional Class Shares) and A I M Distributors, Inc.(11)
(b) Amendment No. 1, dated December 28, 2001, to Third Amended
and Restated Master Distribution Agreement, dated November 28,
2000, (on behalf of its Class A Shares, Class C Shares, AIM
Cash Reserve Shares and Institutional Class Shares).(13)
|
(2) (a) First Amended and Restated Master Distribution Agreement, dated December 31, 2000, between the Registrant (on behalf of its Class B Shares) and A I M Distributors, Inc.(11)
(b) Amendment No. 1, dated December 28, 2001, to First Amended and Restated Master Distribution Agreement, dated December 31, 2000 (on behalf of its Class B Shares).(13)
(3) Form of Selected Dealer Agreement between A I M Distributors,
Inc. and selected dealers.(11)
(4) Form of Bank Selling Group Agreement between A I M
Distributors, Inc. and banks.(6)
f (1) AIM Funds Retirement Plan for Eligible Directors/Trustees, as
restated October 1, 2001.(12)
(2) Form of AIM Funds Director Deferred Compensation Agreement, as
amended September 28, 2001.(12)
g (1) Letter Agreement, dated June 1, 2000, between Registrant (on
behalf of its AIM Municipal Bond Fund) and The Bank of New
York.(10)
(2) Letter Agreement, dated August 30, 2000, between Registrant (on
behalf of its AIM Money Market Fund) and The Bank of New
York.(10)
(3) (a) Master Custodian Contract, dated May 1, 2000, between
Registrant (on behalf of AIM High Yield Fund, AIM High Yield
Fund II, AIM Income Fund, and AIM Intermediate Government Fund)
and State Street Bank and Trust Company.(10)
(b) Amendment to Custodian Contract, dated May 1, 2000, between
Registrant (on behalf of its AIM High Yield Fund, AIM High
Yield Fund II, AIM Income Fund, and AIM Intermediate Government
Fund) and State Street Bank and Trust Company.(10)
(c) Amendment to the Custodian Contract, dated June 29, 2001,
between Registrant (on behalf of its AIM High Yield Fund, AIM
High Yield Fund II, AIM Income Fund, and AIM Intermediate
Government Fund) and State Street Bank and Trust Company.(12)
(4) Subcustodian Agreement with Texas Commerce Bank, dated
September 9, 1994, among Texas Commerce Bank National
Association, State Street Bank and Trust Company, A I M Fund
Services, Inc. and Registrant.(3)
(5) Amendment No. 1, dated October 2, 1998, to the Subcustodian
Agreement with Texas Commerce Bank, dated September 9, 1994,
among Texas Commerce Bank National Association, State Street
Bank and Trust Company, A I M Fund Services, Inc. and
Registrant.(8)
(6) Foreign Assets Delegation Agreement, dated June 29, 2001,
between A I M Advisors, Inc. and Registrant.(12)
h (1) (a) Assignment and Acceptance of Assignment of Transfer Agency
Agreement among Registrant (on behalf of its Limited Maturity
Treasury Portfolio - Institutional Shares), Short-Term
Investments Co. and State Street Bank and Trust Company.(1)
|
(b) Amended and Restated Transfer Agency and Service Agreement, dated December 29, 1997, between Registrant and A I M Fund Services, Inc.(5)
(c) Amendment No. 1, dated January 1, 1999, to the Amended and Restated Transfer Agency and Service Agreement, dated December 29, 1997, between Registrant and A I M Fund Services, Inc.(7)
(d) Amendment No. 2, dated July 1, 1999, to the Amended and Restated Transfer Agency and Service Agreement, dated December 29, 1997, between Registrant and A I M Fund Services, Inc.(7)
(e) Amendment No. 3, dated July 1, 2000, to the Amended and Restated Transfer Agency and Service Agreement, dated December 29, 1997, between Registrant and A I M Fund Services, Inc.(10)
(2) (a) Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and First Data Investor Services Group, Inc. (formerly The Shareholder Services Group, Inc.).(2)
(b) Amendment No. 1, dated October 4, 1995, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and First Data Investor Services Group, Inc.(2)
(c) Addendum No. 2, dated October 12, 1995, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and First Data Investor Services Group, Inc.(2)
(d) Amendment No. 3, dated February 1, 1997, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and First Data Investor Services Group, Inc.(4)
(e) Exhibit 1, effective August 4, 1997, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and First Data Investor Services Group, Inc.(5)
(f) Amendment No. 4, dated June 30, 1998, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and First Data Investor Services Group, Inc.(6)
(g) Amendment No. 5, dated July 1, 1998, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and First Data Investor Services Group, Inc.(6)
(h) Amendment No. 6, dated August 30, 1999, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and First Data Investor Services Group, Inc.(8)
(i) Amendment No. 7, dated February 29, 2000, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and PFPC (formerly known as First Data Investor Services Group, Inc.).(10)
(j) Amendment No. 8, dated June 26, 2000, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and PFPC (formerly known as First Data Investor Services Group, Inc.).(10)
(k) Amendment No. 9, dated June 26, 2000, Restated and Amended Amendment No. 6 to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and PFPC.(10)
(l) Amendment No. 10, dated July 28, 2000, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and PFPC.(10)
(m) Letter amendment, dated August 22, 2000, to Amendment No. 9, dated June 26, 2000, to the Remote Access and Related Services Agreement, dated December 23, 1994, between Registrant and First Data Investor Services Group, Inc.(11)
(3) (a) Master Administrative Services Agreement, dated June 1, 2000, between Registrant and A I M Advisors, Inc.(10)
(b) Amendment No. 1, dated May 9, 2001, to Master Administrative Services Agreement, dated June 1, 2000.(11)
(c) Amendment No. 2, dated December 28, 2001, to Master Administrative Services Agreement, dated June 1, 2000.(13)
(4) Preferred Registration Technology Escrow Agreement, dated September 10, 1997, between Registrant and First Data Investor Services Group, Inc.(5)
(5) Memorandum of Agreement regarding fee waivers, dated November 29, 1999, between Registrant and A I M Advisors, Inc.(8)
(6) Memorandum of Agreement regarding securities lending, dated June 1, 2000, between Registrant, with respect to all Funds, and A I M Advisors, Inc.(10)
(7) Interfund Loan Agreement, dated September 18, 2001, between Registrant and A I M Advisors, Inc.(11)
i Legal Opinion - None.
j (1) Consent of KPMG. (13)
(2) Consent of Ernst & Young LLP. (13)
(3) Consent of Ballard Spahr Andrews & Ingersoll, LLP.(13)
(4) Consent of Dechert Price & Rhoads.
k Omitted Financial Statements - None.
l (1) (a) Initial Capitalization Agreement for Registrant's AIM High
Yield Fund II.(6)
(b) Initial Capitalization Agreement for Registrant's AIM Total
Return Bond Fund.(13)
|
m (1) (a) Fourth Amended and Restated Master Distribution Plan, dated
July 1, 2000, for Registrant's Class A Shares, Class C Shares
and AIM Cash Reserve Shares.(10)
(b) Amendment No. 1, dated December 28, 2001, to the Fourth
Amended and Restated Master Distribution Plan, dated July 1,
2000, for Registrant's Class A Shares, Class C Shares and AIM
Cash Reserve Shares.(13)
(2) (a) First Amended and Restated Master Distribution Plan for
Registrant's Class B Shares.(11)
(b) Amendment No. 1, dated December 28, 2001, to the First
Amended and Restated Master Distribution Plan, dated December
31, 2000, for Registrant's Class B Shares.(13)
(3) Form of Shareholder Service Agreement to be used in connection
with Registrant's Master Distribution Plans.(11)
(4) Form of Bank Shareholder Service Agreement to be used in
connection with Registrant's Master Distribution Plans.(11)
(5) Form of Agency Pricing Agreement (for the Retail Classes) to be
used in connection with Registrant's Master Distribution
Plans.(11)
(6) Forms of Service Agreements for Bank Trust Departments and for
Brokers for Bank Trust Departments to be used in connection
with Registrant's Master Distribution Plans.(11)
(7) Form of Variable Group Annuity Contractholder Service Agreement
to be used in connection with Registrant's Master Distribution
Plans.(11)
(8) Form of Shareholder Service Agreement for Shares of the AIM
Mutual Funds to be used in connection with Registrant's Master
Distribution Plans.(10)
n (1) Fourth Amended and Restated Multiple Class Plan, effective as
of October 1, 2001.(12)
o Reserved.
p (1) The A I M Management Group Inc. Code of Ethics, as revised
February 24, 2000.(9)
(2) AIM Funds Code of Ethics of Registrant, effective as September
23, 2000.(10)
---------------------
|
(1) Incorporated herein by reference to Post-Effective Amendment No. 5, filed electronically on November 30, 1994.
(2) Incorporated herein by reference to Post-Effective Amendment No. 6, filed electronically on November 17, 1995.
(3) Incorporated herein by reference to Post-Effective Amendment No. 7, filed electronically on November 21, 1996.
(4) Incorporated herein by reference to Post-Effective Amendment No. 8, filed electronically on November 21, 1997.
(5) Incorporated herein by reference to Post-Effective Amendment No. 9, filed electronically on July 10, 1998.
(6) Incorporated herein by reference to Post-Effective Amendment No. 10, filed electronically on November 18, 1998.
(7) Incorporated herein by reference to Post-Effective Amendment No. 11, filed electronically on October 14, 1999.
(8) Incorporated herein by reference to Post-Effective Amendment No. 12, filed electronically on March 10, 2000.
(9) Incorporated herein by reference to Post-Effective Amendment No. 13, filed electronically on May 25, 2000.
(10) Incorporated herein by reference to Post-Effective Amendment No. 14, filed electronically on November 15, 2000.
(11) Incorporated herein by reference to Post-Effective Amendment No. 15, filed electronically on October 12, 2001.
(12) Incorporated herein by reference to Post-Effective Amendment No. 16, filed electronically on November 8, 2001.
(13) Filed herewith electronically.
Item 24. Persons Controlled by or Under Common Control with the Registrant
None.
Item 25. Indemnification
The Registrant's Amended and Restated Agreement and Declaration of Trust, dated November 5, 1998, as amended, provides, among other things (i) that trustees shall not be liable for any act or omission or any conduct whatsoever (except for liabilities to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of duty); (ii) for the indemnification by the Registrant of the trustees and officers to the fullest extent permitted by the Delaware Business Trust Act and Bylaws; and (iii) that the shareholders and former shareholders of the Registrant are held harmless by the Registrant (or applicable portfolio or class) from personal liability arising from their status as such, and are indemnified by the Registrant (or applicable portfolio or class) against all loss and expense arising from such personal liability in accordance with the Registrant's Bylaws and applicable law.
A I M Advisors, Inc., the Registrant and other investment companies managed by A I M Advisors, Inc., their respective officers, trustees, directors and employees (the "Insured Parties") are insured under a joint Mutual Fund and Investment Advisory Professional and Directors and Officers Liability Policy, issued by ICI Mutual Insurance Company, with a $35,000,000 limit of liability.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in connection with the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the shares being registered hereby, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy and will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Advisor
The only employment of a substantial nature of the Advisor's officers and directors is with the Advisor and its affiliated companies. For additional information regarding the Advisor and its officers and directors, see "Management" in the Prospectus and the Statement of Additional Information for the Class A shares and "Management of the Trust" and "General Information About the Fund" in the Prospectus and the Statement of Additional Information, respectively, for the Institutional Class.
Item 27. Principal Underwriters
(a) A I M Distributors, Inc., the Registrant's principal underwriter, also acts as a principal underwriter to the following investment companies:
AIM Advisor Funds
AIM Equity Funds
AIM Floating Rate Fund
AIM Funds Group
AIM Growth Series
AIM International Funds, Inc.
AIM Investment Funds
AIM Series Trust
AIM Special Opportunities Funds
AIM Summit Fund
AIM Tax-Exempt Funds
AIM Variable Insurance Funds
(b) The following table sets forth information with respect to each director, officer or partner of A I M Distributors, Inc.
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
---------------- -------------------------- ---------------
Robert H. Graham Chairman & Director Chairman, President &
Trustee
Michael J. Cemo President, Chief Executive Officer None
& Director
Gary T. Crum Director Senior Vice President
James L. Salners Executive Vice President None
W. Gary Littlepage Senior Vice President & Director None
Marilyn M. Miller Senior Vice President None
Gene L. Needles Senior Vice President None
Mark D. Santero Senior Vice President None
Leslie A. Schmidt Senior Vice President None
James E. Stueve Senior Vice President None
Michael C. Vessels Senior Vice President None
James R. Anderson Vice President & Chief None
Compliance Officer
Mary A. Corcoran Vice President None
|
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
---------------- -------------------------- ---------------
Sidney M. Dilgren Vice President None
Tony D. Green Vice President None
Dawn M. Hawley Vice President & Treasurer None
Ofelia M. Mayo Vice President, General Counsel Assistant Secretary
& Assistant Secretary
Kim T. McAuliffe Vice President None
Charles H. McLaughlin Vice President None
Carol F. Relihan Vice President Senior Vice President
& Secretary
Linda L. Warriner Vice President None
Kathleen J. Pflueger Secretary Assistant Secretary
|
(c) Not applicable.
Item 28. Location of Accounts and Records
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, maintains physical possession of each such account, book or other document of the Registrant at its principal executive offices, except for those relating to certain transactions in portfolio securities that are maintained by the Registrant's Custodians, The Bank of New York, 90 Washington Street, 11th Floor, New York, New York 10286, with respect to AIM Limited Maturity Treasury Fund, AIM Money Market Fund and AIM Municipal Bond Fund, and State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, with respect to AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund, AIM Intermediate Government Fund and AIM Total Return Bond Fund and the Registrant's Transfer Agent and Dividend Paying Agent, A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739.
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Houston, Texas on the 21st day of December, 2001.
REGISTRANT: AIM INVESTMENT SECURITIES FUNDS
By: /s/ ROBERT H. GRAHAM --------------------------------------- Robert H. Graham, President |
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
SIGNATURES TITLE DATE
---------- ----- ----
/s/ ROBERT H. GRAHAM Chairman, Trustee & President December 21, 2001
------------------------ (Principal Executive Officer)
(Robert H. Graham)
/s/ FRANK S. BAYLEY Trustee December 21, 2001
------------------------
(Frank S. Bayley)
/s/ BRUCE L. CROCKETT Trustee December 21, 2001
-----------------------
(Bruce L. Crockett)
/s/ OWEN DALY II Trustee December 21, 2001
------------------------
(Owen Daly II)
/s/ ALBERT R. DOWDEN Trustee December 21, 2001
------------------------
(Albert R. Dowden)
/s/ EDWARD K. DUNN, JR. Trustee December 21, 2001
------------------------
(Edward K. Dunn, Jr.)
/s/ JACK M. FIELDS Trustee December 21, 2001
------------------------
(Jack M. Fields)
/s/ CARL FRISCHLING Trustee December 21, 2001
------------------------
(Carl Frischling)
/s/ PREMA MATHAI-DAVIS Trustee December 21, 2001
------------------------
(Prema Mathai-Davis)
/s/ LEWIS F. PENNOCK Trustee December 21, 2001
------------------------
(Lewis F. Pennock)
/s/ RUTH H. QUIGLEY Trustee December 21, 2001
------------------------
(Ruth H. Quigley)
/s/ LOUIS S. SKLAR Trustee December 21, 2001
------------------------
(Louis S. Sklar)
Vice President & Treasurer December 21, 2001
/s/ DANA. R. SUTTON (Principal Financial and
------------------------ Accounting Officer)
(Dana R. Sutton)
|
INDEX TO EXHIBITS
AIM INVESTMENT SECURITIES FUNDS
Exhibit
Number Description
------ -----------
d(1)(b) Amendment No. 1, dated December 28, 2001, to Master Investment Advisory Agreement
e(1)(b) Amendment No. 1, dated December 28, 2001, to Third Amended and Restated Master
Distribution Agreement (on behalf of Class A Shares, Class C Shares, AIM Cash Reserve
Shares and Institutional Class Shares)
e(2(b) Amendment No. 1, dated December 28, 2001, to First Amended and Restated Master Distribution
Agreement (on behalf of Class B Shares)
h(3)(c) Amendment No. 2, dated December 28, 2001, to Master Administrative Services Agreement
j (1) Consent of KPMG
j (2) Consent of Ernst & Young
j (3) Consent of Ballard Spahr Andrews & Ingersoll, LLP
l(1)(b) Initial Capitalization Agreement for Registrant's AIM Total Return Bond Fund
m(1)(b) Amendment No. 1, dated December 28, 2001, to the Fourth Amended and Restated Master
Distribution Plan for Registrant's Class A Shares, Class C Shares and AIM Cash Reserve
Shares
m(2)(b) Amendment No. 1, dated December 28, 2001, to the First Amended and Restated Master
Distribution Plan for Registrant's Class B Shares
|
EXHIBIT d(1)(b)
AMENDMENT NO. 1
TO
MASTER INVESTMENT ADVISORY AGREEMENT
This Amendment dated as of December 28, 2001, amends the Master Investment Advisory Agreement (the "Agreement"), dated June 1, 2000, between AIM Investment Securities Funds, a Delaware business trust, and A I M Advisors, Inc., a Delaware corporation.
WITNESSETH:
WHEREAS, the parties desire to amend the Agreement to add a new portfolio, the AIM Total Return Bond Fund;
NOW, THEREFORE, the parties agree as follows;
1. Schedule A and Schedule B to the Agreement are hereby deleted in their entirety and replaced with the following:
"SCHEDULE A
FUNDS AND EFFECTIVE DATES
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT ------------ ------------------------------------ AIM High Yield Fund June 1, 2000 AIM High Yield Fund II June 1, 2000 AIM Income Fund June 1, 2000 AIM Intermediate Government Fund June 1, 2000 AIM Limited Maturity Treasury Fund June 1, 2000 AIM Money Market Fund June 1, 2000 AIM Municipal Bond Fund June 1, 2000 AIM Total Return Bond Fund December 28, 2001 |
SCHEDULE B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full compensation for all services rendered, an advisory fee for such Fund set forth below. Such fee shall be calculated by applying the following annual rates to the average daily net assets of such Fund for the calendar year computed in the manner used for the determination of the net asset value of shares of such Fund.
AIM HIGH YIELD FUND
NET ASSETS ANNUAL RATE ---------- ----------- First $200 million ......................................... 0.625% Next $300 million .......................................... 0.55% Next $500 million .......................................... 0.50% Amount over $1 billion ..................................... 0.45% |
AIM HIGH YIELD FUND II
NET ASSETS ANNUAL RATE ---------- ----------- First $500 million ......................................... 0.625% Next $500 million .......................................... 0.55% Amount over $1 billion ..................................... 0.50% |
AIM INCOME FUND
AIM INTERMEDIATE GOVERNMENT FUND
AIM MUNICIPAL BOND FUND
NET ASSETS ANNUAL RATE ---------- ----------- First $200 million ......................................... 0.50% Next $300 million .......................................... 0.40% Next $500 million .......................................... 0.35% Amount over $1 billion ..................................... 0.30% |
AIM LIMITED MATURITY TREASURY FUND
NET ASSETS ANNUAL RATE ---------- ----------- First $500 million ......................................... 0.20% Amount over $500 million ................................... 0.175% |
AIM MONEY MARKET FUND
NET ASSETS ANNUAL RATE ---------- ----------- First $1 billion ........................................... 0.55% Over $1 billion ............................................ 0.50% |
AIM TOTAL RETURN BOND FUND
NET ASSETS ANNUAL RATE ---------- ----------- First $500 million ......................................... 0.50% Next $500 million .......................................... 0.45% Over $1 billion ............................................ 0.40%" |
2. In all other respects, the Agreement is hereby confirmed and remains in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers on the date first written above.
AIM INVESTMENT SECURITIES FUNDS
Attest: /s/ LISA A. MOSS By: /s/ ROBERT H. GRAHAM
--------------------------- ---------------------------
Assistant Secretary Robert H. Graham
President
|
(SEAL)
A I M ADVISORS, INC.
Attest: /s/ LISA A. MOSS By: /s/ ROBERT H. GRAHAM
--------------------------- ---------------------------
Assistant Secretary Robert H. Graham
President
|
(SEAL)
EXHIBIT e(1)(b)
AMENDMENT NO. 1
TO THE THIRD AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(APPLICABLE TO CLASS A SHARES, CLASS C SHARES,
AIM CASH RESERVE SHARES AND INSTITUTIONAL CLASS SHARES)
The Third Amended and Restated Master Distribution Agreement (the "Agreement"), dated November 28, 2000, by and between AIM Investment Securities Funds, a Delaware business trust, and A I M Distributors, Inc., a Delaware corporation, is hereby amended as follows:
Appendix A to the Agreement is hereby deleted in its entirety and replaced with the following:
"APPENDIX A
TO
THIRD AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
OF
AIM INVESTMENT SECURITIES FUNDS
CLASS A SHARES
AIM High Yield Fund
AIM High Yield Fund II
AIM Income Fund
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Municipal Bond Fund
AIM Total Return Bond Fund
CLASS C SHARES
AIM High Yield Fund
AIM High Yield Fund II
AIM Income Fund
AIM Intermediate Government Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Total Return Bond Fund
AIM CASH RESERVE SHARES
AIM Money Market Fund
INSTITUTIONAL CLASS SHARES
AIM Limited Maturity Treasury Fund"
All other terms and provisions of the Agreement not amended herein shall remain in full force and effect.
Dated: December 28, 2001
AIM INVESTMENT SECURITIES FUNDS
Attest: /s/ LISA A. MOSS By: /s/ ROBERT H. GRAHAM
---------------------------- ---------------------------
Assistant Secretary Robert H. Graham
President
|
A I M DISTRIBUTORS, INC.
Attest: /s/ LISA A. MOSS By: /s/ MICHAEL J. CEMO
---------------------------- ---------------------------
Assistant Secretary Michael J. Cemo
President
|
EXHIBIT e(2)(b)
AMENDMENT NO. 1
TO
FIRST AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(CLASS B SHARES)
The First Amended and Restated Master Distribution Agreement (the "Agreement"), dated December 31, 2000, by and between AIM Investment Securities Funds, a Delaware business trust, and A I M Distributors, Inc., a Delaware corporation, is hereby amended as follows:
Schedule A to the Agreement is hereby deleted in its entirety and replaced with the following:
"SCHEDULE A
TO
MASTER DISTRIBUTION AGREEMENT
OF
AIM INVESTMENT SECURITIES FUNDS
CLASS B SHARES
AIM High Yield Fund
AIM High Yield Fund II
AIM Income Fund
AIM Intermediate Government Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Total Return Bond Fund
All other terms and provisions of the Agreement not amended herein shall remain in full force and effect.
Dated: December 28, 2001
AIM INVESTMENT SECURITIES FUNDS
Attest: /s/ LISA A. MOSS By: /s/ ROBERT H. GRAHAM
------------------------------ ----------------------------------
Assistant Secretary Robert H. Graham
President
|
A I M DISTRIBUTORS, INC.
Attest: /s/ LISA A. MOSS By: /s/ MICHAEL J. CEMO
------------------------------ ----------------------------------
Assistant Secretary Michael J. Cemo
President
|
EXHIBIT h(3)(c)
AMENDMENT NO. 2
MASTER ADMINISTRATIVE SERVICES AGREEMENT
The Master Administrative Services Agreement (the "Agreement"), dated June 1, 2000, by and between A I M Advisors, Inc., a Delaware corporation, and AIM Investment Securities Funds, a Delaware business trust, is hereby amended as follows:
Appendix A of the Agreement is hereby deleted in its entirety and replaced with the following:
"APPENDIX A
TO
MASTER ADMINISTRATIVE SERVICES AGREEMENT
OF
AIM INVESTMENT SECURITIES FUNDS
PORTFOLIOS EFFECTIVE DATE OF AGREEMENT ---------- --------------------------- AIM High Yield Fund June 1, 2000 AIM High Yield Fund II June 1, 2000 AIM Income Fund June 1, 2000 AIM Intermediate Government Fund June 1, 2000 AIM Limited Maturity Treasury Fund June 1, 2000 AIM Money Market Fund June 1, 2000 AIM Municipal Bond Fund June 1, 2000 AIM Total Return Bond Fund December 28, 2001" |
All other terms and provisions of the Agreement not amended herein shall remain in full force and effect.
Dated: December 28, 2001
A I M ADVISORS, INC.
Attest: /s/ LISA A MOSS By: /s/ ROBERT H. GRAHAM
---------------------------------- -----------------------------
Assistant Secretary Robert H. Graham
President
|
(SEAL)
AIM Investment Securities Funds
Attest: /s/ LISA A. MOSS By: /s/ ROBERT H. GRAHAM
---------------------------------- -----------------------------
Assistant Secretary Robert H. Graham
President
|
(SEAL)
EXHIBIT j(3)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees and Shareholders
AIM Investment Securities Funds.:
We consent to the use of our reports for the AIM Investment Securities Funds portfolios dated September 1, 2000 and to the references to our firm under the heading "Financial Highlights" in the applicable Prospectuses and "Auditors" in the Statements of Additional Information.
/s/ KPMG LLP Houston, Texas December 20, 2001 |
EXHIBIT j(2)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Financial Highlights" in the Prospectus and "Auditors" in the Statement of Additional Information and to the incorporation by reference of those references and use of our reports dated September 7, 2001, on the financial statements and financial highlights of the AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund, AIM Intermediate Government Fund, AIM Limited Maturity Treasury Fund, AIM Money Market Fund, and AIM Municipal Bond Fund as of and for the year ended July 31, 2001 in the Post-Effective Amendment Number 17 to the Registration Statement (Form N-1A).
/s/ERNST & YOUNG, LLP Houston, Texas December 20, 2001 |
EXHIBIT j(1)
CONSENT OF COUNSEL
AIM INVESTMENT SECURITIES FUNDS
We hereby consent to the use of our name and to the reference to our firm under the caption "Investment Advisory and Other Services - Other Service Providers - Counsel to the Trust" in the Statement of Additional Information for AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund, AIM Municipal Bond Fund and AIM Total Return Bond Fund and the Class A Shares of AIM Limited Maturity Treasury Fund, which is included in Post-Effective Amendment No. 17 to the Registration Statement under the Securities Act of 1933, as amended (No. 33-39519), and Amendment No. 21 to the Registration Statement under the Investment Company Act of 1940, as amended (No. 811-5686), on Form N-1A of AIM Investment Securities Funds.
/s/ BALLARD SPAHR ANDREWS & INGERSOLL, LLP
-----------------------------------------
Ballard Spahr Andrews & Ingersoll, LLP
Philadelphia, Pennsylvania
December 20, 2001
|
EXHIBIT l(1)(b)
[AIM LOGO APPEARS HERE]
--Registered Trademark--
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
713-626-1919
AIM Advisors, Inc.
December 28, 2001
Board of Trustees
AIM Investment Securities Funds
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Re: Initial Capital Investment in New Portfolio of AIM Investment Securities Funds (The "Fund")
Ladies and Gentlemen:
We are purchasing shares of the Fund for the purpose of providing initial investment for a new investment portfolio of the Fund. The purpose of this letter is to set out our understanding of the conditions of and our promises and representations concerning this investment.
We hereby agree to purchase shares equal to the following dollar amount for the portfolio:
FUND AMOUNT DATE
---- ------ ----
AIM Total Return Bond Fund - Class A Shares $ 10.00 December 28, 2001
AIM Total Return Bond Fund - Class B Shares $ 10.00 December 28, 2001
AIM Total Return Bond Fund - Class C Shares $ 10.00 December 28, 2001
AIM Total Return Bond Fund - Class A Shares $1,000,000.00 December 31, 2001
AIM Total Return Bond Fund - Class B Shares $1,000,000.00 December 31, 2001
AIM Total Return Bond Fund - Class C Shares $1,000,000.00 December 31, 2001
|
We understand that the initial net asset value per share for the portfolio named above will be $10.
We hereby represent that we are purchasing these shares solely for our own account and solely for investment purposes without any intent of distributing or reselling said shares. We further represent that disposition of said shares will only be by direct redemption to or repurchase by the Fund.
We further agree to provide the Fund with at least three days' advance written notice of any intended redemption and agree that we will work with the Fund with respect to the amount of such redemption so as not to place a burden on the Fund and to facilitate normal portfolio management of the Fund.
Sincerely yours,
A I M ADVISORS, INC.
By: /s/ ROBERT H. GRAHAM
-------------------------------
Robert H. Graham
President
|
cc: Sara Ehlert-Gerke
David Hessel
Gary Trappe
Bobbie Stafford-Garza
EXHIBIT m(1)(b)
AMENDMENT NO. 1
FOURTH AMENDED AND RESTATED MASTER DISTRIBUTION PLAN
The Fourth Amended and Restated Master Distribution Plan (the "Plan"), dated as of July 1, 2000, pursuant to Rule 12b-1 of AIM Investment Securities Funds, a Delaware business trust, is hereby amended as follows:
Appendix A of the Plan is hereby deleted in its entirety and replaced with the following:
"APPENDIX A
TO
FOURTH AMENDED AND RESTATED MASTER DISTRIBUTION PLAN
OF
AIM INVESTMENT SECURITIES FUNDS
(CLASS A SHARES, CLASS C SHARES AND AIM CASH RESERVE SHARES)
(DISTRIBUTION FEE)
The Fund shall pay the Distributor as full compensation for all services rendered and all facilities furnished under the Distribution Plan for each Portfolio (or Class thereof) designated below, a Distribution Fee* determined by applying the annual rate set forth below as to each Portfolio (or Class thereof) to the average daily net assets of the Portfolio (or Class thereof) for the plan year, computed in a manner used for the determination of the offering price of shares of the Portfolio (or Class thereof).
MINIMUM MAXIMUM MAXIMUM
PORTFOLIO ASSET BASED SERVICE AGGREGATE
CLASS A SHARES SALES CHARGE FEE FEE
-------------- ------------ --- ---
AIM High Yield Fund 0.00% 0.25% 0.25%
AIM High Yield Fund II 0.00% 0.25% 0.25%
AIM Income Fund 0.00% 0.25% 0.25%
AIM Intermediate Government Fund 0.00% 0.25% 0.25%
AIM Limited Maturity Treasury Fund 0.00% 0.15% 0.15%
AIM Municipal Bond Fund 0.00% 0.25% 0.25%
AIM Total Return Bond Fund 0.10% 0.25% 0.35%
|
MINIMUM MAXIMUM MAXIMUM
ASSET BASED SERVICE AGGREGATE
CLASS C SHARES SALES CHARGE FEE FEE
-------------- ------------ --- ---
AIM High Yield Fund 0.75% 0.25% 1.00%
AIM High Yield Fund II 0.75% 0.25% 1.00%
AIM Income Fund 0.75% 0.25% 1.00%
AIM Intermediate Government Fund 0.75% 0.25% 1.00%
AIM Money Market Fund 0.75% 0.25% 1.00%
AIM Municipal Bond Fund 0.75% 0.25% 1.00%
AIM Total Return Bond Fund 0.75% 0.25% 1.00%
|
AIM CASH RESERVE SHARES ----------------------- AIM Money Market Fund 0.00% 0.25% 0.25% |
All other terms and provisions of the Plan not amended herein shall remain in full force and effect.
Dated: December 28, 2001
AIM INVESTMENT SECURITIES FUNDS
(on behalf of its Class A and
Class C Shares)
Attest: /s/ LISA A. MOSS By: /s/ ROBERT H. GRAHAM
-------------------------- -------------------------------------
Assistant Secretary Robert H. Graham
President
|
EXHIBIT m(2)(b)
AMENDMENT NO. 1
TO THE FIRST AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
OF
AIM INVESTMENT SECURITIES FUNDS
(CLASS B SHARES)
(SECURITIZATION FEATURE)
The First Amended and Restated Master Distribution Plan (the "Plan"), dated as of December 31, 2000, pursuant to Rule 12b-1 of AIM Investment Securities Funds, a Delaware business trust, is hereby amended as follows:
Schedule A to the Plan is hereby deleted in its entirety and replaced with the following:
"SCHEDULE A
TO
FIRST AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
OF
AIM INVESTMENT SECURITIES FUNDS
(CLASS B SHARES)
(DISTRIBUTION FEE)
MAXIMUM MAXIMUM MAXIMUM
ASSET-BASED SERVICE AGGREGATE
FUND SALES CHARGE FEE ANNUAL FEE
---- ------------ ------- ----------
AIM High Yield Fund 0.75% 0.25% 1.00%
AIM High Yield Fund II 0.75% 0.25% 1.00%
AIM Income Fund 0.75% 0.25% 1.00%
AIM Intermediate Government Fund 0.75% 0.25% 1.00%
AIM Money Market Fund 0.75% 0.25% 1.00%
AIM Municipal Bond Fund 0.75% 0.25% 1.00%
AIM Total Return Bond Fund 0.75% 0.25% 1.00%"
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All other terms and provisions of the Plan not amended herein shall remain in full force and effect.
Dated: December 28, 2001
AIM INVESTMENT SECURITIES FUNDS
(on behalf of its Class B Shares)
Attest: /s/ LISA A. MOSS By: /s/ ROBERT H. GRAHAM
------------------------ -------------------------------
Assistant Secretary Robert H. Graham
President
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