As filed with the Securities and Exchange Commission on April 27, 2004
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. 26 X
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 30 X
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(Check appropriate box or boxes.)
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Copy to:
Stephen Rimes, 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 |
It is proposed that this filing will become effective (check appropriate box)
If appropriate, check the following box:
AIM REAL ESTATE FUND
PROSPECTUS
April 30, 2004
AIM Real Estate Fund seeks to achieve high total return.
This prospectus contains important information about the Class A, B, C, R and Investor Class shares of the funds. Please read it before investing and keep it for future reference.
Investor Class shares offered by this prospectus are offered only to grandfathered investors. Please see the section of the prospectus entitled "Purchasing Shares -- Grandfathered Investors."
As with all other mutual fund securities, the Securities and Exchange Commission has not approved or disapproved these securities or determined whether the information in this prospectus is adequate or accurate. Anyone who tells you otherwise is committing a crime.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
INVESTMENT OBJECTIVE AND STRATEGIES 1 ------------------------------------------------------ PRINCIPAL RISKS OF INVESTING IN THE FUND 1 ------------------------------------------------------ PERFORMANCE INFORMATION 2 ------------------------------------------------------ Annual Total Returns 2 Performance Table 3 FEE TABLE AND EXPENSE EXAMPLE 4 ------------------------------------------------------ Fee Table 4 Expense Example 4 FUND MANAGEMENT 5 ------------------------------------------------------ The Advisors 5 Advisor Compensation 5 Portfolio Managers 5 OTHER INFORMATION 5 ------------------------------------------------------ Sales Charges 5 Dividends and Distributions 5 FINANCIAL HIGHLIGHTS 6 ------------------------------------------------------ SHAREHOLDER INFORMATION A-1 ------------------------------------------------------ Choosing a Share Class A-1 Tools Used to Combat Excessive Short-Term Trading Activity A-4 Purchasing Shares A-5 Redeeming Shares A-6 Exchanging Shares A-10 Pricing of Shares A-12 Taxes A-13 OBTAINING ADDITIONAL INFORMATION Back Cover ------------------------------------------------------ |
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with DISCIPLINE are registered service marks and AIM Bank Connection, AIM Internet Connect, AIM Private Asset Management, AIM Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. are service marks of A I M Management Group Inc. AIM Trimark is a service mark of A I M Management Group Inc. and AIM Funds Management Inc.
No dealer, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus, and you should not rely on such other information or representations.
The fund's investment objective is to achieve high total return. The investment objective of the fund may be changed by the Board of Trustees without shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 80% of its assets in securities of real estate and real estate-related companies. In complying with this 80% investment requirement, the fund may invest in debt and equity securities, including convertible securities, and its investments may include other securities, such as synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the fund's direct investments, and may include warrants, futures, options, exchange-traded funds and American Depositary Receipts. The fund considers a company to be a real estate-related company if at least 50% of its assets, gross income or net profits are attributable to ownership, construction, management or sale of residential, commercial or industrial real estate. These companies include equity real estate investment trusts (REITs) that own property and mortgage REITs that make short-term construction and development mortgage loans or that invest in long-term mortgages or mortgage pools, or companies whose products and services are related to the real estate industry, such as manufacturers and distributors of building supplies and financial institutions that issue or service mortgages.
The fund may invest in equity, debt or convertible securities of companies unrelated to the real estate industry that the portfolio managers believe are undervalued and have potential for growth of capital. The fund will limit its investment in debt securities to those that are investment-grade or deemed by the fund's portfolio manager to be of comparable quality. The fund may invest up to 25% of its total assets in foreign securities. For cash management purposes, the fund may also hold a portion of its assets in cash or cash equivalents, including shares of affiliated money market funds. Any percentage limitations with respect to assets of the fund are applied at the time of purchase.
The portfolio managers utilize fundamental real estate analysis and quantitative securities analysis to select investments for the fund, including analyzing a company's management and strategic focus, evaluating the location, physical attributes and cash flow generating capacity of a company's properties and calculating expected returns, among other things. The portfolio managers consider whether to sell a particular security when any of these factors materially changes.
In anticipation of or in response to adverse market or other conditions, or atypical circumstances such as unusually large cash inflows or redemptions, the fund may temporarily hold all or a portion of its assets in cash, cash equivalents, or high-quality debt instruments. As a result, the fund may not achieve its investment objective.
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. 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. Debt securities are particularly vulnerable to credit risk and interest rate fluctuations. Interest rate increases can cause the price of a debt security to decrease. The longer a debt security's duration, the more sensitive it is to this risk. The issuer of a debt security may default or otherwise be unable to honor a financial obligation.
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.
The fund could conceivably hold real estate directly if a company defaults on debt securities the fund owns. In that event, an investment in the fund may have additional risks relating to direct ownership in real estate, including difficulties in valuing and trading real estate, declines in value of the properties, risks relating to general and local economic conditions, changes in the climate for real estate, increases in taxes, expenses and costs, changes in laws, casualty and condemnation losses, rent control limitations and increases in interest rates.
The value of the fund's investment in REITs is affected by the factors listed above, as well as the management skill of the persons managing the REIT. Since REITs have expenses of their own, you will bear a proportionate share of those expenses in addition to those of the fund. Because the fund focuses its investments in REITs and other companies related to the real estate industry, the value of your shares may rise and fall more than the value of shares of a fund that invests in a broader range of companies.
The fund may participate in the initial public offering (IPO) market in some market cycles. Because of the fund's small asset base, any investment the fund may make in IPOs may significantly increase the fund's total return. As the fund's assets grow, the impact of IPO investments will decline, which may reduce the effect of IPO investments on the fund's total return.
An investment in the fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The bar chart and table shown below provide an indication of the risks of investing in the fund. The fund's past performance (before and after taxes) is not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of the fund's Class C shares from year to year. The bar chart does not reflect sales loads. If it did, the annual total returns shown would be lower.
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
----------- -------
1996................................................................... 36.44%
1997................................................................... 18.88%
1998................................................................... -23.16%
1999................................................................... -3.54%
2000................................................................... 28.25%
2001................................................................... 9.49%
2002................................................................... 8.06%
2003................................................................... 38.33%
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The Class C shares' year-to-date total return as of March 31, 2004 was 12.26%.
During the period shown in the bar chart, the highest quarterly return was 19.39% (quarter ended December 31, 1996) and the lowest quarterly return was -15.54% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a broad-based securities market index, a style specific index and a peer group index. The fund's performance reflects payment of sales loads, if applicable. The indices may not reflect payment of fees, expenses or taxes. The fund is not managed to track the performance of any particular index, including the indices shown below, and consequently, the performance of the fund may deviate significantly from the performance of the indices shown below.
AVERAGE ANNUAL TOTAL RETURNS
----------------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2003) 1 YEAR 5 YEARS INCEPTION DATE
----------------------------------------------------------------------------------------
Class A 12/31/96
Return Before Taxes 32.63% 14.81% 9.19%
Return After Taxes on
Distributions 31.34 13.18 7.35
Return After Taxes on
Distributions and Sale of
Fund Shares 21.09 11.82 6.72
Class B 03/03/98
Return Before Taxes 33.33 14.93 8.27
Class C 05/01/95
Return Before Taxes 37.33 15.16 12.40
Class R(1) 12/31/96(1)
Return Before Taxes 39.00 15.76 9.79
Investor Class(2) 39.19 15.92 9.95 12/31/96(2)
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S&P 500 Index(3) 28.67 (0.57) 11.13(5) 04/30/95(6)
Morgan Stanley REIT Index(4) 36.74 14.12 13.53(6) 04/30/95(6)
Lipper Real Estate Fund Index(5) 37.21 13.66 N/A 04/30/95(6)
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only and after-tax returns for Class B, C, R and Investor Class will vary.
(1) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to Class R shares. Class R shares would
have different returns because, although the shares are invested in the same
portfolio of securities, Class R has a different expense structure. The
inception date shown in the table is that of the fund's Class A shares. The
inception date of the fund's Class R shares is April 30, 2004.
(2) The returns shown for these periods are the blended returns of the
historical performance of the fund's Investor Class shares since their
inception and the restated historical performance of the fund's Class A
shares (for the periods prior to the inception of the Investor Class shares)
at net asset value and reflect the higher Rule 12b-1 fees applicable to
Class A shares. The inception date shown in the table is that of the fund's
Class A shares. The inception date of the fund's Investor Class shares is
September 30, 2003.
(3) The Standard & Poor's 500 Index measures the performance of the 500 most widely held common stocks and is considered one of the best indicators of U.S. stock market performance. The fund has also included the Morgan Stanley REIT Index, which the fund believes more closely reflects the performance of the types of securities in which the fund invests. In addition, the Lipper Real Estate Fund Index (which may or may not include the fund) is included for comparison to a peer group.
(4) The Morgan Stanley REIT Index is a total-return index comprised of the most
actively traded real estate investment trusts and is designed to be a
measure of real estate equity performance.
(5) The Lipper Real Estate Fund Index is an equally weighted representation of
the 30 largest funds within the Lipper Real Estate category.
(6) The average annual total return given is since the month end closest to the
inception date of the class with the longest performance history.
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 INVESTOR your investment) CLASS A CLASS B CLASS C CLASS R CLASS ------------------------------------------------------------------------------------------ Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.75% None None None None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, whichever is less) None(1,2) 5.00% 1.00% None(3) None ------------------------------------------------------------------------------------------ |
ANNUAL FUND OPERATING EXPENSES(4) ------------------------------------------------------------------------------------------- (expenses that are deducted INVESTOR from fund assets) CLASS A CLASS B CLASS C CLASS R CLASS ------------------------------------------------------------------------------------------- Management Fees 0.90% 0.90% 0.90% 0.90% 0.90% Distribution and/or Service (12b-1) Fees 0.35 1.00 1.00 0.50 0.25 Other Expenses(5) 0.47 0.47 0.47 0.47 0.47 Total Annual Fund Operating Expenses 1.72 2.37 2.37 1.87 1.62 ------------------------------------------------------------------------------------------- |
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the distributor paid a concession to the dealer of record and a total redemption of the retirement plan assets occurs within 12 months from the date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown in the table.
(5) Other Expenses for Class R and Investor Class shares are based on estimated average net assets for the current fiscal year.
You may also be charged a transaction or other fee by the financial institution managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. To the extent fees are waived and/or expenses are reimbursed, your expenses will be lower. Although your actual returns and costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------
Class A $642 $ 991 $1,364 $2,409
Class B 740 1,039 1,465 2,545
Class C 340 739 1,265 2,706
Class R 190 588 1,011 2,190
Investor Class 165 511 881 1,922
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You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------
Class A $642 $991 $1,364 $2,409
Class B 240 739 1,265 2,545
Class C 240 739 1,265 2,706
Class R 190 588 1,011 2,190
Investor Class 165 511 881 1,922
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THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and manages the investment operations of the fund and has agreed to perform or arrange for the performance of the fund's day-to-day management. The advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. INVESCO Institutional (N.A.), Inc. (INVESCO Alternatives Group division) (the subadvisor) is located at Three Galleria Tower, Suite 500, 13155 Noel Road, Dallas, TX 75240. The subadvisor is responsible for the fund's day-to-day management, including the fund's investment decisions and the execution of securities transactions with respect to the fund.
The advisor has acted as an investment advisor since its organization in 1976 and the subadvisor has acted as an investment advisor and qualified professional asset manager since 1979. Today, the advisor, together with its subsidiaries, advises or manages over 200 investment portfolios, including the fund, encompassing a broad range of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2003, the advisor received compensation of 0.90% of average daily net assets.
PORTFOLIO MANAGERS
The sub-advisor uses a team approach to investment management. The individual members of the team who are primarily responsible for the management of the fund's portfolio are
- Joe V. Rodriguez, Jr. (lead manager), Portfolio Manager, who has been responsible for the fund since 1995 and has been associated with the subadvisor and/or its affiliates since 1990.
- Mark Blackburn, Portfolio Manager, who has been responsible for the fund since 2000 and has been associated with the subadvisor and/or its affiliates since 1998.
- James W. Trowbridge, Portfolio Manager, who has been responsible for the fund since 1995 and has been associated with the subadvisor and/or its affiliates since 1989.
They are assisted by the Real Estate Team. More information on the fund's management team may be found on our website (http://www.aiminvestments.com/teams). The website is not a part of this prospectus.
SALES CHARGES
Purchases of Class A shares of AIM Real Estate Fund are subject to the maximum 4.75% initial sales charge as listed under the heading "CATEGORY II Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class" section of this prospectus. Certain purchases of Class A shares at net asset value may be subject to the contingent deferred sales charge listed in that section. Purchases of Class B and Class C shares are subject to the contingent deferred sales charges listed in that section. Certain purchases of Class R shares may be subject to the deferred sales charge listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of income.
DIVIDENDS
The fund generally declares and pays dividends, if any, quarterly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any, annually.
The financial highlights table is intended to help you understand the fund's financial performance. Certain information reflects financial results for a single fund share.
The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of all dividends and distributions).
The information for the fiscal years ended 2003, 2002 and 2001 has been audited by Ernst & Young LLP, whose report, along with the fund's financial statements, is included in the fund's annual report, which is available upon request. Information for the prior fiscal years was audited by other public accountants.
As of the date of this prospectus, the fund's Class R shares had not yet commenced operations and therefore, financial information for Class R shares is not available.
CLASS A
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SIX MONTHS SEVEN MONTHS YEAR ENDED
ENDED YEAR ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, ------------------------------ JULY 31, ------------------
2004 2003 2002 2001 2000 1999 1998
----------- -------- ------- ------- -------------- ------- -------
Net asset value, beginning of period $ 17.50 $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46 $ 15.74
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Income from investment operations:
Net investment income 0.25(a) 0.45(a) 0.47(a) 0.50 0.30(a) 0.42 0.58(a)
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Net gains (losses) on securities
(both realized and unrealized) 3.19 2.24 1.68 0.54 2.38 (0.75) (4.11)
===============================================================================================================================
Total from investment operations 3.44 2.69 2.15 1.04 2.68 (0.33) (3.53)
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.28) (0.44) (0.46) (0.52) (0.25) (0.52) (0.50)
-------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- -- -- -- -- (0.25)
===============================================================================================================================
Total distributions (0.28) (0.44) (0.46) (0.52) (0.25) (0.52) (0.75)
===============================================================================================================================
Net asset value, end of period $ 20.66 $ 17.50 $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 19.87% 18.12% 16.10% 8.23% 25.61% (2.88)% (22.54)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $313,619 $177,901 $86,411 $28,400 $23,187 $16,279 $20,087
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers 1.65%(c) 1.72% 1.77% 1.63% 1.62%(d) 1.61% 1.55%
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Without fee waivers 1.65%(c) 1.72% 1.77% 1.79% 2.05%(d) 1.73% 1.71%
===============================================================================================================================
Ratio of net investment income to
average net assets 2.59%(c) 2.97% 3.25% 3.88% 4.49%(d) 3.70% 4.37%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(e) 13% 87% 77% 85% 39% 52% 69%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
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(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $230,400,839.
(d) Annualized.
(e) Not annualized for periods less than one year.
CLASS B
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MARCH 3, 1998
SIX MONTHS SEVEN MONTHS (DATE SALES
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, -------------------------------- JULY 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999 1998
----------- -------- ------- ------- -------------- ------------ -------------
Net asset value, beginning of
period $ 17.55 $ 15.29 $ 13.59 $ 13.07 $ 10.64 $11.48 $15.34
---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.19(a) 0.36(a) 0.38(a) 0.41 0.25(a) 0.32 0.37(a)
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 3.20 2.24 1.68 0.53 2.39 (0.72) (3.58)
=================================================================================================================================
Total from investment
operations 3.39 2.60 2.06 0.94 2.64 (0.40) (3.21)
=================================================================================================================================
Dividends from net investment
income (0.21) (0.34) (0.36) (0.42) (0.21) (0.44) (0.40)
=================================================================================================================================
Less distributions:
Dividends from net
investment income (0.21) (0.34) (0.36) (0.42) (0.21) (0.44) (0.40)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- -- -- -- -- -- (0.25)
=================================================================================================================================
Total distributions (0.21) (0.34) (0.36) (0.42) (0.21) (0.44) (0.65)
=================================================================================================================================
Net asset value, end of
period $ 20.73 $ 17.55 $ 15.29 $ 13.59 $ 13.07 $10.64 $11.48
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 19.43% 17.37% 15.40% 7.42% 25.08% (3.53)% (21.02)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $166,646 $123,093 $69,557 $16,917 $12,722 $9,839 $6,901
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average
net assets:
With fee waivers 2.30%(c) 2.37% 2.41% 2.36% 2.37%(d) 2.35% 2.31%(d)
---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.30%(c) 2.37% 2.41% 2.43% 2.70%(d) 2.37% 2.35%(d)
=================================================================================================================================
Ratio of net investment
income to average net
assets 1.94%(c) 2.32% 2.61% 3.15% 3.73%(d) 2.96% 3.62%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 13% 87% 77% 85% 39% 52% 69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
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(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $141,865,770.
(d) Annualized.
(e) Not annualized for periods less than one year.
CLASS C
-----------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS YEAR ENDED
ENDED YEAR ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, ----------------------------------- JULY 31, ------------------
2004 2003 2002 2001 2000 1999 1998
------------ ------- ------- ------- ------------ ------- -------
Net asset value, beginning of period $ 17.52 $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46 $ 15.74
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.36(a) 0.38(a) 0.41 0.25(a) 0.33(a) 0.50(a)
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 3.19 2.24 1.67 0.53 2.39 (0.73) (4.13)
=================================================================================================================================
Total from investment operations 3.38 2.60 2.05 0.94 2.64 (0.40) (3.63)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.21) (0.34) (0.36) (0.42) (0.21) (0.44) (0.40)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- -- -- -- -- (0.25)
=================================================================================================================================
Total distributions (0.21) (0.34) (0.36) (0.42) (0.21) (0.44) (0.65)
=================================================================================================================================
Net asset value, end of period $ 20.69 $ 17.52 $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 19.41% 17.41% 15.35% 7.43% 25.13% (3.54)% (23.16)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $95,791 $64,648 $37,733 $22,722 $20,306 $19,992 $32,921
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers 2.30%(c) 2.37%(c) 2.41% 2.36% 2.37%(d) 2.35% 2.31%
---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.30%(c) 2.37%(c) 2.41% 2.43% 2.70%(d) 2.37% 2.37%
=================================================================================================================================
Ratio of net investment income to
average net assets 1.94%(c) 2.32%(c) 2.61% 3.15% 3.73%(d) 2.96% 3.62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 13% 87% 77% 85% 39% 52% 69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
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(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $77,425,325.
(d) Annualized.
(e) Not annualized for periods less than one year.
INVESTOR CLASS
--------------
SEPTEMBER 30,
2003
(DATE SALES
COMMENCED) TO
JANUARY 31,
2004
--------------
Net asset value, beginning of period $ 18.18
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a)
----------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.48
============================================================================
Total from investment operations 2.66
============================================================================
Less dividends from net investment income (0.18)
============================================================================
Net asset value, end of period $ 20.66
____________________________________________________________________________
============================================================================
Total return(b) 14.69%
____________________________________________________________________________
============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $28,623
____________________________________________________________________________
============================================================================
Ratio of expenses to average net assets:
With fee waivers 1.55%(c)
----------------------------------------------------------------------------
Without fee waivers 1.55%(c)
============================================================================
Ratio of net investment income to average net assets 2.69%(c)
____________________________________________________________________________
============================================================================
Portfolio turnover rate(d) 13%
____________________________________________________________________________
============================================================================
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(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $20,988,865.
(d) Not annualized for periods less than one year.
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to many other mutual funds (the AIM funds). The following information is about all the AIM funds.
CHOOSING A SHARE CLASS
Many of the AIM funds have multiple classes of shares, each class representing an interest in the same portfolio of investments. When choosing a share class, you should consult your financial advisor as to which class is most suitable for you. In addition, you should consider the factors below.
CLASS A(1) CLASS A3 CLASS B(4) CLASS C CLASS R INVESTOR CLASS
----------------------------------------------------------------------------------------------------------------------------
- Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(6)
- Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(5)
- Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $100,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM fund was
offered
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|
Certain AIM funds also offer Institutional Class shares to certain eligible institutional investors; consult the fund's Statement of Additional Information for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess of $250,000.
(4) Effective September 30, 2003, Class B shares will not be made available as an investment for retirement plans maintained pursuant to Section 401 of the Internal Revenue Code. These plans include 401(k) plans (including AIM Solo 401(k) plans), money purchase pension plans and profit sharing plans. Plans that have existing accounts invested in Class B shares will continue to be allowed to make additional purchases.
(5) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares. AIM Global Equity 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.
(6) A contingent deferred sales charge (CDSC) does not apply to redemption of Class C shares of AIM Short Term Bond Fund unless you exchange Class C shares of another AIM fund that are subject to a CDSC into AIM Short Term Bond Fund.
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM fund (except AIM Tax-Free Intermediate Fund with respect to its Class A shares and AIM Money Market Fund and AIM Tax-Exempt Cash Fund with respect to their Investor Class shares) has adopted 12b-1 plans that allow the AIM fund to pay distribution fees to A I M Distributors, Inc. (the distributor) for the sale and distribution of its shares and fees for services provided to shareholders, all or a substantial portion of which are paid to the dealer of record. Because the AIM fund pays these fees out of its assets on an ongoing basis, over time these fees will increase the cost of your
MCF--04/04
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 (except AIM Short Term Bond Fund) 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.
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION(1) OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
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|
(1) AIM Opportunities I Fund will not accept any single purchase order in excess of $250,000.
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
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|
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
------------------------------------------------------------------------------
|
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 100,000 2.50% 2.56%
$100,000 but less than $ 250,000 2.00 2.04
$250,000 but less than $ 500,000 1.50 1.52
$500,000 but less than $1,000,000 1.25 1.27
------------------------------------------------------------------------------
|
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class shares of any AIM fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II AIM funds and AIM Short Term Bond Fund at net asset value.
However, if you redeem these shares prior to 18 months after the date of
purchase, they will be subject to a CDSC of 1%.
If you currently own Class A shares of a Category I, II or III AIM fund or AIM Short Term Bond Fund and make additional purchases (through October 30, 2002 for Category III AIM funds only) at net asset value that result in account balances of $1,000,000 or more, the additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for Category I and II AIM fund and AIM Short Term Bond Fund shares, and a 12-month, 0.25% CDSC for Category III AIM fund shares). The CDSC for Category III AIM fund shares will not apply to additional purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset value per share. If the distributor paid a concession to the dealer of record in connection with a Large Purchase of Class A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at the time of redemption if all retirement plan assets are redeemed within one year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired those shares through an exchange, and the shares originally purchased were subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for Large Purchases and purchases by certain retirement plans.
MCF--04/04
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 -------------------------------------------------------------------------------- First 5% 1% Second 4 None Third 3 None Fourth 3 None Fifth 2 None Sixth 1 None Seventh and following None None -------------------------------------------------------------------------------- |
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset value and not subject to a CDSC. However, you may be charged a CDSC when you redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares through an exchange, and the shares originally purchased were subject to a CDSC.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify for these reductions or exceptions, you or your financial consultant must provide sufficient information at the time of purchase to verify that your purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of AIM Floating Rate Fund and Investor Class shares of any AIM or INVESCO fund will not be taken into account in determining whether a purchase qualifies for a reduction in initial sales charges pursuant to Rights of Accumulation or Letters of Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares of an AIM or INVESCO fund
with AIM and/or INVESCO fund shares currently owned (Class A, B, C, K or R) for
the purpose of qualifying for the lower initial sales charge rates that apply to
larger purchases. The applicable initial sales charge for the new purchase is
based on the total of your current purchase and the public offering price 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 and/or INVESCO funds during a 13-month period. The
amount you agree to purchase determines the initial sales charge you pay. If the
full face amount of the LOI is not invested by the end of the 13-month period,
your account will be adjusted to the higher initial sales charge level for the
amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM and INVESCO funds;
- when using the reinstatement privileges; and
- when a merger, consolidation, or acquisition of assets of an AIM or INVESCO fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem Class C shares of an AIM fund other than AIM Short Term Bond Fund and you received such Class C shares by exchanging Class C shares of AIM Short Term Bond Fund;
- if you redeem Class C shares of AIM Short Term Bond Fund unless you received such Class C shares by exchanging Class C shares of another AIM fund and the original purchase was subject to a CDSC;
- if you are a participant in a retirement plan and your plan redeems, at any time, less than all of the Class R shares held through such plan that would otherwise be subject to a CDSC;
- if you are a participant in a retirement plan and your plan redeems, after having held them for more than one year from the date of the plan's initial purchase, all of the Class R shares held through such plan that would otherwise be subject to a CDSC;
- if you redeem shares acquired through reinvestment of dividends and distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares at reduced or without sales charges. Consult the fund's Statement of Additional Information for details.
MCF--04/04
TOOLS USED TO COMBAT EXCESSIVE SHORT-TERM TRADING ACTIVITY
While the funds provide their shareholders with daily liquidity, their investment programs are designed to serve long-term investors. Excessive short-term trading activity in the funds' shares (i.e., a purchase of fund shares followed shortly thereafter by a redemption of such shares, or vice versa) may hurt the long-term performance of certain funds by requiring them to maintain an excessive amount of cash or to liquidate portfolio holdings at a disadvantageous time. A I M Advisors, Inc. and its affiliates (collectively, the "AIM Affiliates") currently use the following tools designed to discourage excessive short-term trading in the retail funds within The AIM Family of Funds(R) and the INVESCO family of funds (together, the "funds"):
(1) trade activity monitoring;
(2) trading guidelines;
(3) redemption fee on trades in certain funds; and
(4) selective use of fair value pricing.
Each of these tools is described in more detail below. Although these tools are designed to discourage excessive short-term trading, you should understand that none of these tools alone nor all of them taken together eliminate the possibility that excessive short-term trading activity in the funds will occur. Moreover, each of these tools involves judgments that are inherently subjective. The AIM Affiliates seek to make these judgments to the best of their abilities in a manner that they believe is consistent with shareholder interests.
TRADE ACTIVITY MONITORING
The AIM Affiliates monitor selected trades on a daily basis in an effort to detect excessive short-term trading activities. If, as a result of this monitoring, the AIM Affiliates believe that a shareholder has engaged in excessive short-term trading, they may, in their discretion, ask the shareholder to stop such activities or refuse to process purchases or exchanges in the shareholder's accounts other than exchanges into a money market fund. In making such judgments, the AIM Affiliates seek to act in a manner that they believe is consistent with the best interests of shareholders.
The ability of the AIM Affiliates to monitor trades that are placed by the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts and approved fee-based program accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the underlying shareholder accounts. This is one reason why this tool cannot eliminate the possibility of excessive short-term trading.
TRADING GUIDELINES
If you exceed four exchanges out of a fund (other than AIM Money Market Fund, AIM Tax-Exempt Cash Fund, AIM Limited Maturity Treasury Fund and INVESCO U.S. Government Money Fund) per calendar year, or a fund or the distributor determines, in its sole discretion, that your short-term trading activity is excessive (regardless of whether or not you exceed such guidelines), it may, in its discretion, reject any additional purchase and exchange orders. Each fund and the distributor reserves the discretion to accept exchanges in excess of these guidelines on a case-by-case basis if it believes that granting such exceptions would be consistent with the best interests of shareholders. An exchange is the movement out of (redemption) one fund and into (purchase) another fund.
The ability of the AIM Affiliates to monitor exchanges made by the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts and approved fee-based program accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the underlying shareholder accounts. This is one reason why this tool cannot eliminate the possibility of excessive short-term trading.
REDEMPTION FEE
You may be charged a 2% redemption fee if you redeem, including redeeming by exchange, Class A, Investor Class or Institutional Class (applicable only to INVESCO S&P 500 Index Fund) shares of certain funds within 30 days of purchase. The AIM Affiliates expect to charge the redemption fee on other classes of shares when the funds' transfer agent system has the capability of processing the fee across these other classes. See "Redeeming Shares -- Redemption Fee" for more information.
The ability of a fund to assess a redemption fee on the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts and approved fee-based program accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the underlying shareholder account and may be further limited by systems limitations applicable to these types of accounts. Additionally, the AIM Affiliates maintain certain retirement plan accounts on a record keeping system that is currently incapable of processing the redemption fee. The provider of this system is working to enhance the system to facilitate the processing of this fee. These are two reasons why this tool cannot eliminate the possibility of excessive short-term trading activity.
FAIR VALUE PRICING
The trading hours for most foreign securities end prior to the close of the New York Stock Exchange, the time the fund's net asset value is calculated. The occurrence of certain events after the close of foreign markets, but prior to the close of the U.S. market (such as a significant surge or decline in the U.S. market) often will result in an adjustment to the trading prices of foreign securities when foreign markets open on the following business day. If such events occur, the fund may value foreign securities at fair value, taking into account such events, when it calculates its net asset value. Fair value determinations are made in good faith in accordance with procedures adopted by the Board of Directors or Trustees of the fund. See "Pricing of Shares -- Determination of Net Asset Value" for more information.
Fair value pricing results in an estimated price and may reduce the
possibility that short-term traders could take advantage of potentially "stale"
prices of portfolio holdings. However, if cannot eliminate the possibility of
excessive short-term trading.
MCF--04/04
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM fund accounts. The minimum investments with respect to Class A, A3, B and C shares and Investor Class shares for AIM fund accounts are as follows:
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
-------------------------------------------------------------------------------------------------------------------------
Employer-Sponsored Retirement Plans (includes section 401, $ 0 ($25 per AIM fund investment for $50
403 and salary deferrals from Employer-
457 plans, and SEP, SARSEP and SIMPLE IRA plans) Sponsored Retirement Plans)
Systematic Purchase Plan 50 50
IRA, Roth IRA or Coverdell ESA 250 50
All other accounts 1,000 50
-------------------------------------------------------------------------------------------------------------------------
|
The maximum amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not be processed unless the account application and purchase payment are received in good order. In accordance with the USA PATRIOT Act, if you fail to provide all the required information requested in the current account application, your purchase order will not be processed. Additionally, Federal law requires that the AIM fund verify and record your identifying information.
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, AIM from your confirmation statement to the
Investment Services, Inc., P.O. Box transfer agent.
4739, Houston, TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: AIM
Investment Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line at 1-800-246-5463. You may place
your order after you have provided the
bank instructions that will be
requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
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|
MCF--04/04
GRANDFATHERED INVESTORS
Investor Class shares of a fund may be purchased only by: (1) persons or
entities who had established an account, prior to April 1, 2002, in Investor
Class shares of any of the funds currently distributed by A I M Distributors,
Inc. (the "Grandfathered Funds") and have continuously maintained such account
in Investor Class shares since April 1, 2002; (2) any person or entity listed in
the account registration for any Grandfathered Funds, which account was
established prior to April 1, 2002 and continuously maintained since April 1,
2002, such as joint owners, trustees, custodians and designated beneficiaries;
(3) customers of certain financial institutions, wrap accounts or other
fee-based advisory programs, or insurance company separate accounts, which have
had relationships with A I M Distributors, Inc. and/or any of the Grandfathered
Funds prior to April 1, 2002 and continuously maintained such relationships
since April 1, 2002; (4) defined benefit, defined contribution and deferred
compensation plans; and (5) AIM and INVESCO fund trustees and directors,
employees of AMVESCAP PLC and its subsidiaries, AMVESCAP directors, and their
immediate families.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the AIM funds by authorizing
the AIM fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Systematic Purchase Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM or INVESCO fund account to one or more
other AIM or INVESCO 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 or INVESCO fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM or INVESCO fund at net asset value. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM or
INVESCO fund. You may invest your dividends and distributions (1) into another
AIM or INVESCO 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 or INVESCO fund paying the dividend must be at least $5,000; and (b) in the AIM or INVESCO 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 or INVESCO 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 and INVESCO fund holdings should be rebalanced, on a
percentage basis, between two and ten of your AIM and INVESCO 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 or INVESCO funds for shares of
the same class of one or more other AIM or INVESCO 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, Roth IRAs, SIMPLE IRA plans, SEP/SARSEP plans, 403(b) plans,
401(k) 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 FEE
You may be charged a 2% redemption fee (on total redemption proceeds) if you redeem, including redeeming by exchange, Class A, Investor Class or Institutional Class (applicable only to INVESCO S&P 500 Index Fund) shares of the following funds (either by selling or
MCF--04/04
exchanging to another AIM fund or INVESCO fund) within 30 days of their purchase:
AIM Asia Pacific Growth Fund AIM Global Value Fund AIM Developing Markets Fund AIM High Yield Fund AIM European Growth Fund AIM International Emerging Growth Fund AIM European Small Company AIM International Growth Fund Fund AIM Trimark Fund AIM Global Aggressive Growth INVESCO International Core Equity Fund Fund INVESCO S&P 500 Index Fund AIM Global Growth Fund AIM Global Equity Fund |
The redemption fee will be retained by the fund from which you are redeeming shares (including redemptions by exchange), and is intended to offset the trading costs, market impact and other costs associated with short-term money movements in and out of the fund. The redemption fee is imposed to the extent that the number of fund shares you redeem exceeds the number of fund shares that you have held for more than 30 days. In determining whether the minimum 30 day holding period has been met, only the period during which you have held shares of the fund from which you are redeeming is counted. For this purpose, shares held longest will be treated as being redeemed first and shares held shortest as being redeemed last.
The 2% redemption fee will not be charged on transactions involving the following:
(1) total or partial redemptions of shares by omnibus accounts maintained by brokers that do not have the systematic capability to process the redemption fee;
(2) total or partial redemptions of shares by approved fee-based programs that do not have the systematic capability to process the redemption fee;
(3) total or partial redemptions of shares held through retirement plans maintained pursuant to Sections 401, 403, 408, 408A and 457 of the Internal Revenue Code (the "Code") where the systematic capability to process the redemption fee does not exist;
(4) total or partial redemptions effectuated pursuant to an automatic non-discretionary rebalancing program or a systematic withdrawal plan set up in the funds;
(5) total or partial redemptions requested within 30 days following the death or
post-purchase disability of (i) any registered shareholder on an account or
(ii) the settlor of a living trust which is the registered shareholder of an
account, of shares held in the account at the time of death or initial
determination of post-purchase disability;
(6) total or partial redemption of shares acquired through investment of dividends and other distributions; or
(7) redemptions initiated by a fund.
The AIM Affiliates' goals are to apply the redemption fee on all classes of shares regardless of the type of account in which such shares are held. This goal is not immediately achievable because of systems limitations and marketplace resistance. Currently, the redemption fee may be applied on Class A and Investor Class shares (and Institutional Shares for INVESCO S&P 500 Index Fund). AIM expects to charge the redemption fee on all other classes of shares when the funds' transfer agent system has the capability of processing the fee across these other classes. In addition, AIM intends to develop a plan to encourage brokers that maintain omnibus accounts, sponsors of fee-based program accounts and retirement plan administrators for accounts that are exempt from the redemption fee pursuant to the terms above to modify computer programs to impose the redemption fee or to develop alternate processes to monitor and restrict short-term trading activity in the funds. Lastly, the provider of AIM's retirement plan record keeping system is working to enhance the system to facilitate the processing of the redemption fee. Until such computer programs are modified or alternate processes are developed, the fund's ability to assess a redemption fee on these types of share classes and accounts is severely limited. These are reasons why the redemption fees cannot eliminate the possibility of excessive short-term trading activity.
The funds have the discretion to waive the 2% redemption fee if a fund is in jeopardy of failing the 90% income test or losing its registered investment company qualification for tax purposes.
Your broker or financial consultant may charge service fees for handling redemption transactions. Your shares also may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM fund at net asset value prior to November 15, 2001, or entered into a Letter of Intent prior to November 15, 2001 to purchase $1,000,000 or more of Class A shares of a Category I, II or III AIM fund at net asset value, your shares may be subject to a CDSC upon redemption, as described below.
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund or AIM Short Term Bond within 18 months of initial
Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
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(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of a Category III Fund.
MCF--04/04
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM fund on and after November 15, 2001 (and through October 30, 2002 with respect to Class A shares of Category III AIM funds), or if you make additional purchases of Class A shares on and after November 15, 2001 (and through October 30, 2002 with respect to Class A shares of Category III AIM funds) at net asset value, your shares may be subject to a CDSC upon redemption, as described below.
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund or AIM Short Term II Fund or AIM Short Term Bond within 18 months of initial
Bond Fund Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund or AIM Short Term Bond within 18 months of initial
Fund purchase of Category III Fund
shares
- Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
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(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM fund on or after October 31, 2002, or if you make additional purchases of Class A shares on and after October 31, 2002 at net asset value, your shares may be subject to a CDSC upon redemption as described below.
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or AIM Short or II Fund or AIM Short Term within 18 months of initial
Term Bond Fund Bond Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund or AIM Short Term within 18 months of initial
Bond Fund purchase of Category III Fund
shares
- Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
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(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of
Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM Floating Rate Fund, the early withdrawal charge applicable to shares of AIM Floating Rate Fund will be applied instead of the CDSC normally applicable to Class B shares.
MCF--04/04
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered owners; (2) the
name of the AIM fund and your account
number; (3) if the transfer agent does not
hold your shares, endorsed share
certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent or our AIM 24-hour
Automated Investor Line at 1-800-246-5463.
You will be allowed to redeem by telephone
if (1) the proceeds are to be mailed to the
address on record (if there has been no
change communicated to us within the last 30
days) or transferred electronically to a
pre-authorized checking account; (2) you do
not hold physical share certificates; (3)
you can provide proper identification
information; (4) the proceeds of the
redemption do not exceed $250,000; and (5)
you have not previously declined the
telephone redemption privilege. Certain
accounts, including retirement accounts and
403(b) plans, may not be redeemed by
telephone. The transfer agent must receive
your call during the hours of the customary
trading session of the New York Stock
Exchange (NYSE) in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. The transfer agent
must confirm your transaction during the
hours of the customary trading session of
the NYSE in order to effect the redemption
at that day's closing price.
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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 REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $100. You also may make annual withdrawals if you own Class A
shares. We will redeem enough shares from your account to cover the amount
withdrawn. You must have an account balance of at least $5,000 to establish a
Systematic Redemption Plan. You can stop this plan at any time by giving ten
days prior notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
MCF--04/04
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND AND AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND ONLY)
You may redeem shares of these AIM funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered on the account;
(3) you request that payment be sent somewhere other than the bank of record on the account; or
(4) you request that payment be sent to a new address or an address that changed in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of financial institutions. Call the transfer agent for additional information. Some institutions have transaction amount maximums for these guarantees. Please check with the guarantor institution.
REINSTATEMENT PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or part of your redemption proceeds in Class A shares of any Category I or II AIM fund or AIM Short Term Bond Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A shares of a Category III AIM fund, reinvest all or part of your redemption proceeds in Class A shares of that same Category III AIM fund at net asset value in an identically registered account.
The reinvestment amount must meet the subsequent investment minimum as indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will receive credit on purchases of Class A shares of a Category I or II AIM fund or AIM Short Term Bond Fund.
If you paid a contingent deferred sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC if you later redeem that amount.
You must notify the transfer agent in writing at the time you reinstate that you are exercising your reinstatement privilege.
REDEMPTIONS IN KIND
Although the AIM funds and the INVESCO funds generally intend to pay redemption proceeds solely in cash, the AIM funds and the INVESCO funds reserve the right to satisfy redemption requests by making payment in securities or other property (known as a redemption in kind).
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares only) has been open at least one year, you have not made an additional purchase in the account during the past six calendar months, and the value of your account falls below $500 ($250 for Investor Class shares) for three consecutive months due to redemptions or exchanges (excluding retirement accounts), the AIM funds have the right to redeem the account after giving you 60 days' prior written notice. You may avoid having your account redeemed during the notice period by bringing the account value up to $500 ($250 for Investor Class shares) or by utilizing the Automatic Investment Plan.
If an AIM fund determines that you have not provided a correct Social Security or other tax ID number on your account application, or the AIM fund is not able to verify your identity as required by law, 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 or INVESCO fund. Before requesting an exchange, review the prospectus of the AIM or INVESCO 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.
You may be charged a redemption fee on certain redemptions, including exchanges. See "Redeeming Shares -- Redemption Fee."
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may exchange your shares for shares of the same class of another AIM or INVESCO fund.
You may also exchange:
(1) Class A shares of an AIM or INVESCO fund for AIM Cash Reserve Shares of AIM Money Market Fund;
(2) Class A shares of an AIM fund (excluding AIM Limited Maturity Treasury Fund, AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) or INVESCO fund for Class A3 shares of an AIM fund;
(3) Class A3 shares of an AIM fund for AIM Cash Reserve shares of AIM Money Market Fund;
(4) Class A3 shares of an AIM fund for Class A shares of any AIM fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) or INVESCO fund;
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an AIM fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any AIM fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, effective
MCF--04/04
February 17, 2003, and AIM Tax-Exempt Cash Fund) or INVESCO fund;
(7) Investor Class shares of an AIM or INVESCO fund for Class A shares of any AIM fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) or INVESCO fund or Class A3 shares of an AIM fund; or
(8) Class A or A3 shares of an AIM or INVESCO fund for Investor Class shares of any AIM or INVESCO fund as long as you are eligible to purchase Investor Class shares of any AIM or INVESCO fund at the time of exchange.
You may be required to pay an initial sales charge when exchanging from a fund with a lower initial sales charge than the one into which you are exchanging. If you exchange into shares that are subject to a CDSC, we will begin the holding period for purposes of calculating the CDSC on the date you made your initial purchase.
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM or INVESCO fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund with an initial sales charge for
(a) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund; or
(b) Class A shares of another AIM or INVESCO Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for
(a) Class A shares of an AIM or INVESCO fund subject to an initial sales charge (excluding Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund), but only if you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to an initial sales charge (excluding Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege. You may not exchange:
(1) Class A shares of a Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund for Class A shares of a Category III AIM fund after February 16, 2003; or
(2) Class A shares of a Category III AIM fund for Class A shares of another Category III AIM fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II AIM funds (i) subject to an initial sales charge or (ii) purchased at net asset value and subject to a contingent deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III AIM funds purchased at net asset value for Class A shares of a Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C shares of any AIM or INVESCO fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of a Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund that are subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of Category III AIM Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund (i) subject to an initial sales charge or (ii) purchased at net asset value and subject to a CDSC for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other AIM or INVESCO fund (i) subject to an initial sales charge or (ii) purchased at net asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM Money Market Fund; or MCF--04/04
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C shares of any AIM or INVESCO fund or for Class A shares of any AIM or INVESCO fund that are subject to a CDSC, however, if you originally purchased Class A shares of a Category I or II AIM fund or AIM Short Term Bond 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 AIM fund or AIM Short Term Bond Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM or INVESCO fund into which you are exchanging;
- Shares of the AIM or INVESCO 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; and
- If you have physical share certificates, you must return them to the transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM or INVESCO 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. The exchange privilege is not an option or right to purchase shares. Any of the participating AIM or INVESCO funds or the distributor may modify or terminate this privilege at any time. The AIM or INVESCO fund or the distributor will provide you with notice of such modification or termination whenever it is required to do so by applicable law, but may impose changes at any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of each registered owner exactly as the shares are registered, the account registration and account number, the dollar amount or number of shares to be exchanged and the names of the AIM or INVESCO funds from which and into which the exchange is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by telephone, including that the transfer agent must receive exchange requests during the hours of the customary trading session of the NYSE; however, you still will be allowed to exchange by telephone even if you have changed your address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM fund's shares is the fund's net asset value per share. The AIM funds value portfolio securities for which market quotations are readily available at market value. The AIM funds' short-term investments are valued at amortized cost when the security has 60 days or less to maturity. AIM Money Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and AIM Tax-Free Intermediate Fund value variable rate securities that have an unconditional demand or put feature exercisable within seven days or less at par, which reflects the market value of such securities.
The AIM funds value all other securities and assets at their fair value. Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the AIM funds' shares are determined as of the close of the respective markets. Events affecting the values of such securities may occur between the times at which the particular foreign market closes and the close of the customary
MCF--04/04
trading session of the NYSE which would not ordinarily be reflected in the computation of the AIM fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of the effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures, and exchange-traded funds. 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 and the type of income that the fund earns. Different tax rates apply to ordinary income, qualified dividend income, and long-term capital gain distributions, regardless of how long you have held your shares. Every year, you will be sent information showing the amount of dividends and distributions you received from each AIM fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM fund shares will be subject to federal income tax. Exchanges of shares for shares of another AIM or INVESCO fund are treated as a sale, and any gain realized on the transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING "OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM fund shares may differ materially from the federal income tax consequences described above. In addition, the preceding discussion concerning the taxability of fund dividends and distributions and of redemptions and exchanges of AIM fund shares is inapplicable to investors that are generally exempt from federal income tax, such as retirement plans that are qualified under Section 401 of the Internal Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should consult your tax advisor before investing.
MCF--04/04
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 the 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: AIM Investment Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request by
e-mail or download
prospectuses, annual or
semiannual reports via our
website:
http://www.aiminvestments.com
|
You can also 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 Real Estate Fund
SEC 1940 Act file number: 811-5686
----------------------------------------
AIMinvestments.com REA-PRO-1
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
|
AIM SHORT TERM BOND FUND
PROSPECTUS
APRIL 30, 2004
AIM Short Term Bond Fund seeks to achieve a high level of current income consistent with preservation of capital.
This prospectus contains important information about the Class A, C and R 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.
INVESTMENT OBJECTIVE AND STRATEGIES 1 ------------------------------------------------------ PRINCIPAL RISKS OF INVESTING IN THE FUND 1 ------------------------------------------------------ PERFORMANCE INFORMATION 2 ------------------------------------------------------ Annual Total Return 2 Performance Table 3 FEE TABLE AND EXPENSE EXAMPLE 4 ------------------------------------------------------ Fee Table 4 Expense Example 4 FUND MANAGEMENT 5 ------------------------------------------------------ The Advisor 5 Advisor Compensation 5 Portfolio Managers 5 OTHER INFORMATION 5 ------------------------------------------------------ Sales Charges 5 Dividends and Distributions 5 FINANCIAL HIGHLIGHTS 6 ------------------------------------------------------ SHAREHOLDER INFORMATION A-1 ------------------------------------------------------ Choosing a Share Class A-1 Tools Used to Combat Excessive Short-Term Trading Activity A-4 Purchasing Shares A-5 Redeeming Shares A-6 Exchanging Shares A-10 Pricing of Shares A-12 Taxes A-13 OBTAINING ADDITIONAL INFORMATION Back Cover ------------------------------------------------------ |
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with DISCIPLINE are registered service marks and AIM Bank Connection, AIM Internet Connect, AIM Private Asset Management, AIM Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. are service marks of A I M Management Group Inc. AIM Trimark is a service mark of A I M Management Group Inc. and AIM Funds Management 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 a high level of current income 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 assets in a diversified portfolio of investment-grade fixed income securities. These securities may include U.S. Treasury and agency securities, mortgage-backed and asset-backed securities and corporate bonds of varying maturities. In complying with this 80% investment requirement, the fund's investments may include investments in synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the fund's direct investments, and may include futures and options. 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 effective duration and weighted average effective maturity, as estimated by the fund's portfolio managers, will be less than three years.
The fund may invest up to 15% of its total assets in foreign securities. The fund will not invest in non-U.S. dollar denominated securities. For cash management purposes, the fund may also hold a portion of its assets in cash or cash equivalents, including shares of affiliated money market funds. Any percentage limitations with respect to assets of the fund are applied at the time of purchase.
The portfolio managers focus on securities that they believe have favorable prospects for a high level of current income, 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 these factors materially changes.
In anticipation of or in response to adverse market or other conditions, or atypical circumstances such as unusually large cash inflows or redemptions, the fund may temporarily hold all or a portion of its assets in cash, cash equivalents or high-quality debt instruments. As a result, the fund may not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to achieve its investment objective. If the fund does trade in this way, it may incur increased transaction costs, which can lower the actual return on your investment. Active trading may also increase short-term gains and losses, which may affect the taxes you have to pay.
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 in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The bar chart and table shown below provide an indication of the risks of investing in the fund. The fund's past performance (before and after taxes) is not necessarily an indication of its future performance.
The following bar chart shows the performance of the fund's Class C shares. The bar chart does not reflect sales loads. If it did, the annual total return shown would be lower.
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
----------- ------
2003................................................................... 2.79%
|
The Class C shares' year-to-date total return as of March 31, 2004 was 1.03%.
During the period shown in the bar chart, the highest quarterly return was 1.23% (quarter ended June 30, 2003) and the lowest quarterly return was 0.21% (quarter ended September 30, 2003).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a broad-based securities market index, a style specific index and a peer group index. The fund's performance reflects payment of sales loads, if applicable. The indices may not reflect payment of fees, expenses or taxes. The fund is not managed to track the performance of any particular index, including the indices shown below, and consequently, the performance of the fund may deviate significantly from the performance of the indices shown below.
AVERAGE ANNUAL TOTAL RETURNS
------------------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2003) 1 YEAR INCEPTION DATE
------------------------------------------------------------------------------------------
Class C 08/30/02
Return Before Taxes 2.79% 3.17%
Return After Taxes on Distributions 1.86 2.19
Return After Taxes on Distributions and Sale of
Fund Shares 1.81 2.12
Class A(1) 08/30/02(1)
Return Before Taxes 2.79 3.17
Class R(1) 08/30/02(1)
Return Before Taxes 2.79 3.17
------------------------------------------------------------------------------------------
Lehman Brothers U.S. Aggregate Bond Index(2) 4.10 5.54(5) 08/31/02(5)
Lehman Brothers 1-3 Year Government/Credit Index(3) 2.81 3.70(5) 08/31/02(5)
Lipper Short Investment Grade Debt Fund Index(4) 2.65 3.32(5) 08/31/02(5)
------------------------------------------------------------------------------------------
|
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class C only and after-tax returns for Class A and R will vary.
(1) The returns shown for these periods are the restated historical performance of the fund's Class C shares at the net asset value and reflect the Rule 12b-1 fees applicable to Class C shares. Class A and Class R shares would have different returns because, although the shares are invested in the same portfolio of securities, Class A and Class R have different expense structures. The inception date shown in the table is that of the fund's Class C shares. The inception date of the fund's Class A and Class R shares is April 30, 2004.
(2) The Lehman Brothers U.S. Aggregate Bond Index measures the performance of U.S. investment-grade fixed rate bonds with components for government and corporate securities, mortgage pass-throughs and asset-backed securities of treasury issues, agency issues, corporate bond issues and mortgage-backed securities. The fund has also included the Lehman Brothers 1-3 Year Government/Credit Index which the fund believes more closely reflects the performance of the types of securities in which the fund invests. In addition, the Lipper Short Investment Grade Debt Fund Index (which may or may not include the fund) has been included for comparison to a peer group.
(3) The Lehman Brothers 1-3 Year Government/Credit Index is a subset of the Lehman Brothers Government/Corporate Bond Index that only includes those securities with maturities between 1 and 3 years.
(4) The Lipper Short Investment Grade Debt Fund Index is an equally weighted representation of the 30 largest funds that make up the Lipper Short Investment Grade Debt category. These funds invest primarily in investment grade debt issues with dollar-weighted average maturities of less than three years.
(5) The average annual total return given is since the month end closest to the inception date of each class.
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 C CLASS R ---------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 2.50 None None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, whichever is less) None(1,2) None None(3) ---------------------------------------------------------------------------------------------- |
ANNUAL FUND OPERATING EXPENSES(4) ------------------------------------------------------------------------------------------ (expenses that are deducted from fund assets) CLASS A CLASS C CLASS R ------------------------------------------------------------------------------------------ Management Fees 0.40% 0.40% 0.40% Distribution and/or Service (12b-1) Fees 0.35 1.00 0.50 Other Expenses(5) 0.20 0.20 0.20 Total Annual Fund Operating Expenses 0.95 1.60 1.10 Waiver(6) 0.10 0.40 -- Net Expenses 0.85 1.20 1.10 ------------------------------------------------------------------------------------------ |
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the distributor paid a concession to the dealer of record and a total redemption of the retirement plan assets occurs within 12 months from the date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown in the table.
(5) Other Expenses for Class A and Class R are based on estimated average net assets for the current fiscal year.
(6) The distributor has contractually agreed to waive 0.10% and 0.40% of Rule
12b-1 distribution plan payments on Class A and Class C shares,
respectively. Further, the fund's advisor has contractually agreed to waive
fees or reimburse expenses to the extent necessary to limit Total Annual
Fund Operating Expenses (excluding certain items discussed below) to 0.85%,
1.20% and 1.10% on Class A, Class C and Class R shares, respectively. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause
the Total Annual Fund Operating Expenses to exceed the limits: (i) interest;
(ii) taxes; (iii) extraordinary items (these are expenses that are not
anticipated to arise from the fund's day-to-day operations), as defined in
the Financial Accounting Standard's Board's Generally Accepted Accounting
Principles or as approved by the fund's Board of Trustees; (iv) expenses
related to a merger or reorganization, as approved by the fund's Board of
Trustees; and (v) expenses that the fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, the only expense
offset arrangements from which the fund benefits are in the form of credits
that the fund receives from banks where the fund or its transfer agent has
deposit accounts in which it holds uninvested cash. Those credits are used
to pay certain expenses incurred by the fund. This expense limitation
agreement is in effect through July 31, 2004.
You may also be charged a transaction or other fee by the financial institution managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. To the extent fees are waived and/or expenses are reimbursed, your expenses will be lower. Although your actual returns and costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------
Class A $335 $535 $753 $1,378
Class C 122 466 833 1,866
Class R 112 350 606 1,340
--------------------------------------------------------------------------------------
|
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 200 investment portfolios, including the fund, encompassing a broad range of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2003, the advisor received compensation of 0.40% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual members of the team (co-managers) who are primarily responsible for the management of the fund's portfolio are
- Jan H. Friedli, Senior Portfolio Manager, who has been responsible for the fund since 2002 and has been associated with the advisor and/or its affiliates since 1999.
- Scot W. Johnson, Portfolio Manager, who has been responsible for the fund since 2002 and has been associated with the advisor and/or its affiliates since 1994.
They are assisted by the Investment Grade Team. More information on the fund's management team may be found on our website (http://www.aiminvestments.com/teams). The website is not a part of this prospectus.
SALES CHARGES
Purchases of Class A shares of AIM Short Term Bond Fund are subject to the maximum 2.50% initial sales charge as listed under the heading "AIM Short Term Bond Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class" section of this prospectus. Certain purchases of Class A shares at net asset value may be subject to the contingent deferred sales charge listed in that section. Certain purchases of Class R shares may be subject to the deferred sales charge listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of ordinary income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any, annually.
The financial highlights table is intended to help you understand the fund's financial performance. Certain information reflects financial results for a single fund share.
The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of all dividends and distributions).
The information for the period August 30, 2002 to July 31, 2003 has been audited by Ernst & Young LLP, whose report, along with the fund's financial statements, is included in the fund's annual report, which is available upon request.
As of the date of this prospectus, the fund's Class A and Class R shares had not yet commenced operations and therefore, financial information for such shares is not available.
CLASS C
----------------------------------
AUGUST 30,
2002
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2004 2003
----------- ----------------
Net asset value, beginning of period $ 10.02 $ 10.01
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.12(a)
------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.13 0.14
================================================================================================
Total from investment operations 0.20 0.26
================================================================================================
Less distributions:
Dividends from net investment income (0.13) (0.25)
------------------------------------------------------------------------------------------------
Return of capital -- (0.00)
================================================================================================
Total distributions (0.13) (0.25)
================================================================================================
Net asset value, end of period $ 10.09 $ 10.02
________________________________________________________________________________________________
================================================================================================
Total return(b) 2.05% 2.58%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $355,330 $337,480
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.20%(c) 1.20%(d)
------------------------------------------------------------------------------------------------
Without fee waivers 1.60%(c) 1.60%(d)
================================================================================================
Ratio of net investment income to average net assets 1.40%(c) 1.28%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 54% 88%
________________________________________________________________________________________________
================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $335,039,476.
(d) Annualized.
(e) Not annualized for periods less than one year.
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to many other mutual funds (the AIM funds). The following information is about all the AIM funds.
CHOOSING A SHARE CLASS
Many of the AIM funds have multiple classes of shares, each class representing an interest in the same portfolio of investments. When choosing a share class, you should consult your financial advisor as to which class is most suitable for you. In addition, you should consider the factors below.
CLASS A(1) CLASS A3 CLASS B(4) CLASS C CLASS R INVESTOR CLASS
----------------------------------------------------------------------------------------------------------------------------
- Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(6)
- Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(5)
- Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $100,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM fund was
offered
----------------------------------------------------------------------------------------------------------------------------
|
Certain AIM funds also offer Institutional Class shares to certain eligible institutional investors; consult the fund's Statement of Additional Information for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess of $250,000.
(4) Effective September 30, 2003, Class B shares will not be made available as an investment for retirement plans maintained pursuant to Section 401 of the Internal Revenue Code. These plans include 401(k) plans (including AIM Solo 401(k) plans), money purchase pension plans and profit sharing plans. Plans that have existing accounts invested in Class B shares will continue to be allowed to make additional purchases.
(5) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares. AIM Global Equity 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.
(6) A contingent deferred sales charge (CDSC) does not apply to redemption of Class C shares of AIM Short Term Bond Fund unless you exchange Class C shares of another AIM fund that are subject to a CDSC into AIM Short Term Bond Fund.
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM fund (except AIM Tax-Free Intermediate Fund with respect to its Class A shares and AIM Money Market Fund and AIM Tax-Exempt Cash Fund with respect to their Investor Class shares) has adopted 12b-1 plans that allow the AIM fund to pay distribution fees to A I M Distributors, Inc. (the distributor) for the sale and distribution of its shares and fees for services provided to shareholders, all or a substantial portion of which are paid to the dealer of record. Because the AIM fund pays these fees out of its assets on an ongoing basis, over time these fees will increase the cost of your
MCF--04/04
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 (except AIM Short Term Bond Fund) 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.
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION(1) OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
------------------------------------------------------------------------------
|
(1) AIM Opportunities I Fund will not accept any single purchase order in excess of $250,000.
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
------------------------------------------------------------------------------
|
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
------------------------------------------------------------------------------
|
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 100,000 2.50% 2.56%
$100,000 but less than $ 250,000 2.00 2.04
$250,000 but less than $ 500,000 1.50 1.52
$500,000 but less than $1,000,000 1.25 1.27
------------------------------------------------------------------------------
|
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class shares of any AIM fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II AIM funds and AIM Short Term Bond Fund at net asset value.
However, if you redeem these shares prior to 18 months after the date of
purchase, they will be subject to a CDSC of 1%.
If you currently own Class A shares of a Category I, II or III AIM fund or AIM Short Term Bond Fund and make additional purchases (through October 30, 2002 for Category III AIM funds only) at net asset value that result in account balances of $1,000,000 or more, the additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for Category I and II AIM fund and AIM Short Term Bond Fund shares, and a 12-month, 0.25% CDSC for Category III AIM fund shares). The CDSC for Category III AIM fund shares will not apply to additional purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset value per share. If the distributor paid a concession to the dealer of record in connection with a Large Purchase of Class A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at the time of redemption if all retirement plan assets are redeemed within one year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired those shares through an exchange, and the shares originally purchased were subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for Large Purchases and purchases by certain retirement plans.
MCF--04/04
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 -------------------------------------------------------------------------------- First 5% 1% Second 4 None Third 3 None Fourth 3 None Fifth 2 None Sixth 1 None Seventh and following None None -------------------------------------------------------------------------------- |
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset value and not subject to a CDSC. However, you may be charged a CDSC when you redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares through an exchange, and the shares originally purchased were subject to a CDSC.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify for these reductions or exceptions, you or your financial consultant must provide sufficient information at the time of purchase to verify that your purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of AIM Floating Rate Fund and Investor Class shares of any AIM or INVESCO fund will not be taken into account in determining whether a purchase qualifies for a reduction in initial sales charges pursuant to Rights of Accumulation or Letters of Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares of an AIM or INVESCO fund
with AIM and/or INVESCO fund shares currently owned (Class A, B, C, K or R) for
the purpose of qualifying for the lower initial sales charge rates that apply to
larger purchases. The applicable initial sales charge for the new purchase is
based on the total of your current purchase and the public offering price 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 and/or INVESCO funds during a 13-month period. The
amount you agree to purchase determines the initial sales charge you pay. If the
full face amount of the LOI is not invested by the end of the 13-month period,
your account will be adjusted to the higher initial sales charge level for the
amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM and INVESCO funds;
- when using the reinstatement privileges; and
- when a merger, consolidation, or acquisition of assets of an AIM or INVESCO fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem Class C shares of an AIM fund other than AIM Short Term Bond Fund and you received such Class C shares by exchanging Class C shares of AIM Short Term Bond Fund;
- if you redeem Class C shares of AIM Short Term Bond Fund unless you received such Class C shares by exchanging Class C shares of another AIM fund and the original purchase was subject to a CDSC;
- if you are a participant in a retirement plan and your plan redeems, at any time, less than all of the Class R shares held through such plan that would otherwise be subject to a CDSC;
- if you are a participant in a retirement plan and your plan redeems, after having held them for more than one year from the date of the plan's initial purchase, all of the Class R shares held through such plan that would otherwise be subject to a CDSC;
- if you redeem shares acquired through reinvestment of dividends and distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares at reduced or without sales charges. Consult the fund's Statement of Additional Information for details.
MCF--04/04
TOOLS USED TO COMBAT EXCESSIVE SHORT-TERM TRADING ACTIVITY
While the funds provide their shareholders with daily liquidity, their investment programs are designed to serve long-term investors. Excessive short-term trading activity in the funds' shares (i.e., a purchase of fund shares followed shortly thereafter by a redemption of such shares, or vice versa) may hurt the long-term performance of certain funds by requiring them to maintain an excessive amount of cash or to liquidate portfolio holdings at a disadvantageous time. A I M Advisors, Inc. and its affiliates (collectively, the "AIM Affiliates") currently use the following tools designed to discourage excessive short-term trading in the retail funds within The AIM Family of Funds(R) and the INVESCO family of funds (together, the "funds"):
(1) trade activity monitoring;
(2) trading guidelines;
(3) redemption fee on trades in certain funds; and
(4) selective use of fair value pricing.
Each of these tools is described in more detail below. Although these tools are designed to discourage excessive short-term trading, you should understand that none of these tools alone nor all of them taken together eliminate the possibility that excessive short-term trading activity in the funds will occur. Moreover, each of these tools involves judgments that are inherently subjective. The AIM Affiliates seek to make these judgments to the best of their abilities in a manner that they believe is consistent with shareholder interests.
TRADE ACTIVITY MONITORING
The AIM Affiliates monitor selected trades on a daily basis in an effort to detect excessive short-term trading activities. If, as a result of this monitoring, the AIM Affiliates believe that a shareholder has engaged in excessive short-term trading, they may, in their discretion, ask the shareholder to stop such activities or refuse to process purchases or exchanges in the shareholder's accounts other than exchanges into a money market fund. In making such judgments, the AIM Affiliates seek to act in a manner that they believe is consistent with the best interests of shareholders.
The ability of the AIM Affiliates to monitor trades that are placed by the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts and approved fee-based program accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the underlying shareholder accounts. This is one reason why this tool cannot eliminate the possibility of excessive short-term trading.
TRADING GUIDELINES
If you exceed four exchanges out of a fund (other than AIM Money Market Fund, AIM Tax-Exempt Cash Fund, AIM Limited Maturity Treasury Fund and INVESCO U.S. Government Money Fund) per calendar year, or a fund or the distributor determines, in its sole discretion, that your short-term trading activity is excessive (regardless of whether or not you exceed such guidelines), it may, in its discretion, reject any additional purchase and exchange orders. Each fund and the distributor reserves the discretion to accept exchanges in excess of these guidelines on a case-by-case basis if it believes that granting such exceptions would be consistent with the best interests of shareholders. An exchange is the movement out of (redemption) one fund and into (purchase) another fund.
The ability of the AIM Affiliates to monitor exchanges made by the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts and approved fee-based program accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the underlying shareholder accounts. This is one reason why this tool cannot eliminate the possibility of excessive short-term trading.
REDEMPTION FEE
You may be charged a 2% redemption fee if you redeem, including redeeming by exchange, Class A, Investor Class or Institutional Class (applicable only to INVESCO S&P 500 Index Fund) shares of certain funds within 30 days of purchase. The AIM Affiliates expect to charge the redemption fee on other classes of shares when the funds' transfer agent system has the capability of processing the fee across these other classes. See "Redeeming Shares -- Redemption Fee" for more information.
The ability of a fund to assess a redemption fee on the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts and approved fee-based program accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the underlying shareholder account and may be further limited by systems limitations applicable to these types of accounts. Additionally, the AIM Affiliates maintain certain retirement plan accounts on a record keeping system that is currently incapable of processing the redemption fee. The provider of this system is working to enhance the system to facilitate the processing of this fee. These are two reasons why this tool cannot eliminate the possibility of excessive short-term trading activity.
FAIR VALUE PRICING
The trading hours for most foreign securities end prior to the close of the New York Stock Exchange, the time the fund's net asset value is calculated. The occurrence of certain events after the close of foreign markets, but prior to the close of the U.S. market (such as a significant surge or decline in the U.S. market) often will result in an adjustment to the trading prices of foreign securities when foreign markets open on the following business day. If such events occur, the fund may value foreign securities at fair value, taking into account such events, when it calculates its net asset value. Fair value determinations are made in good faith in accordance with procedures adopted by the Board of Directors or Trustees of the fund. See "Pricing of Shares -- Determination of Net Asset Value" for more information.
Fair value pricing results in an estimated price and may reduce the
possibility that short-term traders could take advantage of potentially "stale"
prices of portfolio holdings. However, if cannot eliminate the possibility of
excessive short-term trading.
MCF--04/04
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM fund accounts. The minimum investments with respect to Class A, A3, B and C shares and Investor Class shares for AIM fund accounts are as follows:
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
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Employer-Sponsored Retirement Plans (includes section 401, $ 0 ($25 per AIM fund investment for $50
403 and salary deferrals from Employer-
457 plans, and SEP, SARSEP and SIMPLE IRA plans) Sponsored Retirement Plans)
Systematic Purchase Plan 50 50
IRA, Roth IRA or Coverdell ESA 250 50
All other accounts 1,000 50
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The maximum amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not be processed unless the account application and purchase payment are received in good order. In accordance with the USA PATRIOT Act, if you fail to provide all the required information requested in the current account application, your purchase order will not be processed. Additionally, Federal law requires that the AIM fund verify and record your identifying information.
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 and Mail your check and the remittance slip
check to the transfer agent, AIM from your confirmation statement to the
Investment Services, Inc., P.O. Box transfer agent.
4739, Houston, TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: AIM
Investment Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line at 1-800-246-5463. You may place
your order after you have provided the
bank instructions that will be
requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
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MCF--04/04
GRANDFATHERED INVESTORS
Investor Class shares of a fund may be purchased only by: (1) persons or
entities who had established an account, prior to April 1, 2002, in Investor
Class shares of any of the funds currently distributed by A I M Distributors,
Inc. (the "Grandfathered Funds") and have continuously maintained such account
in Investor Class shares since April 1, 2002; (2) any person or entity listed in
the account registration for any Grandfathered Funds, which account was
established prior to April 1, 2002 and continuously maintained since April 1,
2002, such as joint owners, trustees, custodians and designated beneficiaries;
(3) customers of certain financial institutions, wrap accounts or other
fee-based advisory programs, or insurance company separate accounts, which have
had relationships with A I M Distributors, Inc. and/or any of the Grandfathered
Funds prior to April 1, 2002 and continuously maintained such relationships
since April 1, 2002; (4) defined benefit, defined contribution and deferred
compensation plans; and (5) AIM and INVESCO fund trustees and directors,
employees of AMVESCAP PLC and its subsidiaries, AMVESCAP directors, and their
immediate families.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the AIM funds by authorizing
the AIM fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Systematic Purchase Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM or INVESCO fund account to one or more
other AIM or INVESCO 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 or INVESCO fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM or INVESCO fund at net asset value. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM or
INVESCO fund. You may invest your dividends and distributions (1) into another
AIM or INVESCO 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 or INVESCO fund paying the dividend must be at least $5,000; and (b) in the AIM or INVESCO 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 or INVESCO 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 and INVESCO fund holdings should be rebalanced, on a
percentage basis, between two and ten of your AIM and INVESCO 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 or INVESCO funds for shares of
the same class of one or more other AIM or INVESCO 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, Roth IRAs, SIMPLE IRA plans, SEP/SARSEP plans, 403(b) plans,
401(k) 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 FEE
You may be charged a 2% redemption fee (on total redemption proceeds) if you redeem, including redeeming by exchange, Class A, Investor Class or Institutional Class (applicable only to INVESCO S&P 500 Index Fund) shares of the following funds (either by selling or
MCF--04/04
exchanging to another AIM fund or INVESCO fund) within 30 days of their purchase:
AIM Asia Pacific Growth Fund AIM Global Value Fund AIM Developing Markets Fund AIM High Yield Fund AIM European Growth Fund AIM International Emerging Growth Fund AIM European Small Company AIM International Growth Fund Fund AIM Trimark Fund AIM Global Aggressive Growth INVESCO International Core Equity Fund Fund INVESCO S&P 500 Index Fund AIM Global Growth Fund AIM Global Equity Fund |
The redemption fee will be retained by the fund from which you are redeeming shares (including redemptions by exchange), and is intended to offset the trading costs, market impact and other costs associated with short-term money movements in and out of the fund. The redemption fee is imposed to the extent that the number of fund shares you redeem exceeds the number of fund shares that you have held for more than 30 days. In determining whether the minimum 30 day holding period has been met, only the period during which you have held shares of the fund from which you are redeeming is counted. For this purpose, shares held longest will be treated as being redeemed first and shares held shortest as being redeemed last.
The 2% redemption fee will not be charged on transactions involving the following:
(1) total or partial redemptions of shares by omnibus accounts maintained by brokers that do not have the systematic capability to process the redemption fee;
(2) total or partial redemptions of shares by approved fee-based programs that do not have the systematic capability to process the redemption fee;
(3) total or partial redemptions of shares held through retirement plans maintained pursuant to Sections 401, 403, 408, 408A and 457 of the Internal Revenue Code (the "Code") where the systematic capability to process the redemption fee does not exist;
(4) total or partial redemptions effectuated pursuant to an automatic non-discretionary rebalancing program or a systematic withdrawal plan set up in the funds;
(5) total or partial redemptions requested within 30 days following the death or
post-purchase disability of (i) any registered shareholder on an account or
(ii) the settlor of a living trust which is the registered shareholder of an
account, of shares held in the account at the time of death or initial
determination of post-purchase disability;
(6) total or partial redemption of shares acquired through investment of dividends and other distributions; or
(7) redemptions initiated by a fund.
The AIM Affiliates' goals are to apply the redemption fee on all classes of shares regardless of the type of account in which such shares are held. This goal is not immediately achievable because of systems limitations and marketplace resistance. Currently, the redemption fee may be applied on Class A and Investor Class shares (and Institutional Shares for INVESCO S&P 500 Index Fund). AIM expects to charge the redemption fee on all other classes of shares when the funds' transfer agent system has the capability of processing the fee across these other classes. In addition, AIM intends to develop a plan to encourage brokers that maintain omnibus accounts, sponsors of fee-based program accounts and retirement plan administrators for accounts that are exempt from the redemption fee pursuant to the terms above to modify computer programs to impose the redemption fee or to develop alternate processes to monitor and restrict short-term trading activity in the funds. Lastly, the provider of AIM's retirement plan record keeping system is working to enhance the system to facilitate the processing of the redemption fee. Until such computer programs are modified or alternate processes are developed, the fund's ability to assess a redemption fee on these types of share classes and accounts is severely limited. These are reasons why the redemption fees cannot eliminate the possibility of excessive short-term trading activity.
The funds have the discretion to waive the 2% redemption fee if a fund is in jeopardy of failing the 90% income test or losing its registered investment company qualification for tax purposes.
Your broker or financial consultant may charge service fees for handling redemption transactions. Your shares also may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM fund at net asset value prior to November 15, 2001, or entered into a Letter of Intent prior to November 15, 2001 to purchase $1,000,000 or more of Class A shares of a Category I, II or III AIM fund at net asset value, your shares may be subject to a CDSC upon redemption, as described below.
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
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- Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund or AIM Short Term Bond within 18 months of initial
Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
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(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of a Category III Fund.
MCF--04/04
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM fund on and after November 15, 2001 (and through October 30, 2002 with respect to Class A shares of Category III AIM funds), or if you make additional purchases of Class A shares on and after November 15, 2001 (and through October 30, 2002 with respect to Class A shares of Category III AIM funds) at net asset value, your shares may be subject to a CDSC upon redemption, as described below.
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
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- Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund or AIM Short Term II Fund or AIM Short Term Bond within 18 months of initial
Bond Fund Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund or AIM Short Term Bond within 18 months of initial
Fund purchase of Category III Fund
shares
- Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
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(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM fund on or after October 31, 2002, or if you make additional purchases of Class A shares on and after October 31, 2002 at net asset value, your shares may be subject to a CDSC upon redemption as described below.
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
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- Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or AIM Short or II Fund or AIM Short Term within 18 months of initial
Term Bond Fund Bond Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund or AIM Short Term within 18 months of initial
Bond Fund purchase of Category III Fund
shares
- Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
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(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of
Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM Floating Rate Fund, the early withdrawal charge applicable to shares of AIM Floating Rate Fund will be applied instead of the CDSC normally applicable to Class B shares.
MCF--04/04
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered owners; (2) the
name of the AIM fund and your account
number; (3) if the transfer agent does not
hold your shares, endorsed share
certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent or our AIM 24-hour
Automated Investor Line at 1-800-246-5463.
You will be allowed to redeem by telephone
if (1) the proceeds are to be mailed to the
address on record (if there has been no
change communicated to us within the last 30
days) or transferred electronically to a
pre-authorized checking account; (2) you do
not hold physical share certificates; (3)
you can provide proper identification
information; (4) the proceeds of the
redemption do not exceed $250,000; and (5)
you have not previously declined the
telephone redemption privilege. Certain
accounts, including retirement accounts and
403(b) plans, may not be redeemed by
telephone. The transfer agent must receive
your call during the hours of the customary
trading session of the New York Stock
Exchange (NYSE) in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. The transfer agent
must confirm your transaction during the
hours of the customary trading session of
the NYSE in order to effect the redemption
at that day's closing price.
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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 REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $100. You also may make annual withdrawals if you own Class A
shares. We will redeem enough shares from your account to cover the amount
withdrawn. You must have an account balance of at least $5,000 to establish a
Systematic Redemption Plan. You can stop this plan at any time by giving ten
days prior notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
MCF--04/04
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND AND AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND ONLY)
You may redeem shares of these AIM funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered on the account;
(3) you request that payment be sent somewhere other than the bank of record on the account; or
(4) you request that payment be sent to a new address or an address that changed in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of financial institutions. Call the transfer agent for additional information. Some institutions have transaction amount maximums for these guarantees. Please check with the guarantor institution.
REINSTATEMENT PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or part of your redemption proceeds in Class A shares of any Category I or II AIM fund or AIM Short Term Bond Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A shares of a Category III AIM fund, reinvest all or part of your redemption proceeds in Class A shares of that same Category III AIM fund at net asset value in an identically registered account.
The reinvestment amount must meet the subsequent investment minimum as indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will receive credit on purchases of Class A shares of a Category I or II AIM fund or AIM Short Term Bond Fund.
If you paid a contingent deferred sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC if you later redeem that amount.
You must notify the transfer agent in writing at the time you reinstate that you are exercising your reinstatement privilege.
REDEMPTIONS IN KIND
Although the AIM funds and the INVESCO funds generally intend to pay redemption proceeds solely in cash, the AIM funds and the INVESCO funds reserve the right to satisfy redemption requests by making payment in securities or other property (known as a redemption in kind).
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares only) has been open at least one year, you have not made an additional purchase in the account during the past six calendar months, and the value of your account falls below $500 ($250 for Investor Class shares) for three consecutive months due to redemptions or exchanges (excluding retirement accounts), the AIM funds have the right to redeem the account after giving you 60 days' prior written notice. You may avoid having your account redeemed during the notice period by bringing the account value up to $500 ($250 for Investor Class shares) or by utilizing the Automatic Investment Plan.
If an AIM fund determines that you have not provided a correct Social Security or other tax ID number on your account application, or the AIM fund is not able to verify your identity as required by law, 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 or INVESCO fund. Before requesting an exchange, review the prospectus of the AIM or INVESCO 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.
You may be charged a redemption fee on certain redemptions, including exchanges. See "Redeeming Shares -- Redemption Fee."
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may exchange your shares for shares of the same class of another AIM or INVESCO fund.
You may also exchange:
(1) Class A shares of an AIM or INVESCO fund for AIM Cash Reserve Shares of AIM Money Market Fund;
(2) Class A shares of an AIM fund (excluding AIM Limited Maturity Treasury Fund, AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) or INVESCO fund for Class A3 shares of an AIM fund;
(3) Class A3 shares of an AIM fund for AIM Cash Reserve shares of AIM Money Market Fund;
(4) Class A3 shares of an AIM fund for Class A shares of any AIM fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) or INVESCO fund;
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an AIM fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any AIM fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, effective
MCF--04/04
February 17, 2003, and AIM Tax-Exempt Cash Fund) or INVESCO fund;
(7) Investor Class shares of an AIM or INVESCO fund for Class A shares of any AIM fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) or INVESCO fund or Class A3 shares of an AIM fund; or
(8) Class A or A3 shares of an AIM or INVESCO fund for Investor Class shares of any AIM or INVESCO fund as long as you are eligible to purchase Investor Class shares of any AIM or INVESCO fund at the time of exchange.
You may be required to pay an initial sales charge when exchanging from a fund with a lower initial sales charge than the one into which you are exchanging. If you exchange into shares that are subject to a CDSC, we will begin the holding period for purposes of calculating the CDSC on the date you made your initial purchase.
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM or INVESCO fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund with an initial sales charge for
(a) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund; or
(b) Class A shares of another AIM or INVESCO Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for
(a) Class A shares of an AIM or INVESCO fund subject to an initial sales charge (excluding Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund), but only if you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to an initial sales charge (excluding Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege. You may not exchange:
(1) Class A shares of a Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund for Class A shares of a Category III AIM fund after February 16, 2003; or
(2) Class A shares of a Category III AIM fund for Class A shares of another Category III AIM fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II AIM funds (i) subject to an initial sales charge or (ii) purchased at net asset value and subject to a contingent deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III AIM funds purchased at net asset value for Class A shares of a Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C shares of any AIM or INVESCO fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of a Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund that are subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of Category III AIM Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund (i) subject to an initial sales charge or (ii) purchased at net asset value and subject to a CDSC for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other AIM or INVESCO fund (i) subject to an initial sales charge or (ii) purchased at net asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM Money Market Fund; or MCF--04/04
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C shares of any AIM or INVESCO fund or for Class A shares of any AIM or INVESCO fund that are subject to a CDSC, however, if you originally purchased Class A shares of a Category I or II AIM fund or AIM Short Term Bond 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 AIM fund or AIM Short Term Bond Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM or INVESCO fund into which you are exchanging;
- Shares of the AIM or INVESCO 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; and
- If you have physical share certificates, you must return them to the transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM or INVESCO 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. The exchange privilege is not an option or right to purchase shares. Any of the participating AIM or INVESCO funds or the distributor may modify or terminate this privilege at any time. The AIM or INVESCO fund or the distributor will provide you with notice of such modification or termination whenever it is required to do so by applicable law, but may impose changes at any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of each registered owner exactly as the shares are registered, the account registration and account number, the dollar amount or number of shares to be exchanged and the names of the AIM or INVESCO funds from which and into which the exchange is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by telephone, including that the transfer agent must receive exchange requests during the hours of the customary trading session of the NYSE; however, you still will be allowed to exchange by telephone even if you have changed your address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM fund's shares is the fund's net asset value per share. The AIM funds value portfolio securities for which market quotations are readily available at market value. The AIM funds' short-term investments are valued at amortized cost when the security has 60 days or less to maturity. AIM Money Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and AIM Tax-Free Intermediate Fund value variable rate securities that have an unconditional demand or put feature exercisable within seven days or less at par, which reflects the market value of such securities.
The AIM funds value all other securities and assets at their fair value. Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the AIM funds' shares are determined as of the close of the respective markets. Events affecting the values of such securities may occur between the times at which the particular foreign market closes and the close of the customary
MCF--04/04
trading session of the NYSE which would not ordinarily be reflected in the computation of the AIM fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of the effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures, and exchange-traded funds. 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 and the type of income that the fund earns. Different tax rates apply to ordinary income, qualified dividend income, and long-term capital gain distributions, regardless of how long you have held your shares. Every year, you will be sent information showing the amount of dividends and distributions you received from each AIM fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM fund shares will be subject to federal income tax. Exchanges of shares for shares of another AIM or INVESCO fund are treated as a sale, and any gain realized on the transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING "OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM fund shares may differ materially from the federal income tax consequences described above. In addition, the preceding discussion concerning the taxability of fund dividends and distributions and of redemptions and exchanges of AIM fund shares is inapplicable to investors that are generally exempt from federal income tax, such as retirement plans that are qualified under Section 401 of the Internal Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should consult your tax advisor before investing.
MCF--04/04
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 the 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: AIM Investment Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request by
e-mail or download
prospectuses, annual or
semiannual reports via our
website:
http://www.aiminvestments.com
|
You can also 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 Short Term Bond Fund
SEC 1940 Act file number: 811-5686
----------------------------------------
AIMinvestments.com STB-PRO-1
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
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AIM TOTAL RETURN BOND FUND
PROSPECTUS
APRIL 30, 2004
AIM Total Return Bond Fund seeks to achieve maximum total return consistent with preservation of capital.
This prospectus contains important information about the Class A, B, C and R 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.
INVESTMENT OBJECTIVE AND STRATEGIES 1 ------------------------------------------------------ PRINCIPAL RISKS OF INVESTING IN THE FUND 1 ------------------------------------------------------ PERFORMANCE INFORMATION 2 ------------------------------------------------------ Annual Total Returns 2 Performance Table 2 FEE TABLE AND EXPENSE EXAMPLE 3 ------------------------------------------------------ Fee Table 3 Expense Example 3 FUND MANAGEMENT 5 ------------------------------------------------------ The Advisor 5 Advisor Compensation 5 Portfolio Managers 5 OTHER INFORMATION 5 ------------------------------------------------------ Sales Charges 5 Dividends and Distributions 5 FINANCIAL HIGHLIGHTS 6 ------------------------------------------------------ SHAREHOLDER INFORMATION A-1 ------------------------------------------------------ Choosing a Share Class A-1 Tools Used to Combat Excessive Short-Term Trading Activity A-4 Purchasing Shares A-5 Redeeming Shares A-6 Exchanging Shares A-10 Pricing of Shares A-12 Taxes A-13 OBTAINING ADDITIONAL INFORMATION Back Cover ------------------------------------------------------ |
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with DISCIPLINE are registered service marks and AIM Bank Connection, AIM Internet Connect, AIM Private Asset Management, AIM Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. are service marks of A I M Management Group Inc. AIM Trimark is a service mark of A I M Management Group Inc. and AIM Funds Management 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 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 fixed income securities may include U.S. Treasury and agency securities, mortgage-backed and asset-backed securities and corporate bonds of varying maturities. In complying with this 80% investment requirement, the fund's investments may include investments in synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the fund's direct investments, and may include futures and options. 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 effective duration, as estimated by the fund's portfolio managers, will be within +/-1.5 years of that of the Lehman Brothers Aggregate Bond Index and the fund will generally maintain a weighted average effective maturity, as estimated by the fund's portfolio managers, 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. For cash management purposes, the fund may also hold a portion of its assets in cash or cash equivalents, including shares of affiliated money market funds. Any percentage limitations with respect to assets of the fund are applied at the time of purchase.
The portfolio managers focus on securities that they believe have favorable prospects for 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 these factors materially changes.
In anticipation of or in response to adverse market or other conditions, or atypical circumstances such as unusually large cash inflows or redemptions, the fund may temporarily hold all or a portion of its assets in cash, cash equivalents or high-quality debt instruments. As a result, the fund may not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to achieve its investment objective. If the fund does trade in this way, it may incur increased transaction costs, which can lower the actual return on your investment. Active trading may also increase short-term gains and losses, which may affect the taxes you have to pay.
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 in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The bar chart and table shown below provide an indication of the risks of investing in the fund. The fund's past performance (before and after taxes) is not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of the fund's Class A shares from year to year. The bar chart does not reflect sales loads. If it did, the annual total returns shown would be lower.
ANNUAL
YEARS ENDED TOTAL
DECEMBER 31 RETURNS
----------- -------
2002................................................................... 8.54%
2003................................................................... 5.12%
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The Class A shares' year-to-date total return as of March 31, 2004 was 2.78%.
During the period shown in the bar chart, the highest quarterly return was 3.70% (quarter ended September 30, 2002) and the lowest quarterly return was -0.11% (quarter ended September 30, 2003).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a broad-based securities market index and a peer group index. The fund's performance reflects payment of sales loads, if applicable. The indices may not reflect payment of fees, expenses or taxes. The fund is not managed to track the performance of any particular index, including the indices shown below, and consequently, the performance of the fund may deviate significantly from the performance of the indices shown below.
AVERAGE ANNUAL TOTAL RETURNS
------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2003) 1 YEAR INCEPTION DATE
------------------------------------------------------------------------------
Class A 12/31/01
Return Before Taxes 0.12% 4.24%
Return After Taxes on Distributions (1.48) 2.61
Return After Taxes on Distributions and
Sale of Fund Shares 0.06 2.63
Class B 12/31/01
Return Before Taxes (0.66) 4.12
Class C 12/31/01
Return Before Taxes 3.34 6.03
Class R(1)
Return Before Taxes 4.96 6.66 12/31/01(1)
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Lehman Brothers U.S. Aggregate Bond Index(2) 4.10 7.14(4) 12/31/01(4)
Lipper Intermediate Investment Grade Debt
Fund Index(3) 5.41 6.84(4) 12/31/01(4)
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only and after-tax returns for Class B, C and R will vary.
(1) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to Class R shares. Class R shares would
have different returns because, although the shares are invested in the same
portfolio of securities, the Class R shares have a different expense
structure. The inception date shown in the table is that of the fund's Class
A shares. The inception date of the Fund's Class R shares is April 30, 2004.
(2) The Lehman Brothers U.S. Aggregate Bond Index measures the performance of
U.S. investment-grade fixed rate bonds with components for government and
corporate securities, mortgage pass-throughs and asset-backed securities of
treasury issues, agency issues, corporate bond issues and mortgage-backed
securities. In addition, the Lipper Intermediate Investment Grade Debt Fund
Index (which may or may not include the fund) is included for comparison to
a peer group.
(3) The Lipper Intermediate Investment Grade Debt Fund Index is an equally
weighted representation of the 30 largest funds in the Lipper Intermediate
Investment Grade Debt category. These funds invest primarily in investment
grade debt issues with average maturities of five to ten years.
(4) The average annual total return given is since the month end closest to the
inception date of the class with the longest performance history.
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 CLASS R ------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.75% None None None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, whichever is less) None(1,2) 5.00% 1.00% None(3) ------------------------------------------------------------------------------- |
ANNUAL FUND OPERATING EXPENSES(4) -------------------------------------------------------------------------- (expenses that are deducted from fund assets) CLASS A CLASS B CLASS C CLASS R -------------------------------------------------------------------------- Management Fees 0.50% 0.50% 0.50% 0.50% Distribution and/or Service (12b-1) Fees(5) 0.35 1.00 1.00 0.50 Other Expenses(6) 0.69 0.69 0.69 0.69 Total Annual Fund Operating Expenses 1.54 2.19 2.19 1.69 Waiver(5) 0.29 0.19 0.19 0.19 Net Expenses(7) 1.25 2.00 2.00 1.50 -------------------------------------------------------------------------- |
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the distributor paid a concession to the dealer of record and a total redemption of the retirement plan assets occurs within 12 months from the date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown in the table.
(5) The distributor has contractually agreed to waive up to 0.10% of Class A Shares Rule 12b-1 distribution plan payments to the extent necessary to limit the Total Annual Fund Operating Expenses of Class A shares to 1.25%. Further, the fund's advisor has contractually agreed to waive advisory fees or reimburse expenses to the extent necessary to limit Total Annual Fund Operating Expenses (excluding certain items discussed below) for Class A shares to 1.25% (e.g. if the advisor waives 0.19% of Class A share expenses, the advisor will also waive 0.19% of Class B, Class C and Class R share expenses). In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Fund Operating Expenses to exceed the limits: (i) interest; (ii) taxes; (iii) extraordinary items (these are expenses that are not anticipated to arise from the fund's day-to-day operations), as defined in the Financial Accounting Standard's Board's Generally Accepted Accounting Principles or as approved by the fund's Board of Trustees; (iv) expenses related to a merger or reorganization, as approved by the fund's Board of Trustees; and (v) expenses that the fund has incurred but did not actually pay because of an expense offset arrangement. Currently, the only expense offset arrangements from which the fund benefits are in the form of credits that the fund receives from banks where the fund or its transfer agent has deposit accounts in which it holds uninvested cash. Those credits are used to pay certain expenses incurred by the fund. These expense limitation agreements are in effect through July 31, 2004.
(6) Other expenses for Class R shares are based on estimated average net assets for the current fiscal year.
(7) The distributor has voluntarily agreed to waive up to 0.10% of Class A Shares Rule 12b-1 distribution plan payments to the extent necessary to limit total operating expenses of Class A shares to 1.00%. The funds' advisor has voluntarily agreed to waive advisory fees or reimburse expenses to the extent necessary to limit Total Annual Fund Operating Expenses (excluding certain items discussed above) for Class A shares to 1.00% (e.g., if the advisor waives 0.25% of Class A share expenses, the advisor will also waive 0.25% of Class B, Class C and Class R share expenses. Total Annual Operating Expenses net of this agreement are 1.00%, 1.75%, 1.75% and 1.25% for Class A, Class B, Class C and Class R shares, respectively. These expense limitation agreements may be modified or discontinued without further notice to investors.
You may also be charged a transaction or other fee by the financial institution managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. To the extent fees are waived and/or expenses are reimbursed, your expenses will be lower. Although your actual returns and costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Class A $596 $911 $1,248 $2,199
Class B 703 967 1,357 2,344
Class C 303 667 1,157 2,509
Class R 153 514 900 1,982
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You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------
Class A $596 $911 $1,248 $2,199
Class B 203 667 1,157 2,344
Class C 203 667 1,157 2,509
Class R 153 514 900 1,982
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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 200 investment portfolios, including the fund, encompassing a broad range of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2003, the advisor received compensation of 0.06% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual members of the team (co-managers) who are primarily responsible for the management of the fund's portfolio are
- 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.
- Scot W. Johnson, Portfolio Manager, who has been responsible for the fund since 2001 and has been associated with the advisor and/or its affiliates since 1994.
They are assisted by the Investment Grade Team. More information on the fund's management team may be found on our website (http://www.aiminvestments.com/teams). The website is not a part of this prospectus.
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. Certain purchases of Class A shares at net asset value may be subject to the contingent deferred sales charge listed in that section. Purchases of Class B and Class C shares are subject to the contingent deferred sales charges listed in that section. Certain purchases of Class R shares may be subject to the deferred sales charge listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of ordinary income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any, annually.
The financial highlights table is intended to help you understand the fund's financial performance. Certain information reflects financial results for a single fund share.
The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of all dividends and distributions).
The information for the fiscal year 2003 and for the period December 31, 2001 to July 31, 2002 has been audited by Ernst & Young LLP, whose report, along with the fund's financial statements, is included in the fund's annual report, which is available upon request.
As of the date of this prospectus, the fund's Class R shares had not yet commenced operations and therefore, financial information for Class R shares is not available.
CLASS A
-------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.35 $ 10.19 $10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.32(a) 0.18(a)
===============================================================================================================
Net gains on securities (both realized and unrealized) 0.33 0.26 0.23
===============================================================================================================
Total from investment operations 0.48 0.58 0.41
===============================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.40) (0.22)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.09) (0.02) --
===============================================================================================================
Total distributions (0.28) (0.42) (0.22)
===============================================================================================================
Net asset value, end of period $ 10.55 $ 10.35 $10.19
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 4.72% 5.77% 4.09%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,565 $30,336 $9,325
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.00%(c) 1.00% 1.00%(d)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 1.53%(c) 1.54% 3.21%(d)
===============================================================================================================
Ratio of net investment income to average net assets 2.94%(c) 3.07% 3.10%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 181% 284% 215%
_______________________________________________________________________________________________________________
===============================================================================================================
|
(a)Calculated using average shares outstanding.
(b)Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(c)Ratios are annualized and based on average daily net assets of $30,670,406.
(d)Annualized.
(e)Not annualized for periods less than one year.
CLASS B
-------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.35 $ 10.19 $ 10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11 0.24(a) 0.14(a)
===============================================================================================================
Net gains on securities (both realized and unrealized) 0.33 0.27 0.22
===============================================================================================================
Total from investment operations 0.44 0.51 0.36
===============================================================================================================
Less distributions:
Dividends from net investment income (0.15) (0.33) (0.17)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.09) (0.02) --
===============================================================================================================
Total distributions (0.24) (0.35) (0.17)
===============================================================================================================
Net asset value, end of period $ 10.55 $ 10.35 $ 10.19
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 4.34% 4.98% 3.65%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,001 $47,655 $14,678
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c) 1.75% 1.75%(d)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 2.18%(c) 2.19% 3.86%(d)
===============================================================================================================
Ratio of net investment income to average net assets 2.19%(c) 2.32% 2.35%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 181% 284% 215%
_______________________________________________________________________________________________________________
===============================================================================================================
|
(a)Calculated using average shares outstanding.
(b)Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(c)Ratios are annualized and based on average daily net assets of $46,682,387.
(d)Annualized.
(e)Not annualized for periods less than one year.
CLASS C
-------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.35 $ 10.19 $ 10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11 0.24(a) 0.14(a)
---------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.33 0.27 0.22
===============================================================================================================
Total from investment operations 0.44 0.51 0.36
===============================================================================================================
Less distributions:
Dividends from net investment income (0.15) (0.33) (0.17)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.09) (0.02) --
===============================================================================================================
Total distributions (0.24) (0.35) (0.17)
===============================================================================================================
Net asset value, end of period $ 10.55 $ 10.35 $ 10.19
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 4.34% 4.98% 3.65%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 8,376 $ 9,185 $ 3,045
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c) 1.75% 1.75%(d)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 2.18%(c) 2.19% 3.86%(d)
===============================================================================================================
Ratio of net investment income to average net assets 2.19%(c) 2.32% 2.35%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 181% 284% 215%
_______________________________________________________________________________________________________________
===============================================================================================================
|
(a)Calculated using average shares outstanding.
(b)Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(c)Ratios are annualized and based on average daily net assets of $8,447,585.
(d)Annualized.
(e)Not annualized for periods less than one year.
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to many other mutual funds (the AIM funds). The following information is about all the AIM funds.
CHOOSING A SHARE CLASS
Many of the AIM funds have multiple classes of shares, each class representing an interest in the same portfolio of investments. When choosing a share class, you should consult your financial advisor as to which class is most suitable for you. In addition, you should consider the factors below.
CLASS A(1) CLASS A3 CLASS B(4) CLASS C CLASS R INVESTOR CLASS
----------------------------------------------------------------------------------------------------------------------------
- Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(6)
- Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(5)
- Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $100,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM fund was
offered
----------------------------------------------------------------------------------------------------------------------------
|
Certain AIM funds also offer Institutional Class shares to certain eligible institutional investors; consult the fund's Statement of Additional Information for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess of $250,000.
(4) Effective September 30, 2003, Class B shares will not be made available as an investment for retirement plans maintained pursuant to Section 401 of the Internal Revenue Code. These plans include 401(k) plans (including AIM Solo 401(k) plans), money purchase pension plans and profit sharing plans. Plans that have existing accounts invested in Class B shares will continue to be allowed to make additional purchases.
(5) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares. AIM Global Equity 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.
(6) A contingent deferred sales charge (CDSC) does not apply to redemption of Class C shares of AIM Short Term Bond Fund unless you exchange Class C shares of another AIM fund that are subject to a CDSC into AIM Short Term Bond Fund.
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM fund (except AIM Tax-Free Intermediate Fund with respect to its Class A shares and AIM Money Market Fund and AIM Tax-Exempt Cash Fund with respect to their Investor Class shares) has adopted 12b-1 plans that allow the AIM fund to pay distribution fees to A I M Distributors, Inc. (the distributor) for the sale and distribution of its shares and fees for services provided to shareholders, all or a substantial portion of which are paid to the dealer of record. Because the AIM fund pays these fees out of its assets on an ongoing basis, over time these fees will increase the cost of your
MCF--04/04
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 (except AIM Short Term Bond Fund) 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.
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION(1) OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
------------------------------------------------------------------------------
|
(1) AIM Opportunities I Fund will not accept any single purchase order in excess of $250,000.
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
------------------------------------------------------------------------------
|
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
------------------------------------------------------------------------------
|
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------
Less than $ 100,000 2.50% 2.56%
$100,000 but less than $ 250,000 2.00 2.04
$250,000 but less than $ 500,000 1.50 1.52
$500,000 but less than $1,000,000 1.25 1.27
------------------------------------------------------------------------------
|
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class shares of any AIM fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II AIM funds and AIM Short Term Bond Fund at net asset value.
However, if you redeem these shares prior to 18 months after the date of
purchase, they will be subject to a CDSC of 1%.
If you currently own Class A shares of a Category I, II or III AIM fund or AIM Short Term Bond Fund and make additional purchases (through October 30, 2002 for Category III AIM funds only) at net asset value that result in account balances of $1,000,000 or more, the additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for Category I and II AIM fund and AIM Short Term Bond Fund shares, and a 12-month, 0.25% CDSC for Category III AIM fund shares). The CDSC for Category III AIM fund shares will not apply to additional purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset value per share. If the distributor paid a concession to the dealer of record in connection with a Large Purchase of Class A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at the time of redemption if all retirement plan assets are redeemed within one year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired those shares through an exchange, and the shares originally purchased were subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for Large Purchases and purchases by certain retirement plans.
MCF--04/04
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 -------------------------------------------------------------------------------- First 5% 1% Second 4 None Third 3 None Fourth 3 None Fifth 2 None Sixth 1 None Seventh and following None None -------------------------------------------------------------------------------- |
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset value and not subject to a CDSC. However, you may be charged a CDSC when you redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares through an exchange, and the shares originally purchased were subject to a CDSC.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify for these reductions or exceptions, you or your financial consultant must provide sufficient information at the time of purchase to verify that your purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of AIM Floating Rate Fund and Investor Class shares of any AIM or INVESCO fund will not be taken into account in determining whether a purchase qualifies for a reduction in initial sales charges pursuant to Rights of Accumulation or Letters of Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares of an AIM or INVESCO fund
with AIM and/or INVESCO fund shares currently owned (Class A, B, C, K or R) for
the purpose of qualifying for the lower initial sales charge rates that apply to
larger purchases. The applicable initial sales charge for the new purchase is
based on the total of your current purchase and the public offering price 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 and/or INVESCO funds during a 13-month period. The
amount you agree to purchase determines the initial sales charge you pay. If the
full face amount of the LOI is not invested by the end of the 13-month period,
your account will be adjusted to the higher initial sales charge level for the
amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM and INVESCO funds;
- when using the reinstatement privileges; and
- when a merger, consolidation, or acquisition of assets of an AIM or INVESCO fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem Class C shares of an AIM fund other than AIM Short Term Bond Fund and you received such Class C shares by exchanging Class C shares of AIM Short Term Bond Fund;
- if you redeem Class C shares of AIM Short Term Bond Fund unless you received such Class C shares by exchanging Class C shares of another AIM fund and the original purchase was subject to a CDSC;
- if you are a participant in a retirement plan and your plan redeems, at any time, less than all of the Class R shares held through such plan that would otherwise be subject to a CDSC;
- if you are a participant in a retirement plan and your plan redeems, after having held them for more than one year from the date of the plan's initial purchase, all of the Class R shares held through such plan that would otherwise be subject to a CDSC;
- if you redeem shares acquired through reinvestment of dividends and distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares at reduced or without sales charges. Consult the fund's Statement of Additional Information for details.
MCF--04/04
TOOLS USED TO COMBAT EXCESSIVE SHORT-TERM TRADING ACTIVITY
While the funds provide their shareholders with daily liquidity, their investment programs are designed to serve long-term investors. Excessive short-term trading activity in the funds' shares (i.e., a purchase of fund shares followed shortly thereafter by a redemption of such shares, or vice versa) may hurt the long-term performance of certain funds by requiring them to maintain an excessive amount of cash or to liquidate portfolio holdings at a disadvantageous time. A I M Advisors, Inc. and its affiliates (collectively, the "AIM Affiliates") currently use the following tools designed to discourage excessive short-term trading in the retail funds within The AIM Family of Funds(R) and the INVESCO family of funds (together, the "funds"):
(1) trade activity monitoring;
(2) trading guidelines;
(3) redemption fee on trades in certain funds; and
(4) selective use of fair value pricing.
Each of these tools is described in more detail below. Although these tools are designed to discourage excessive short-term trading, you should understand that none of these tools alone nor all of them taken together eliminate the possibility that excessive short-term trading activity in the funds will occur. Moreover, each of these tools involves judgments that are inherently subjective. The AIM Affiliates seek to make these judgments to the best of their abilities in a manner that they believe is consistent with shareholder interests.
TRADE ACTIVITY MONITORING
The AIM Affiliates monitor selected trades on a daily basis in an effort to detect excessive short-term trading activities. If, as a result of this monitoring, the AIM Affiliates believe that a shareholder has engaged in excessive short-term trading, they may, in their discretion, ask the shareholder to stop such activities or refuse to process purchases or exchanges in the shareholder's accounts other than exchanges into a money market fund. In making such judgments, the AIM Affiliates seek to act in a manner that they believe is consistent with the best interests of shareholders.
The ability of the AIM Affiliates to monitor trades that are placed by the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts and approved fee-based program accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the underlying shareholder accounts. This is one reason why this tool cannot eliminate the possibility of excessive short-term trading.
TRADING GUIDELINES
If you exceed four exchanges out of a fund (other than AIM Money Market Fund, AIM Tax-Exempt Cash Fund, AIM Limited Maturity Treasury Fund and INVESCO U.S. Government Money Fund) per calendar year, or a fund or the distributor determines, in its sole discretion, that your short-term trading activity is excessive (regardless of whether or not you exceed such guidelines), it may, in its discretion, reject any additional purchase and exchange orders. Each fund and the distributor reserves the discretion to accept exchanges in excess of these guidelines on a case-by-case basis if it believes that granting such exceptions would be consistent with the best interests of shareholders. An exchange is the movement out of (redemption) one fund and into (purchase) another fund.
The ability of the AIM Affiliates to monitor exchanges made by the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts and approved fee-based program accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the underlying shareholder accounts. This is one reason why this tool cannot eliminate the possibility of excessive short-term trading.
REDEMPTION FEE
You may be charged a 2% redemption fee if you redeem, including redeeming by exchange, Class A, Investor Class or Institutional Class (applicable only to INVESCO S&P 500 Index Fund) shares of certain funds within 30 days of purchase. The AIM Affiliates expect to charge the redemption fee on other classes of shares when the funds' transfer agent system has the capability of processing the fee across these other classes. See "Redeeming Shares -- Redemption Fee" for more information.
The ability of a fund to assess a redemption fee on the underlying shareholders of omnibus accounts maintained by brokers, retirement plan accounts and approved fee-based program accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the underlying shareholder account and may be further limited by systems limitations applicable to these types of accounts. Additionally, the AIM Affiliates maintain certain retirement plan accounts on a record keeping system that is currently incapable of processing the redemption fee. The provider of this system is working to enhance the system to facilitate the processing of this fee. These are two reasons why this tool cannot eliminate the possibility of excessive short-term trading activity.
FAIR VALUE PRICING
The trading hours for most foreign securities end prior to the close of the New York Stock Exchange, the time the fund's net asset value is calculated. The occurrence of certain events after the close of foreign markets, but prior to the close of the U.S. market (such as a significant surge or decline in the U.S. market) often will result in an adjustment to the trading prices of foreign securities when foreign markets open on the following business day. If such events occur, the fund may value foreign securities at fair value, taking into account such events, when it calculates its net asset value. Fair value determinations are made in good faith in accordance with procedures adopted by the Board of Directors or Trustees of the fund. See "Pricing of Shares -- Determination of Net Asset Value" for more information.
Fair value pricing results in an estimated price and may reduce the
possibility that short-term traders could take advantage of potentially "stale"
prices of portfolio holdings. However, if cannot eliminate the possibility of
excessive short-term trading.
MCF--04/04
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM fund accounts. The minimum investments with respect to Class A, A3, B and C shares and Investor Class shares for AIM fund accounts are as follows:
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
-------------------------------------------------------------------------------------------------------------------------
Employer-Sponsored Retirement Plans (includes section 401, $ 0 ($25 per AIM fund investment for $50
403 and salary deferrals from Employer-
457 plans, and SEP, SARSEP and SIMPLE IRA plans) Sponsored Retirement Plans)
Systematic Purchase Plan 50 50
IRA, Roth IRA or Coverdell ESA 250 50
All other accounts 1,000 50
-------------------------------------------------------------------------------------------------------------------------
|
The maximum amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not be processed unless the account application and purchase payment are received in good order. In accordance with the USA PATRIOT Act, if you fail to provide all the required information requested in the current account application, your purchase order will not be processed. Additionally, Federal law requires that the AIM fund verify and record your identifying information.
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, AIM from your confirmation statement to the
Investment Services, Inc., P.O. Box transfer agent.
4739, Houston, TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: AIM
Investment Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line at 1-800-246-5463. You may place
your order after you have provided the
bank instructions that will be
requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
-------------------------------------------------------------------------------------------------------------------------
|
MCF--04/04
GRANDFATHERED INVESTORS
Investor Class shares of a fund may be purchased only by: (1) persons or
entities who had established an account, prior to April 1, 2002, in Investor
Class shares of any of the funds currently distributed by A I M Distributors,
Inc. (the "Grandfathered Funds") and have continuously maintained such account
in Investor Class shares since April 1, 2002; (2) any person or entity listed in
the account registration for any Grandfathered Funds, which account was
established prior to April 1, 2002 and continuously maintained since April 1,
2002, such as joint owners, trustees, custodians and designated beneficiaries;
(3) customers of certain financial institutions, wrap accounts or other
fee-based advisory programs, or insurance company separate accounts, which have
had relationships with A I M Distributors, Inc. and/or any of the Grandfathered
Funds prior to April 1, 2002 and continuously maintained such relationships
since April 1, 2002; (4) defined benefit, defined contribution and deferred
compensation plans; and (5) AIM and INVESCO fund trustees and directors,
employees of AMVESCAP PLC and its subsidiaries, AMVESCAP directors, and their
immediate families.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the AIM funds by authorizing
the AIM fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Systematic Purchase Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM or INVESCO fund account to one or more
other AIM or INVESCO 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 or INVESCO fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM or INVESCO fund at net asset value. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM or
INVESCO fund. You may invest your dividends and distributions (1) into another
AIM or INVESCO 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 or INVESCO fund paying the dividend must be at least $5,000; and (b) in the AIM or INVESCO 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 or INVESCO 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 and INVESCO fund holdings should be rebalanced, on a
percentage basis, between two and ten of your AIM and INVESCO 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 or INVESCO funds for shares of
the same class of one or more other AIM or INVESCO 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, Roth IRAs, SIMPLE IRA plans, SEP/SARSEP plans, 403(b) plans,
401(k) 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 FEE
You may be charged a 2% redemption fee (on total redemption proceeds) if you redeem, including redeeming by exchange, Class A, Investor Class or Institutional Class (applicable only to INVESCO S&P 500 Index Fund) shares of the following funds (either by selling or
MCF--04/04
exchanging to another AIM fund or INVESCO fund) within 30 days of their purchase:
AIM Asia Pacific Growth Fund AIM Global Value Fund AIM Developing Markets Fund AIM High Yield Fund AIM European Growth Fund AIM International Emerging Growth Fund AIM European Small Company AIM International Growth Fund Fund AIM Trimark Fund AIM Global Aggressive Growth INVESCO International Core Equity Fund Fund INVESCO S&P 500 Index Fund AIM Global Growth Fund AIM Global Equity Fund |
The redemption fee will be retained by the fund from which you are redeeming shares (including redemptions by exchange), and is intended to offset the trading costs, market impact and other costs associated with short-term money movements in and out of the fund. The redemption fee is imposed to the extent that the number of fund shares you redeem exceeds the number of fund shares that you have held for more than 30 days. In determining whether the minimum 30 day holding period has been met, only the period during which you have held shares of the fund from which you are redeeming is counted. For this purpose, shares held longest will be treated as being redeemed first and shares held shortest as being redeemed last.
The 2% redemption fee will not be charged on transactions involving the following:
(1) total or partial redemptions of shares by omnibus accounts maintained by brokers that do not have the systematic capability to process the redemption fee;
(2) total or partial redemptions of shares by approved fee-based programs that do not have the systematic capability to process the redemption fee;
(3) total or partial redemptions of shares held through retirement plans maintained pursuant to Sections 401, 403, 408, 408A and 457 of the Internal Revenue Code (the "Code") where the systematic capability to process the redemption fee does not exist;
(4) total or partial redemptions effectuated pursuant to an automatic non-discretionary rebalancing program or a systematic withdrawal plan set up in the funds;
(5) total or partial redemptions requested within 30 days following the death or
post-purchase disability of (i) any registered shareholder on an account or
(ii) the settlor of a living trust which is the registered shareholder of an
account, of shares held in the account at the time of death or initial
determination of post-purchase disability;
(6) total or partial redemption of shares acquired through investment of dividends and other distributions; or
(7) redemptions initiated by a fund.
The AIM Affiliates' goals are to apply the redemption fee on all classes of shares regardless of the type of account in which such shares are held. This goal is not immediately achievable because of systems limitations and marketplace resistance. Currently, the redemption fee may be applied on Class A and Investor Class shares (and Institutional Shares for INVESCO S&P 500 Index Fund). AIM expects to charge the redemption fee on all other classes of shares when the funds' transfer agent system has the capability of processing the fee across these other classes. In addition, AIM intends to develop a plan to encourage brokers that maintain omnibus accounts, sponsors of fee-based program accounts and retirement plan administrators for accounts that are exempt from the redemption fee pursuant to the terms above to modify computer programs to impose the redemption fee or to develop alternate processes to monitor and restrict short-term trading activity in the funds. Lastly, the provider of AIM's retirement plan record keeping system is working to enhance the system to facilitate the processing of the redemption fee. Until such computer programs are modified or alternate processes are developed, the fund's ability to assess a redemption fee on these types of share classes and accounts is severely limited. These are reasons why the redemption fees cannot eliminate the possibility of excessive short-term trading activity.
The funds have the discretion to waive the 2% redemption fee if a fund is in jeopardy of failing the 90% income test or losing its registered investment company qualification for tax purposes.
Your broker or financial consultant may charge service fees for handling redemption transactions. Your shares also may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM fund at net asset value prior to November 15, 2001, or entered into a Letter of Intent prior to November 15, 2001 to purchase $1,000,000 or more of Class A shares of a Category I, II or III AIM fund at net asset value, your shares may be subject to a CDSC upon redemption, as described below.
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund or AIM Short Term Bond within 18 months of initial
Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
|
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of a Category III Fund.
MCF--04/04
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM fund on and after November 15, 2001 (and through October 30, 2002 with respect to Class A shares of Category III AIM funds), or if you make additional purchases of Class A shares on and after November 15, 2001 (and through October 30, 2002 with respect to Class A shares of Category III AIM funds) at net asset value, your shares may be subject to a CDSC upon redemption, as described below.
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund or AIM Short Term II Fund or AIM Short Term Bond within 18 months of initial
Bond Fund Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund or AIM Short Term Bond within 18 months of initial
Fund purchase of Category III Fund
shares
- Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
|
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM fund on or after October 31, 2002, or if you make additional purchases of Class A shares on and after October 31, 2002 at net asset value, your shares may be subject to a CDSC upon redemption as described below.
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or AIM Short or II Fund or AIM Short Term within 18 months of initial
Term Bond Fund Bond Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund or AIM Short Term within 18 months of initial
Bond Fund purchase of Category III Fund
shares
- Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
|
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of
Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM Floating Rate Fund, the early withdrawal charge applicable to shares of AIM Floating Rate Fund will be applied instead of the CDSC normally applicable to Class B shares.
MCF--04/04
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered owners; (2) the
name of the AIM fund and your account
number; (3) if the transfer agent does not
hold your shares, endorsed share
certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent or our AIM 24-hour
Automated Investor Line at 1-800-246-5463.
You will be allowed to redeem by telephone
if (1) the proceeds are to be mailed to the
address on record (if there has been no
change communicated to us within the last 30
days) or transferred electronically to a
pre-authorized checking account; (2) you do
not hold physical share certificates; (3)
you can provide proper identification
information; (4) the proceeds of the
redemption do not exceed $250,000; and (5)
you have not previously declined the
telephone redemption privilege. Certain
accounts, including retirement accounts and
403(b) plans, may not be redeemed by
telephone. The transfer agent must receive
your call during the hours of the customary
trading session of the New York Stock
Exchange (NYSE) in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. The transfer agent
must confirm your transaction during the
hours of the customary trading session of
the NYSE in order to effect the redemption
at that day's closing price.
|
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no more than seven days, after we accept your request to redeem. If you redeem shares recently purchased by check, you will be required to wait up to ten business days before we will send your redemption proceeds. This delay is necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $100. You also may make annual withdrawals if you own Class A
shares. We will redeem enough shares from your account to cover the amount
withdrawn. You must have an account balance of at least $5,000 to establish a
Systematic Redemption Plan. You can stop this plan at any time by giving ten
days prior notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
MCF--04/04
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND AND AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND ONLY)
You may redeem shares of these AIM funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered on the account;
(3) you request that payment be sent somewhere other than the bank of record on the account; or
(4) you request that payment be sent to a new address or an address that changed in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of financial institutions. Call the transfer agent for additional information. Some institutions have transaction amount maximums for these guarantees. Please check with the guarantor institution.
REINSTATEMENT PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or part of your redemption proceeds in Class A shares of any Category I or II AIM fund or AIM Short Term Bond Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A shares of a Category III AIM fund, reinvest all or part of your redemption proceeds in Class A shares of that same Category III AIM fund at net asset value in an identically registered account.
The reinvestment amount must meet the subsequent investment minimum as indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will receive credit on purchases of Class A shares of a Category I or II AIM fund or AIM Short Term Bond Fund.
If you paid a contingent deferred sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC if you later redeem that amount.
You must notify the transfer agent in writing at the time you reinstate that you are exercising your reinstatement privilege.
REDEMPTIONS IN KIND
Although the AIM funds and the INVESCO funds generally intend to pay redemption proceeds solely in cash, the AIM funds and the INVESCO funds reserve the right to satisfy redemption requests by making payment in securities or other property (known as a redemption in kind).
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares only) has been open at least one year, you have not made an additional purchase in the account during the past six calendar months, and the value of your account falls below $500 ($250 for Investor Class shares) for three consecutive months due to redemptions or exchanges (excluding retirement accounts), the AIM funds have the right to redeem the account after giving you 60 days' prior written notice. You may avoid having your account redeemed during the notice period by bringing the account value up to $500 ($250 for Investor Class shares) or by utilizing the Automatic Investment Plan.
If an AIM fund determines that you have not provided a correct Social Security or other tax ID number on your account application, or the AIM fund is not able to verify your identity as required by law, 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 or INVESCO fund. Before requesting an exchange, review the prospectus of the AIM or INVESCO 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.
You may be charged a redemption fee on certain redemptions, including exchanges. See "Redeeming Shares -- Redemption Fee."
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may exchange your shares for shares of the same class of another AIM or INVESCO fund.
You may also exchange:
(1) Class A shares of an AIM or INVESCO fund for AIM Cash Reserve Shares of AIM Money Market Fund;
(2) Class A shares of an AIM fund (excluding AIM Limited Maturity Treasury Fund, AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) or INVESCO fund for Class A3 shares of an AIM fund;
(3) Class A3 shares of an AIM fund for AIM Cash Reserve shares of AIM Money Market Fund;
(4) Class A3 shares of an AIM fund for Class A shares of any AIM fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) or INVESCO fund;
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an AIM fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any AIM fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, effective
MCF--04/04
February 17, 2003, and AIM Tax-Exempt Cash Fund) or INVESCO fund;
(7) Investor Class shares of an AIM or INVESCO fund for Class A shares of any AIM fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) or INVESCO fund or Class A3 shares of an AIM fund; or
(8) Class A or A3 shares of an AIM or INVESCO fund for Investor Class shares of any AIM or INVESCO fund as long as you are eligible to purchase Investor Class shares of any AIM or INVESCO fund at the time of exchange.
You may be required to pay an initial sales charge when exchanging from a fund with a lower initial sales charge than the one into which you are exchanging. If you exchange into shares that are subject to a CDSC, we will begin the holding period for purposes of calculating the CDSC on the date you made your initial purchase.
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM or INVESCO fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund with an initial sales charge for
(a) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund; or
(b) Class A shares of another AIM or INVESCO Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for
(a) Class A shares of an AIM or INVESCO fund subject to an initial sales charge (excluding Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund), but only if you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to an initial sales charge (excluding Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege. You may not exchange:
(1) Class A shares of a Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund for Class A shares of a Category III AIM fund after February 16, 2003; or
(2) Class A shares of a Category III AIM fund for Class A shares of another Category III AIM fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II AIM funds (i) subject to an initial sales charge or (ii) purchased at net asset value and subject to a contingent deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III AIM funds purchased at net asset value for Class A shares of a Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C shares of any AIM or INVESCO fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of a Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund that are subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of Category III AIM Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II AIM fund, Class A shares of AIM Short Term Bond Fund or Class A shares of an INVESCO fund (i) subject to an initial sales charge or (ii) purchased at net asset value and subject to a CDSC for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other AIM or INVESCO fund (i) subject to an initial sales charge or (ii) purchased at net asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM Money Market Fund; or MCF--04/04
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C shares of any AIM or INVESCO fund or for Class A shares of any AIM or INVESCO fund that are subject to a CDSC, however, if you originally purchased Class A shares of a Category I or II AIM fund or AIM Short Term Bond 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 AIM fund or AIM Short Term Bond Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM or INVESCO fund into which you are exchanging;
- Shares of the AIM or INVESCO 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; and
- If you have physical share certificates, you must return them to the transfer agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM or INVESCO 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. The exchange privilege is not an option or right to purchase shares. Any of the participating AIM or INVESCO funds or the distributor may modify or terminate this privilege at any time. The AIM or INVESCO fund or the distributor will provide you with notice of such modification or termination whenever it is required to do so by applicable law, but may impose changes at any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of each registered owner exactly as the shares are registered, the account registration and account number, the dollar amount or number of shares to be exchanged and the names of the AIM or INVESCO funds from which and into which the exchange is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by telephone, including that the transfer agent must receive exchange requests during the hours of the customary trading session of the NYSE; however, you still will be allowed to exchange by telephone even if you have changed your address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM fund's shares is the fund's net asset value per share. The AIM funds value portfolio securities for which market quotations are readily available at market value. The AIM funds' short-term investments are valued at amortized cost when the security has 60 days or less to maturity. AIM Money Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and AIM Tax-Free Intermediate Fund value variable rate securities that have an unconditional demand or put feature exercisable within seven days or less at par, which reflects the market value of such securities.
The AIM funds value all other securities and assets at their fair value. Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the AIM funds' shares are determined as of the close of the respective markets. Events affecting the values of such securities may occur between the times at which the particular foreign market closes and the close of the customary
MCF--04/04
trading session of the NYSE which would not ordinarily be reflected in the computation of the AIM fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of the effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures, and exchange-traded funds. 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 and the type of income that the fund earns. Different tax rates apply to ordinary income, qualified dividend income, and long-term capital gain distributions, regardless of how long you have held your shares. Every year, you will be sent information showing the amount of dividends and distributions you received from each AIM fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM fund shares will be subject to federal income tax. Exchanges of shares for shares of another AIM or INVESCO fund are treated as a sale, and any gain realized on the transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING "OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM fund shares may differ materially from the federal income tax consequences described above. In addition, the preceding discussion concerning the taxability of fund dividends and distributions and of redemptions and exchanges of AIM fund shares is inapplicable to investors that are generally exempt from federal income tax, such as retirement plans that are qualified under Section 401 of the Internal Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should consult your tax advisor before investing.
MCF--04/04
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: AIM Investment Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request
by e-mail or download
prospectuses, annual or
semiannual reports via
our website:
http://www.aiminvestments.com
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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.
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AIM Total Return Bond Fund
SEC 1940 Act file number: 811-5686
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AIMinvestments.com TRB-PRO-1
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
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STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT SECURITIES FUNDS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE CLASS A, CLASS A3, CLASS B, CLASS C, CLASS R, AIM CASH RESERVE AND INVESTOR CLASS SHARES, AS APPLICABLE, OF EACH PORTFOLIO (EACH A "FUND", COLLECTIVELY THE "FUNDS") OF AIM INVESTMENT SECURITIES FUNDS LISTED BELOW. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, AND IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUSES FOR THE CLASS A, CLASS A3, CLASS B, CLASS C, CLASS R, AIM CASH RESERVE AND INVESTOR CLASS SHARES, AS APPLICABLE, OF THE FUNDS LISTED BELOW. YOU MAY OBTAIN A COPY OF ANY PROSPECTUS FOR ANY FUND LISTED BELOW FROM AN AUTHORIZED DEALER OR BY WRITING TO:
AIM INVESTMENT SERVICES, INC.
P.O. BOX 4739
HOUSTON, TEXAS 77210-4739
OR BY CALLING
(800) 347-4246
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED APRIL 30, 2004, RELATES TO THE CLASS A, CLASS A3, CLASS B, CLASS C, AIM CASH RESERVE, CLASS R AND INVESTOR CLASS SHARES, AS APPLICABLE, OF THE FOLLOWING PROSPECTUSES:
FUND DATED
---- -----
AIM HIGH YIELD FUND October 29, 2003
AIM INCOME FUND October 29, 2003
AIM INTERMEDIATE GOVERNMENT FUND October 29, 2003
AIM LIMITED MATURITY TREASURY FUND October 29, 2003
AIM MONEY MARKET FUND October 29, 2003
AIM MUNICIPAL BOND FUND October 29, 2003
AIM REAL ESTATE FUND April 30, 2004
AIM SHORT TERM BOND FUND April 30, 2004
AIM TOTAL RETURN BOND FUND April 30, 2004
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AIM INVESTMENT SECURITIES FUNDS
STATEMENT OF ADDITIONAL INFORMATION
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................................................... 4
CLASSIFICATION............................................................................................. 4
INVESTMENT STRATEGIES AND RISKS............................................................................ 4
Equity Investments..................................................................... 8
Foreign Investments.................................................................... 8
Debt Investments....................................................................... 10
Other Investments...................................................................... 17
Investment Techniques.................................................................. 19
Derivatives............................................................................ 23
FUND POLICIES.............................................................................................. 30
TEMPORARY DEFENSIVE POSITIONS.............................................................................. 34
MANAGEMENT OF THE TRUST.................................................................................... 34
BOARD.................................................................................................... 34
MANAGEMENT INFORMATION..................................................................................... 34
Trustee Ownership of Fund Shares....................................................... 36
Factors Considered in Approving the Investment Advisory Agreement...................... 36
COMPENSATION............................................................................................... 36
Retirement Plan For Trustees........................................................... 37
Deferred Compensation Agreements....................................................... 37
Purchase of Class A Shares of the Funds at Net Asset Value............................. 37
CODES OF ETHICS............................................................................................ 38
PROXY VOTING POLICIES...................................................................................... 38
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........................................................ 38
INVESTMENT ADVISORY AND OTHER SERVICES..................................................................... 38
INVESTMENT ADVISOR......................................................................................... 38
INVESTMENT SUB-ADVISOR..................................................................................... 40
SERVICE AGREEMENTS......................................................................................... 41
OTHER SERVICE PROVIDERS.................................................................................... 41
BROKERAGE ALLOCATION AND OTHER PRACTICES................................................................... 42
BROKERAGE TRANSACTIONS..................................................................................... 42
COMMISSIONS................................................................................................ 43
BROKERAGE SELECTION........................................................................................ 43
DIRECTED BROKERAGE (RESEARCH SERVICES)..................................................................... 44
REGULAR BROKERS OR DEALERS................................................................................. 44
ALLOCATION OF PORTFOLIO TRANSACTIONS....................................................................... 45
ALLOCATION OF INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS................................................. 45
PURCHASE, REDEMPTION AND PRICING OF SHARES................................................................. 46
PURCHASE AND REDEMPTION OF SHARES.......................................................................... 46
OFFERING PRICE............................................................................................. 62
REDEMPTION IN KIND......................................................................................... 65
BACKUP WITHHOLDING......................................................................................... 65
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DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS................................................................... 66 DIVIDENDS AND DISTRIBUTIONS................................................................................ 66 TAX MATTERS................................................................................................ 67 DISTRIBUTION OF SECURITIES................................................................................. 75 DISTRIBUTION PLANS......................................................................................... 75 DISTRIBUTOR................................................................................................ 78 CALCULATION OF PERFORMANCE DATA............................................................................ 79 PENDING LITIGATION......................................................................................... 86 APPENDICIES: RATINGS OF DEBT SECURITIES................................................................................. A-1 TRUSTEES AND OFFICERS...................................................................................... B-1 TRUSTEE COMPENSATION TABLE................................................................................. C-1 PROXY VOTING POLICIES...................................................................................... D-1 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........................................................ E-1 MANAGEMENT FEES............................................................................................ F-1 ADMINISTRATIVE SERVICES FEES............................................................................... G-1 BROKERAGE COMMISSIONS...................................................................................... H-1 DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASE OF SECURITIES OF REGULAR BROKERS OR DEALERS............ I-1 AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS.................................... J-1 ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS.............................................. K-1 TOTAL SALES CHARGES........................................................................................ L-1 PERFORMANCE DATA........................................................................................... M-1 PENDING LITIGATION......................................................................................... N-1 FINANCIAL STATEMENTS....................................................................................... FS |
GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Investment Securities Fund (the "Trust") is a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company. The Trust currently consists of nine separate portfolios: AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Limited Maturity Treasury Fund, AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund (each a "Fund" and collectively, the "Funds"). Under the Amended and Restated Agreement and Declaration of Trust, dated May 15, 2002, as amended (the "Trust Agreement"), the Board of Trustees of the Trust (the "Board") is authorized to create new series of shares without the necessity of a vote of shareholders of the Trust.
The Trust was originally organized as a Maryland corporation on November 4, 1988. Pursuant to an Agreement and Plan of Reorganization, AIM Limited Maturity Treasury Fund was reorganized on October 15, 1993 as a series portfolio of the Trust. Pursuant to another Agreement and Plan of Reorganization, AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund were reorganized on June 1, 2000 as series portfolios of the Trust. In connection with their reorganization as series portfolios of the Trust, the fiscal year end of each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund changed from December 31 to July 31. Pursuant to another Agreement and Plan of Reorganization, AIM Real Estate Fund was reorganized on October 29, 2003 as a series portfolio of the Trust.
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). AIM Real Estate Fund succeeded to the assets and assumed the liabilities of a series portfolio with a corresponding name (the "Real Estate Predecessor Fund") of AIM Advisor Funds, a Delaware statutory trust, on October 29, 2003. All historical information and other information contained in this Statement of Additional Information for periods prior to October 29, 2003, relating to AIM Real Estate Fund (or a class thereof) is that of the Real Estate Predecessor Fund (or a corresponding class 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 or redemption fee) 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, primarily on the basis of relative net assets, or other relevant factors.
Each share of each Fund represents an equal proportionate interest in that Fund with each other share and is entitled to such dividends and distributions out of the income belonging to such Fund as are declared by the Board. Each Fund offers separate classes of shares as follows:
AIM CASH
RESERVE INSTITUTIONAL INVESTOR
FUND CLASS A CLASS A3 SHARES CLASS B CLASS C CLASS R CLASS CLASS
------------------------ ------- -------- -------- ------- ------- ------- ------------- --------
AIM High Yield Fund X X X X X
AIM Income Fund X X X X X
AIM Intermediate
Government Fund X X X X X
AIM Limited Maturity
Treasury Fund X X X
AIM Money Market Fund X X X X X X
AIM Municipal Bond Fund X X X X
AIM Real Estate Fund X X X X X X
AIM Short Term Bond Fund X X X X
AIM Total Return Bond
Fund X X X X X
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This Statement of Additional Information relates solely to the Class A, Class A3, AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class shares, if applicable, of the Funds. The Institutional Class shares of the funds, which are discussed in a separate Statement of Additional Information, are intended for use by certain eligible institutional investors and are available to the following:
- banks and trust companies acting in a fiduciary or similar capacity;
- bank and trust company common and collective trust funds;
- banks and trust companies investing for their own account;
- entities acting for the account of a public entity (e.g. Taft-Hartley funds, states, cities or government agencies);
- retirement plans; and
- platform sponsors with which A I M Distributors, Inc. ("AIM Distributors") has entered into an agreement.
Each class of shares represents an interest in the same portfolio of investments. Differing sales charges and expenses will result in differing net asset values and dividends and distributions. Upon any
liquidation of the Trust, shareholders of each class are entitled to share pro rata in the net assets belonging to the applicable Fund allocable to such class available for distribution after satisfaction of outstanding liabilities of the Fund allocable to such class.
Each share of a Fund generally has the same voting, dividend, liquidation and other rights; however, each class of shares of a Fund is subject to different sales loads, conversion features, exchange privileges and class-specific expenses. Only shareholders of a specific class may vote on matters relating to that class' distribution plan.
Because Class B shares automatically convert to Class A shares, or AIM Cash Reserve shares with respect to AIM Money Market Fund, at month-end eight years after the date of purchase, the Fund's distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act requires that Class B shareholders must also approve any material increase in distribution fees submitted to Class A shareholders, or AIM Cash Reserve shareholders with respect to AIM Money Market Fund, of that Fund. A pro rata portion of shares from reinvested dividends and distributions convert along with the Class B shares.
Except as specifically noted above, shareholders of each Fund are entitled to one vote per share (with proportionate voting for fractional shares), irrespective of the relative net asset value of the shares of a Fund. However, on matters affecting an individual Fund or class of shares, a separate vote of shareholders of that Fund or class is required. Shareholders of a Fund or class are not entitled to vote on any matter which does not affect that Fund or class but that requires a separate vote of another Fund or class. An example of a matter that would be voted on separately by shareholders of each Fund is the approval of the advisory agreement with A I M Advisors, Inc. ("AIM"), and an example of a matter that would be voted on separately by shareholders of each class of shares is approval of the distribution plans. When issued, shares of each Fund are fully paid and nonassessable, have no preemptive or subscription rights, and are freely transferable. Other than the automatic conversion of Class B shares to Class A shares, there are no conversion rights. Shares do not have cumulative voting rights, which means that in situations in which shareholders elect trustees, holders of more than 50% of the shares voting for the election of trustees can elect all of the trustees of the Trust, and the holders of less than 50% of the shares voting for the election of trustees will not be able to elect any trustees.
Under Delaware law, shareholders of a Delaware statutory trust shall be entitled to the same limitations of liability extended to shareholders of private for-profit corporations. There is a remote possibility, however, that shareholders could, under certain circumstances, be held liable for the obligations of the Trust to the extent the courts of another state which does not recognize such limited liability were to apply the laws of such state to a controversy involving such obligations. The Trust Agreement disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the trustees to all parties, and each party thereto must expressly waive all rights of action directly against shareholders of the Trust. The Trust Agreement provides for indemnification out of the property of a Fund for all losses and expenses of any shareholder of such Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss due to shareholder liability is limited to circumstances in which a Fund is unable to meet its obligations and the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act, omission or obligation of the Trust or any trustee or officer; however, a trustee or officer is not protected against any liability to the Trust or to the shareholders to which a trustee or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office with the Trust ("Disabling Conduct"). The Trust Agreement provides for indemnification by the Trust of the trustees, the officers and employees or agents of the Trust, provided that such persons have not engaged in Disabling Conduct. The Trust Agreement also authorizes the purchase of liability insurance on behalf of trustees and officers.
SHARE CERTIFICATES. Shareholders of the Funds do not have the right to demand or require the Trust to issue share certificates.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. Each of the Funds is "diversified" for purposes of the 1940 Act.
INVESTMENT STRATEGIES AND RISKS
The table on the following pages identifies various securities and investment techniques used by AIM in managing The AIM Family of Funds--Registered Trademark--. The table has been marked to indicate those securities and investment techniques that AIM may use to manage a Fund. A Fund may not use all of these techniques at any one time. A Fund's transactions in a particular security or use of a particular technique is subject to limitations imposed by a Fund's investment objective, policies and restrictions described in that Fund's Prospectus and/or this Statement of Additional Information, as well as federal securities laws. The Funds' investment objectives, policies, strategies and practices are non-fundamental unless otherwise indicated. A more detailed description of the securities and investment techniques, as well as the risks associated with those securities and investment techniques that the Funds utilize, follows the table. The descriptions of the securities and investment techniques in this section supplement the discussion of principal investment strategies contained in each Fund's Prospectus; where a particular type of security or investment technique is not discussed in a Fund's Prospectus, that security or investment technique is not a principal investment strategy.
AIM INVESTMENT SECURITIES FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM AIM
---------- AIM AIM LIMITED AIM AIM AIM TOTAL
SECURITY/ HIGH AIM INTERMEDIATE MATURITY MONEY AIM REAL SHORT RETURN
INVESTMENT YIELD INCOME GOVERNMENT TREASURY MARKET MUNICIPAL ESTATE TERM BOND
TECHNIQUE FUND FUND FUND FUND FUND BOND FUND FUND BOND FUND FUND
------------------------ ----- ------ ------------ -------- ------- --------- ------ --------- ------
EQUITY INVESTMENTS
Common Stock X
Preferred Stock X X X X X
Convertible Securities X X X X X
Alternative Entity
Securities X
FOREIGN INVESTMENTS
Foreign Securities X X X X X X
Foreign Government
Obligations X X X X X X
Foreign Exchange
Transactions X X X X
DEBT INVESTMENTS FOR FIXED INCOME FUNDS
U.S. Government
Obligations X X X X X X X X
Rule 2a-7 Requirements X X X X X X X X
Mortgage-Backed and
Asset-Backed Securities X X X X X X
Collateralized Mortgage
Obligations X
Bank Instruments X X X
Commercial Instruments X
Participation Interests X
Municipal Securities X X X X X X
Municipal Lease
Obligations X
Investment Grade
Corporate Debt
Obligations X X X X X X X
Junk Bonds X X X
DEBT INVESTMENTS FOR EQUITY FUNDS
U.S. Government
Obligations X
Mortgage-Backed
and Asset-Backed
Securities X
Collateralized Mortgage
Obligations X
Investment Grade
Corporate Debt
Obligations X
Liquid Assets X
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AIM INVESTMENT SECURITIES FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM AIM
---------- AIM AIM LIMITED AIM AIM AIM TOTAL
SECURITY/ HIGH AIM INTERMEDIATE MATURITY MONEY AIM REAL SHORT RETURN
INVESTMENT YIELD INCOME GOVERNMENT TREASURY MARKET MUNICIPAL ESTATE TERM BOND
TECHNIQUE FUND FUND FUND FUND FUND BOND FUND FUND BOND FUND FUND
------------------------ ----- ------ ------------ -------- ------- --------- ------ --------- ------
Junk Bonds X
OTHER INVESTMENTS
REITs X X X X X X X X X
Other Investment
Companies X X X X X X X X X
Defaulted Securities X X X
Municipal Forward
Contracts
Variable or Floating
Rate Instruments X X X X
Indexed Securities
Zero-Coupon and
Pay-in-Kind Securities X X X X X
Synthetic Municipal
Instruments
INVESTMENT TECHNIQUES
Delayed Delivery
Transactions X X X X X X X X X
When-Issued Securities X X X X X X X X X
Short Sales X X X X X X X
Margin Transactions
Swap Agreements X X X X
Interfund Loans X X X X X X X X X
Borrowing X X X X X X X X X
Lending Portfolio
Securities X X X X X X X X X
Repurchase Agreements X X X X X X X X X
Reverse Repurchase
Agreements X X X X X X X X X
Dollar Rolls X X X X
Illiquid Securities X X X X X X X X X
Rule 144A Securities X X X X X X X X
Unseasoned Issuers X X X
Sale of Money Market
Securities X
Standby Commitments
DERIVATIVES
Equity-Linked
Derivatives X
Put Options X X X X X X
Call Options X X X X X X X
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AIM INVESTMENT SECURITIES FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND AIM AIM
---------- AIM AIM LIMITED AIM AIM AIM TOTAL
SECURITY/ HIGH AIM INTERMEDIATE MATURITY MONEY AIM REAL SHORT RETURN
INVESTMENT YIELD INCOME GOVERNMENT TREASURY MARKET MUNICIPAL ESTATE TERM BOND
TECHNIQUE FUND FUND FUND FUND FUND BOND FUND FUND BOND FUND FUND
------------------------ ----- ------ ------------ -------- ------- --------- ------ --------- ------
Straddles X X X X X X
Warrants X X X X X
Futures Contracts and
Options on Futures
Contracts X X X X X X X
Forward Currency
Contracts X X X X
Cover X 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.
AIM High Yield Fund will not acquire equity securities, other than preferred stocks, except when (a) attached to or included in a unit with income-generating securities that otherwise would be attractive to the Fund; (b) acquired through the exercise of equity features accompanying convertible securities held by the Fund, such as conversion or exchange privileges or warrants for the acquisition of stock or equity interests of the same or a different issuer; or (c) in the case of an exchange offer whereby the equity security would be acquired with the intention of exchanging it for a debt security issued on a "when-issued" basis.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures, notes, preferred stocks and other securities that may be converted into a prescribed amount of common stock or other equity securities at a specified price and time. The holder of convertible securities is entitled to receive interest paid or accrued on debt, or dividends paid or accrued on preferred stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer and the seniority of the security in the issuer's capital structure. Convertible securities may be illiquid, and may be required to convert at a time and at a price that is unfavorable to a 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.
ALTERNATIVE ENTITY SECURITIES. Companies that are formed as limited partnerships, limited liability companies, business trusts or other non-corporate entities may issue equity securities that are similar to common or preferred stock of corporations.
Foreign Investments
FOREIGN SECURITIES. Foreign securities are equity or debt securities issued by issuers outside the United States, and include securities in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), or other securities representing underlying securities of foreign issuers.
Depositary receipts are typically issued by a bank or trust company and evidence ownership of underlying securities issued by foreign corporations.
AIM High Yield Fund, AIM Real Estate Fund and AIM Total Return Bond Fund may invest up to 25% of their total assets, AIM Income Fund may invest up to 40% of its total assets, AIM Money Market Fund may invest up to 50% of its total assets and AIM Short Term Bond Fund may invest up to 15% of its total assets in foreign securities; however, AIM Money Market Fund and AIM Short Term Bond Fund may only invest in foreign securities denominated in U.S. dollars. In addition, AIM Total Return Bond Fund may only invest up to 5% of its total assets in foreign securities that are non-U.S. dollar denominated.
Investments by a Fund in foreign securities, whether denominated in U.S. dollars or foreign currencies, may entail all of the risks set forth below. Investments by a Fund in ADRs, EDRs or similar securities also may entail some or all of the risks described below.
Currency Risk. The value of the Funds' foreign investments will be affected by changes in currency exchange rates. The U.S. dollar value of a foreign security decreases when the value of the U.S. dollar rises against the foreign currency in which the security is denominated, and increases when the value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in which the Funds may invest may not be as developed as the United States' economy and may be subject to significantly different forces. Political or social instability, expropriation or confiscatory taxation, and limitations on the removal of funds or other assets could also adversely affect the value of the Funds' investments.
Regulatory Risk. Foreign companies are not registered with the Securities and Exchange Commission ("SEC") and are generally not subject to the regulatory controls imposed on United States issuers and, as a consequence, there is generally less publicly available information about foreign securities than is available about domestic securities. Foreign companies are not subject to uniform accounting, auditing and financial reporting standards, corporate governance practices and requirements comparable to those applicable to domestic companies. Income from foreign securities owned by the Funds may be reduced by a withholding tax at the source, which tax would reduce dividend income payable to the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which the Funds invest will have substantially less trading volume than the major United States markets. As a result, the securities of some foreign companies may be less liquid and experience more price volatility than comparable domestic securities. Increased custodian costs as well as administrative costs (such as the need to use foreign custodians) may be associated with the maintenance of assets in foreign jurisdictions. There is generally less government regulation and supervision of foreign stock exchanges, brokers and issuers which may make it difficult to enforce contractual obligations. In addition, transaction costs in foreign securities markets are likely to be higher, since brokerage commission rates in foreign countries are likely to be higher than in the United States.
Risk of Developing Countries. AIM High Yield Fund, AIM Income Fund, AIM Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund may each invest up to 5% of their total assets in securities of companies located in developing countries. Developing countries are those countries which are not included in the MSCI World Index. The Funds consider various factors when determining whether a company is in a developing country, including whether (1) it is organized under the laws of a developing country; (2) it has a principal office in a developing country; (3) it derives 50% or more of its total revenues from business in a developing country; or (4) its securities are traded principally on a stock exchange, or in an over-the-counter market, in a developing country. Investments in developing countries present risks greater than, and in addition to, those presented by investments in foreign issuers in general. A number of developing countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and the proceeds of sales by foreign investors may require governmental registration and/or approval in some developing countries. A number of the currencies of developing countries have experienced significant declines against the U.S. dollar in
recent years, and devaluation may occur subsequent to investments in these currencies by the Funds. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain emerging market countries. Many of the developing securities markets are relatively small or less diverse, have low trading volumes, suffer periods of relative liquidity, and are characterized by significant price volatility. There is a risk in developing countries that a future economic or political crisis could lead to price controls, forced mergers of companies, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies, any of which may have a detrimental effect on the Fund's investments.
FOREIGN GOVERNMENT OBLIGATIONS. Debt securities issued by foreign governments are often, but not always, supported by the full faith and credit of the foreign governments, or their subdivisions, agencies or instrumentalities, that issue them. These securities involve the risks discussed above with respect to foreign securities. Additionally the issuer of the debt or the governmental authorities that control repayment of the debt may be unwilling or unable to pay interest or repay principal when due. Political or economic changes or the balance of trade may affect a country's willingness or ability to service its debt obligations. Periods of economic uncertainty may result in the volatility of market prices of sovereign debt obligations, especially debt obligations issued by the governments of developing countries. Foreign government obligations of developing countries and some structures of emerging market debt securities, both of which are generally below investment grade, are sometimes referred to as "Brady Bonds."
FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include direct purchases of futures contracts with respect to foreign currency, and contractual agreements to purchase or sell a specified currency at a specified future date (up to one year) at a price set at the time of the contract. Such contractual commitments may be forward contracts entered into directly with another party or exchange traded futures contracts.
Each Fund has authority to deal in foreign exchange between currencies of the different countries in which it will invest as a hedge against possible variations in the foreign exchange rates between those currencies. A Fund may commit the same percentage of its assets to foreign exchange hedges as it can invest in foreign securities.
The Funds may utilize either specific transactions ("transaction hedging") or portfolio positions ("position hedging") to hedge foreign currency exposure through foreign exchange transactions. Transaction hedging is the purchase or sale of foreign currency with respect to specific receivables or payables of a Fund accruing in connection with the purchase or sale of its portfolio securities, the sale and redemption of shares of the Fund, or the payment of dividends and distributions by the Fund. Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions (or underlying portfolio security positions, such as in an ADR) denominated or quoted in a foreign currency. Additionally, foreign exchange transactions may involve some of the risks of investments in foreign securities.
Debt Investments
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities include bills, notes and bonds issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S. Treasury obligations representing future interest or principal payments on U.S. Treasury notes or bonds. Stripped securities are sold at a discount to their "face value," and may exhibit greater price volatility than interest-bearing securities since investors receive no payment until maturity. Obligations of certain agencies and instrumentalities of the U.S. Government, such as the Government National Mortgage Association ("GNMA"), are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal National Mortgage Association ("FNMA"), are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the Student Loan Marketing Association ("SLMA"), are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, though issued by an instrumentality chartered by the U.S. Government, like the Federal Farm Credit Bureau ("FFCB"), are supported only by
the credit of the instrumentality. The U.S. Government may choose not to provide financial support to U.S. Government-sponsored agencies or instrumentalities if it is not legally obligated to do so.
RULE 2a-7 REQUIREMENTS. Money market instruments in which the Fund will invest will be "Eligible Securities" as defined in Rule 2a-7 under the 1940 Act, as such Rule may be amended from time to time. An Eligible Security is generally a rated security with a remaining maturity of 397 calendar days or less that has been rated by the Requisite NRSROs (as defined below) in one of the two highest short-term rating categories, or a security issued by an issuer that has received a rating by the Requisite NRSROs in one of the two highest short-term rating categories with respect to a class of debt obligations (or any debt obligation within that class). Eligible Securities may also include unrated securities determined by AIM (under the supervision of and pursuant to guidelines established by the Board) to be of comparable quality to such rated securities. If an unrated security is subject to a guarantee, to be an Eligible Security, the guarantee generally must have received a rating from a NRSRO in one of the two highest short-term rating categories or be issued by a guarantor that has received a rating from a NRSRO in one of the two highest short-term rating categories with respect to a class of debt obligations (or any debt obligation within that class). Since the Fund may invest in securities backed by banks and other financial institutions, changes in the credit quality of these institutions could cause losses to the Fund and affect their share price. The term "Requisite NRSRO" means (a) any two nationally recognized statistical rating organizations (NRSROs) that have issued a rating with respect to a security or class of debt obligations of an issuer, or (b) if only one NRSRO has issued a rating with respect to such security or issuer at the time a Fund acquires the security, that NRSRO.
AIM Money Market Fund will limit investments in money market obligations to those which are denominated in U.S. dollars and which at the date of purchase are "First Tier" securities as defined in Rule 2a-7 under the 1940 Act, as such Rule may be amended from time to time. Briefly, "First Tier" securities are securities that are rated in the highest rating category for short-term debt obligations by two NRSROs, or, if only rated by one NRSRO, are rated in the highest rating category by the NRSRO, or if unrated, are determined by the Fund's investment advisor (under the supervision of and pursuant to guidelines established by the Board) to be of comparable quality to a rated security that meets the foregoing quality standards, as well as securities issued by a registered investment company that is a money market fund and U.S. Government securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed securities are mortgage-related securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, or issued by nongovernment entities. Mortgage-related securities represent pools of mortgage loans assembled for sale to investors by various government agencies such as GNMA and government-related organizations such as FNMA and the Federal Home Loan Mortgage Corporation ("FHLMC"), as well as by nongovernment issuers such as commercial banks, savings and loan institutions, mortgage bankers and private mortgage insurance companies. Although certain mortgage-related securities are guaranteed by a third party or otherwise similarly secured, the market value of the security, which may fluctuate, is not so secured.
There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities they issue. Mortgage-related securities issued by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as to the timely payment of principal and interest. That guarantee is backed by the full faith and credit of the U.S. Treasury. GNMA is a corporation wholly owned by the U.S. Government within the Department of Housing and Urban Development. Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") and are guaranteed as to payment of principal and interest by FNMA itself and backed by a line of credit with the U.S. Treasury. FNMA is a government-sponsored entity wholly owned by public stockholders. Mortgage-related securities issued by FHLMC include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs") guaranteed as to payment of principal and interest by FHLMC itself and backed by a line of credit with the U.S. Treasury. FHLMC is a government-sponsored entity wholly owned by public stockholders.
Other asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. Regular payments received in respect of such securities include both interest and principal. Asset-backed securities typically have no U.S. Government backing. Additionally, the ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited.
If a Fund purchases a mortgage-backed or other asset-backed security at a premium, that portion may be lost if there is a decline in the market value of the security whether resulting from changes in interest rates or prepayments in the underlying collateral. As with other interest-bearing securities, the prices of such securities are inversely affected by changes in interest rates. However, though the value of a mortgage-backed or other asset-backed security may decline when interest rates rise, the converse is not necessarily true, since in periods of declining interest rates the mortgages and loans underlying the securities are prone to prepayment, thereby shortening the average life of the security and shortening the period of time over which income at the higher rate is received. When interest rates are rising, though, the rate of prepayment tends to decrease, thereby lengthening the period of time over which income at the lower rate is received. For these and other reasons, a mortgage-backed or other asset-backed security's average maturity may be shortened or lengthened as a result of interest rate fluctuations and, therefore, it is not possible to predict accurately the security's return.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). AIM Total Return Bond Fund and AIM Real Estate Fund may invest in CMOs. These Funds can also invest in mortgage-backed bonds and asset-backed securities. A CMO is a hybrid between a mortgage-backed bond and a mortgage pass-through security. Similar to a bond, interest and prepaid principal is paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payment of principal received from the pool of underlying mortgages, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. An investor is partially guarded against a sooner than desired return of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase mortgages or mortgage pass-through certificates ("Collateral"). The Collateral is pledged to a third party trustee as security for the Bonds. Principal and interest payments from the Collateral are used to pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds all bear current interest. Interest on Series Z Bond is accrued and added to principal and a like amount is paid as principal on the Series A, B, or C Bond currently being paid off. When the Series A, B, and C Bonds are paid in full, interest and principal on the Series Z Bond begins to be paid currently. With some CMOs, the issuer serves as a conduit to allow loan originators (primarily builders or savings and loan associations) to borrow against their loan portfolios.
CMOs that are issued or guaranteed by the U.S. government or by any of its agencies or instrumentalities will be considered U.S. government securities by the Funds, while other CMOs, even if collateralized by U.S. government securities, will have the same status as other privately issued securities for purposes of applying the Fund's diversification tests.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple classes having different maturity dates which are secured by the pledge of a pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC Participation Certificates ("PCs"), payments of principal and interest on the CMOs are made semiannually, as opposed to monthly. The amount of principal payable
on each semiannual payment date is determined in accordance with FHLMC's mandatory sinking fund schedule, which, in turn, is equal to approximately 100% of FHA prepayment experience applied to the mortgage collateral pool. All sinking fund payments in the CMOs are allocated to the retirement of the individual classes of bonds in the order of their stated maturities. Payment of principal on the mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum sinking fund obligation for any payment date are paid to the holders of the CMOs as additional sinking fund payments. Because of the "pass-through" nature of all principal payments received on the collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate at which principal of the CMOs is actually repaid is likely to be such that each class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans during any semiannual payment period is not sufficient to meet FHLMC's minimum sinking fund obligation on the next sinking fund payment date, FHLMC agrees to make up the deficiency from its general funds.
Risks of Mortgage-Related Securities. Investment in mortgage-backed securities poses several risks, including prepayment, market, and credit risk. Prepayment risk reflects the risk that borrowers may prepay their mortgages faster than expected, thereby affecting the investment's average life and perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely controlled by the borrower. Borrowers are most likely to exercise prepayment options at the time when it is least advantageous to investors, generally prepaying mortgages as interest rates fall, and slowing payments as interest rates rise. Besides the effect of prevailing interest rates, the rate of prepayment and refinancing of mortgages may also be affected by home value appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate over time. The price of mortgage-backed securities may be particularly sensitive to prevailing interest rates, the length of time the security is expected to be outstanding, and the liquidity of the issue. In a period of unstable interest rates, there may be decreased demand for certain types of mortgage-backed securities, and the Fund invested in such securities wishing to sell them may find it difficult to find a buyer, which may in turn decrease the price at which they may be sold.
Credit risk reflects the risk that the Fund may not receive all or part of its principal because the issuer or credit enhancer has defaulted on its obligations. Obligations issued by U.S. government-related entities are guaranteed as to the payment of principal and interest, but are not backed by the full faith and credit of the U.S. government. The performance of private label mortgage-backed securities, issued by private institutions, is based on the financial health of those institutions. With respect to GNMA certificates, although GNMA guarantees timely payment even if homeowners delay or default, tracking the "pass-through" payments may, at times, be difficult.
BANK INSTRUMENTS. AIM Money Market Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund may invest in certificates of deposits, time deposits, and bankers' acceptances from U.S. or foreign banks. A bankers' acceptance is a bill of exchange or time draft drawn on and accepted by a commercial bank. A certificate of deposit is a negotiable interest-bearing instrument with a specific maturity. Certificates of deposit are issued by banks and savings and loan institutions in exchange for the deposit of funds, and normally can be traded in the secondary market prior to maturity. A time deposit is a non-negotiable receipt issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market.
AIM Money Market Fund may invest in certificates of deposit ("Eurodollar CDs") and time deposits ("Eurodollar time deposits") of foreign branches of domestic banks. Accordingly, an investment in the Fund may involve risks that are different in some respects from those incurred by an investment company which invests only in debt obligations of U.S. domestic issuers. Such risks include future political and economic developments, the possible seizure or nationalization of foreign deposits and the possible imposition of foreign country withholding taxes on interest income.
COMMERCIAL INSTRUMENTS. AIM Money Market Fund intends to invest in commercial instruments, including commercial paper, master notes and other short-term corporate instruments, that are denominated in U.S. dollars. Commercial paper consists of short-term promissory notes issued by corporations. Commercial paper may be traded in the secondary market after its issuance. Master notes are demand notes that permit the investment of fluctuating amounts of money at varying rates of interest pursuant to arrangements with issuers who meet the quality criteria of the Fund. The interest rate on a master note may fluctuate based upon changes in specified interest rates or be reset periodically according to a prescribed formula or may be a set rate. Although there is no secondary market in master demand notes, if such notes have a demand feature, the payee may demand payment of the principal amount of the note upon relatively short notice.
PARTICIPATION INTERESTS. AIM Money Market Fund may purchase participations in corporate loans. Participation interests generally will be acquired from a commercial bank or other financial institution (a "Lender") or from other holders of a participation interest (a "Participant"). The purchase of a participation interest either from a Lender or a Participant will not result in any direct contractual relationship with the borrowing company ("the Borrower"). Instead, the Fund will be required to rely on the Lender or the Participant that sold the participation interest both for the enforcement of the Fund's rights against the Borrower and for the receipt and processing of payments due to the Fund under the loans. The Fund is thus subject to the credit risk of both the Borrower and a Participant. Participation interests are generally subject to restrictions on resale. The Fund considers participation interests to be illiquid and therefore subject to the Fund's percentage limitation for investments in illiquid securities.
MUNICIPAL SECURITIES. "Municipal Securities" include debt obligations of states, territories or possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include the refunding of outstanding obligations, obtaining funds for general operating expenses and lending such funds to other public institutions and facilities. In addition, certain types of industrial development bonds are issued by or on behalf of public authorities to obtain funds to provide for the construction, equipment, repair or improvement of privately operated housing facilities, airport, mass transit, industrial, port or parking facilities, air or water pollution control facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. The principal and interest payments for industrial development bonds or pollution control bonds are often the sole responsibility of the industrial user and therefore may not be backed by the taxing power of the issuing municipality. The interest paid on such bonds may be exempt from federal income tax, although current federal tax laws place substantial limitations on the purposes and size of such issues. Such obligations are considered to be Municipal Securities provided that the interest paid thereon, in the opinion of bond counsel, qualifies as exempt from federal income tax. However, interest on Municipal Securities may give rise to a federal alternative minimum tax liability and may have other collateral federal income tax consequences. See "Dividends, Distributions and Tax Matters - Tax Matters."
The two major classifications of Municipal Securities are bonds and notes. Bonds may be further classified as "general obligation" or "revenue" issues. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenues derived from a particular facility or class of facilities, and in some cases, from the proceeds of a special excise or other specific revenue source, but not from the general taxing power. Tax-exempt industrial development bonds are in most cases revenue bonds and do not generally carry the pledge of the credit of the issuing municipality. Notes are short-term instruments which usually mature in less than two years. Most notes are general obligations of the issuing municipalities or agencies and are sold in anticipation of a bond sale, collection of taxes or receipt of other revenues. There are, of course, variations in the risks associated with Municipal Securities, both within a particular classification and between classifications. The Funds' assets may consist of any
combination of general obligation bonds, revenue bonds, industrial revenue bonds and notes. The percentage of such Municipal Securities held by a Fund will vary from time to time.
Municipal Securities also include the following securities:
- 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.
- 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.
- 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.
- Tax-Exempt Commercial Paper (Municipal Paper) is similar to taxable commercial paper, except that tax-exempt commercial paper is issued by states, municipalities and their agencies.
The Funds also may purchase participation interests or custodial receipts from financial institutions. These participation interests give the purchaser an undivided interest in one or more underlying Municipal Securities.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease to be rated by Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's Ratings Services ("S&P"), or another nationally recognized statistical rating organization ("NRSRO"), or the rating of such a security may be reduced below the minimum rating required for purchase by a Fund. Neither event would require a Fund to dispose of the security, but AIM will consider such events to be relevant in determining whether the Fund should continue to hold the security. To the extent that the ratings applied by Moody's, S&P or another NRSRO to Municipal Securities may change as a result of changes in these rating systems, a Fund will attempt to use comparable ratings as standards for its investments in Municipal Securities in accordance with the investment policies described herein.
Quality Standards. The following quality standards apply at the time a security is purchased. Information concerning the ratings criteria of Moody's, S&P, and Fitch Investors Service, Inc. ("Fitch") appears herein under "Appendix A - Ratings of Debt Securities".
At least 80% of AIM Municipal Bond Fund's total assets will be invested in municipal securities rated within the four highest ratings for municipal obligations by Moody's (Aaa, Aa, A, or Baa), S&P (AAA, AA, A, or BBB), or have received a comparable rating from another NRSRO. The Fund may invest up to 20% of its total assets in municipal securities that are rated below Baa/BBB (or a comparable rating of any other NRSRO) or that are unrated. For purposes of the foregoing percentage limitations, municipal securities (i) which have been collateralized with U.S. Government obligations held in escrow until the municipal securities' scheduled redemption date or final maturity, but (ii) which have not been rated by a NRSRO subsequent to the date of escrow collateralization, will be treated by the Fund as the equivalent of Aaa/AAA rated securities.
Since the Fund invests in securities backed by insurance companies and other financial institutions, changes in the financial condition of these institutions could cause losses to the Fund and affect its share price.
The Fund may invest in securities which are insured by financial insurance companies. Since a limited number of entities provide such insurance, the Fund may invest more than 25% of its assets in securities insured by the same insurance company.
Other Considerations. The ability of the Fund to achieve its investment objective depends upon the continuing ability of the issuers or guarantors of Municipal Securities held by the Fund to meet their obligations for the payment of interest and principal when due. The securities in which the Fund invests may not yield as high a level of current income as longer term or lower grade securities, which generally have less liquidity and greater fluctuation in value.
There is a risk that some or all of the interest received by the Fund from Municipal Securities might become taxable as a result of tax law changes or determinations of the Internal Revenue Service ("IRS").
The yields on Municipal Securities are dependent on a variety of factors, including general economic and monetary conditions, money market factors, conditions of the Municipal Securities market, size of a particular offering, and maturity and rating of the obligation. Generally, the yield realized by a Fund's shareholders will be the yield realized by the Fund on its investments, reduced by the general expenses of the Fund and the Trust. The market values of the Municipal Securities held by the Fund will be affected by changes in the yields available on similar securities. If yields increase following the purchase of a Municipal Security, the market value of such Municipal Security will generally decrease. Conversely, if yields decrease, the market value of a Municipal Security will generally increase.
MUNICIPAL LEASE OBLIGATIONS. Municipal lease obligations, a type of Municipal Security, may take the form of a lease, an installment purchase or a conditional sales contract. Municipal lease obligations are issued by state and local governments and authorities to acquire land, equipment and facilities such as state and municipal vehicles, telecommunications and computer equipment, and other capital assets. Interest payments on qualifying municipal leases are exempt from federal income taxes. The Fund may purchase these obligations directly, or it may purchase participation interests in such obligations. Municipal leases are generally subject to greater risks than general obligation or revenue bonds. State laws set forth requirements that states or municipalities must meet in order to issue municipal obligations, and such obligations may contain a covenant by the issuer to budget for, appropriate, and make payments due under the obligation. However, certain municipal lease obligations may contain "non-appropriation" clauses which provide that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated for this purpose each year. Accordingly, such obligations are subject to "non-appropriation" risk. While municipal leases are secured by the underlying capital asset, it may be difficult to dispose of such assets in the event of non-appropriation or other default. All direct investments by the Fund in municipal lease obligations shall be deemed illiquid and shall be valued according to the Fund's Procedures for Valuing Securities current at the time of such valuation.
INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. Each Fund (except AIM Limited Maturity Treasury Fund) may invest in U.S. dollar-denominated debt obligations issued or guaranteed by U.S. corporations or U.S. commercial banks, U.S. dollar-denominated obligations of foreign issuers and debt obligations of foreign issuers denominated in foreign currencies. Such debt obligations include, among others, bonds, notes, debentures and variable rate demand notes. In choosing corporate debt securities on behalf of a Fund, its investment adviser may consider (i) general economic and financial conditions; (ii) the specific issuer's (a) business and management, (b) cash flow, (c) earnings coverage of interest and dividends, (d) ability to operate under adverse economic conditions, (e) fair market value of assets, and (f) in the case of foreign issuers, unique political, economic or social conditions applicable to such issuer's country; and, (iii) other considerations deemed appropriate.
A portion of each Fund's assets may be held in cash and high quality, short-term money market instruments such as certificates of deposit, commercial paper, bankers' acceptances, short-term U.S. Government obligations, taxable municipal securities, master notes, and repurchase agreements, pending investment in portfolio securities, to meet anticipated short-term cash needs such as dividend
payments or redemptions of shares, or for temporary defensive purposes. The Funds, other than AIM High Yield Fund, AIM Income Fund and AIM Municipal Bond Fund, will purchase only investment grade corporate debt securities.
JUNK BONDS. Junk bonds are lower-rated or non-rated debt securities. Junk bonds are considered speculative with respect to their capacity to pay interest and repay principal in accordance with the terms of the obligation. While generally providing greater income and opportunity for gain, non-investment grade debt securities are subject to greater risks than higher-rated securities.
Companies that issue junk bonds are often highly leveraged, and may not have more traditional methods of financing available to them. During an economic downturn or recession, highly leveraged issuers of high yield securities may experience financial stress, and may not have sufficient revenues to meet their interest payment obligations. Economic downturns tend to disrupt the market for junk bonds, lowering their values, and increasing their price volatility. The risk of issuer default is higher with respect to junk bonds because such issues are generally unsecured and are often subordinated to other creditors of the issuer.
The credit rating of a junk bond does not necessarily address its market value risk, and ratings may from time to time change to reflect developments regarding the issuer's financial condition. The lower the rating of a junk bond, the more speculative its characteristics.
AIM High Yield Fund, AIM Income Fund and AIM Municipal Bond Fund may have difficulty selling certain junk bonds because they may have a thin trading market. The lack of a liquid secondary market may have an adverse effect on the market price and a Fund's ability to dispose of particular issues and may also make it more difficult for each Fund to obtain accurate market quotations of valuing these assets. In the event a Fund experiences an unexpected level of net redemptions, the Fund could be forced to sell its junk bonds at an unfavorable price. Prices of junk bonds have been found to be less sensitive to fluctuations in interest rates, and more sensitive to adverse economic changes and individual corporate developments than those of higher-rated debt securities.
LIQUID ASSETS. Cash equivalents include money market instruments (such as certificates of deposit, time deposits, bankers' acceptances from U.S. or foreign banks, and repurchase agreements), shares of affiliated money market funds or high-quality debt obligations (such as U.S. Government obligations, commercial paper, master notes and other short-term corporate instruments and municipal obligations).
Descriptions of debt securities ratings are found in Appendix A.
Other Investments
REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs are trusts that sell equity or debt securities to investors and use the proceeds to invest in real estate or interests therein. A REIT may focus on particular projects, such as apartment complexes, or geographic regions, such as the southeastern United States, or both.
To the extent consistent with their respective investment objectives and policies, each Fund (except AIM Real Estate Fund) may invest up to 15% of its total assets in equity and/or debt securities issued by REITs. AIM Real Estate Fund may invest all 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.
The following restrictions apply to investments in other investment companies other than Affiliated Money Market Funds: (i) a Fund may not purchase more than 3% of the total outstanding voting stock of another investment company; (ii) a Fund may not invest more than 5% of its total assets in securities issued by another investment company; and (iii) a Fund may not invest more than 10% of its total assets in securities issued by other investment companies.
DEFAULTED SECURITIES. The Funds may invest in defaulted securities. In order to enforce its rights in defaulted securities, the Funds may be required to participate in various legal proceedings or take possession of and manage assets securing the issuer's obligations on the defaulted securities. This could increase a Fund's operating expenses and adversely affect its net asset value. Any investments by the Funds in defaulted securities will also be considered illiquid securities subject to the limitations described herein, unless AIM determines that such defaulted securities are liquid under guidelines adopted by the Board.
VARIABLE OR FLOATING RATE INSTRUMENTS. A Fund may invest in securities which have variable or floating interest rates which are readjusted on set dates (such as the last day of the month or calendar quarter) in the case of variable rates or whenever a specified interest rate change occurs in the case of a floating rate instrument. Variable or floating interest rates generally reduce changes in the market price of securities from their original purchase price because, upon readjustment, such rates approximate market rates. Accordingly, as interest rates decrease or increase, the potential for capital appreciation or depreciation is less for variable or floating rate securities than for fixed rate obligations. Many securities with variable or floating interest rates purchased by a Fund are subject to payment of principal and accrued interest (usually within seven days) on the Fund's demand. The terms of such demand instruments require payment of principal and accrued interest by the issuer, a guarantor, and/or a liquidity provider. All variable or floating rate instruments will meet the applicable quality standards of a Fund. AIM will monitor the pricing, quality and liquidity of the variable or floating rate securities held by the Funds.
ZERO-COUPON AND PAY-IN-KIND SECURITIES. A Fund may invest in zero-coupon or pay-in-kind securities. These securities are debt securities that do not make regular cash interest payments. Zero-coupon securities are sold at a deep discount to their face value. Pay-in-kind securities pay interest through the issuance of additional securities. Because zero-coupon and pay-in-kind securities do not pay current cash income, the price of these securities can be volatile when interest rates fluctuate. While these securities do not pay current cash income, federal tax law requires the holders of zero-coupon and pay-in-kind securities to include in income each year the portion of the original issue discount (or deemed
discount) and other non-cash income on such securities accrued during that year. In order to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code") and to avoid certain excise taxes, AIM Short Term Bond Fund and AIM Total Return Bond Fund may be required to distribute a portion of such discount and income, and may be required to dispose of other portfolio securities, which could occur during periods of adverse market prices, in order to generate sufficient cash to meet these distribution requirements.
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions, also referred to as forward commitments, involve commitments by a Fund to dealers or issuers to acquire or sell securities at a specified future date beyond the customary settlement for such securities. These commitments may fix the payment price and interest rate to be received or paid on the investment. A Fund may purchase securities on a delayed delivery basis to the extent it can anticipate having available cash on settlement date. Delayed delivery agreements will not be used as a speculative or leveraging technique.
Investment in securities on a delayed delivery basis may increase a Fund's exposure to market fluctuation and may increase the possibility that the Fund will incur short-term gains subject to federal taxation or short-term losses if the Fund must engage in portfolio transactions in order to honor a delayed delivery commitment. Until the settlement date, a Fund will segregate liquid assets of a dollar value sufficient at all times to make payment for the delayed delivery transactions. Such segregated liquid assets will be marked-to-market daily, and the amount segregated will be increased if necessary to maintain adequate coverage of the delayed delivery commitments. No additional delayed delivery agreements or when-issued commitments (as described below) will be made by a Fund if, as a result, more than 25% of the Fund's total assets would become so committed.
The delayed delivery securities, which will not begin to accrue interest or dividends until the settlement date, will be recorded as an asset of a Fund and will be subject to the risk of market fluctuation. The purchase price of the delayed delivery securities is a liability of a Fund until settlement. Absent extraordinary circumstances, a Fund will not sell or otherwise transfer the delayed delivery securities prior to settlement.
A Fund may enter into buy/sell back transactions (a form of delayed delivery agreement). In a buy/sell back transaction, a Fund enters a trade to sell securities at one price and simultaneously enters a trade to buy the same securities at another price for settlement at a future date.
WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis means that the date for delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued. The payment obligation and, if applicable, the interest rate that will be received on the securities are fixed at the time the buyer enters into the commitment. A Fund will only make commitments to purchase such securities with the intention of actually acquiring such securities, but the Fund may sell these securities before the settlement date if it is deemed advisable.
Securities purchased on a when-issued basis and the securities held in a Fund's portfolio are subject to changes in market value based upon the public's perception of the creditworthiness of the issuer and, if applicable, changes in the level of interest rates. Therefore, if a Fund is to remain substantially fully invested at the same time that it has purchased securities on a when-issued basis, there will be a possibility that the market value of the Fund's assets will fluctuate to a greater degree. Furthermore, when the time comes for the Fund to meet its obligations under when-issued commitments, the Fund will do so by using then available cash flow, by sale of the segregated liquid assets, by sale of other securities or, although it would not normally expect to do so, by directing the sale of the when-issued securities themselves (which may have a market value greater or less than the Fund's payment obligation).
Investment in securities on a when-issued basis may increase a Fund's exposure to market fluctuation and may increase the possibility that the Fund will incur short-term gains subject to federal
taxation or short-term losses if the Fund must sell another security in order to honor a when-issued commitment. If a Fund purchases a when-issued security, the Fund will segregate liquid assets in an amount equal to the when-issued commitment. If the market value of such segregated assets declines, additional liquid assets will be segregated on a daily basis so that the market value of the segregated assets will equal the amount of the Fund's when-issued commitments. No additional delayed delivery agreements (as described above) or when-issued commitments will be made by a Fund if, as a result, more than 25% of the Fund's total assets would become so committed.
SHORT SALES. In a short sale, a Fund does not immediately deliver the securities sold and does not receive the proceeds from the sale. A Fund is said to have a short position in the securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale. A Fund will make a short sale, as a hedge, when it believes that the price of a security may decline, causing a decline in the value of a security owned by the Fund or a security convertible into or exchangeable for such security, or when the Fund does not want to sell the security it owns, because it wishes to defer recognition of gain or loss for federal income tax purposes. In such case, any future losses in a Fund's long position should be reduced by a gain in the short position. Conversely, any gain in the long position should be reduced by a loss in the short position. The extent to which such gains or losses are reduced will depend upon the amount of the security sold short relative to the amount a Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. In determining the number of shares to be sold short against a Fund's position in a convertible security, the anticipated fluctuation in the conversion premium is considered. A Fund may also make short sales to generate additional income from the investment of the cash proceeds of short sales.
A Fund will only make short sales "against the box," meaning that at all times when a short position is open, the Fund owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and in an amount equal to, the securities sold short. To secure its obligation to deliver the securities sold short, a Fund will segregate with its custodian an equal amount to the securities sold short or securities convertible into or exchangeable for such securities. Each Fund (except for AIM Limited Maturity Treasury Fund and AIM Money Market Fund) may pledge no more than 10% of its total assets as collateral for short sales against the box.
MARGIN TRANSACTIONS. None of the Funds will purchase any security on margin, except that each Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of portfolio securities. The payment by a Fund of initial or variation margin in connection with futures or related options transactions will not be considered the purchase of a security on margin.
SWAP AGREEMENTS. AIM Real Estate Fund, AIM Short Term Bond Fund, AIM Total Return Bond Fund and AIM Income Fund may enter into interest rate, index and currency exchange rate swap agreements for purposes of attempting to obtain a particular desired return at a lower cost to the Fund than if it had invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index. Commonly used swap agreements include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap"; (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor"; and (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictitious basis on which to calculate the obligations which the parties to a swap agreement have agreed to exchange. Most swap agreements
entered into by the Fund would calculate the obligations on a "net basis." Consequently, the Fund's obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). Obligations under a swap agreement will be accrued daily (offset against amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by segregating liquid assets, to avoid any potential leveraging of the Fund. The Fund will not enter into a swap agreement with any single party if the net amount owed to or to be received under existing contracts with that party would exceed 5% of the Fund's total assets. For a discussion of the tax considerations relating to swap agreements, see "Dividends, Distributions and Tax Matters - Swap Agreements."
INTERFUND LOANS. Each Fund may lend uninvested cash up to 15% of its net assets to other funds advised by AIM (the "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 borrowings are outstanding, the Fund cannot make any additional investments. If a Fund has borrowed from other AIM Funds and has aggregate borrowings from all sources that exceed 10% of such Fund's total assets, such Fund will secure all of its loans from other AIM Funds. The ability of the Funds to lend its securities to other AIM Funds is subject to certain other terms and conditions.
BORROWING. The Funds may borrow money to a limited extent for temporary or emergency purposes. If there are unusually heavy redemptions because of changes in interest rates or for any other reason, a Fund may have to sell a portion of its investment portfolio at a time when it may be disadvantageous to do so. Selling fund securities under these circumstances may result in a lower net asset value per share or decreased dividend income, or both. The Trust believes that, in the event of abnormally heavy redemption requests, a Fund's borrowing ability would help to mitigate any such effects and could make the forced sale of their portfolio securities less likely.
LENDING PORTFOLIO SECURITIES. The Funds may each lend their portfolio securities (principally to broker-dealers) where such loans are callable at any time and are continuously secured by segregated collateral equal to no less than the market value, determined daily, of the loaned securities. Such collateral will be cash, letters of credit, or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Each Fund may lend portfolio securities to the extent of one-third of its total assets.
The Funds would continue to receive the income on loaned securities and would, at the same time, earn interest on the loan collateral or on the investment of any cash collateral. A Fund will not have the right to vote securities while they are lent, but it can call a loan in anticipation of an important vote. Any cash collateral pursuant to these loans would be invested in short-term money market instruments or Affiliated Money Market Funds. Lending securities entails a risk of loss to the Funds if and to the extent that the market value of the securities loaned increases and the collateral is not increased accordingly or in the event of default by the borrower. The Fund could also experience delays and costs in gaining access to the collateral.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which a Fund acquires ownership of a security from a broker-dealer or bank that agrees to repurchase the security at a mutually agreed upon time and price (which is higher than the purchase price), thereby determining the yield during a Fund's holding period. A Fund may, however, enter into a "continuing contract" or "open" repurchase agreement under which the seller is under a continuing obligation to repurchase the underlying obligation from the Fund on demand and the effective interest rate is negotiated on a daily basis. Each of the Funds may engage in repurchase agreement transactions involving the types of securities in which it is permitted to invest.
If the seller of a repurchase agreement fails to repurchase the security in accordance with the terms of the agreement, a Fund might incur expenses in enforcing its rights, and could experience losses, including a decline in the value of the underlying security and loss of income. The securities underlying a repurchase agreement will be marked-to-market every business day so that the value of such securities is
at least equal to the investment value of the repurchase agreement, including any accrued interest thereon.
The Funds may invest their cash balances in joint accounts with other AIM Funds for the purpose of investing in repurchase agreements with maturities not to exceed 60 days, and in certain other money market instruments with remaining maturities not to exceed 90 days. Repurchase agreements are considered loans by a Fund under the 1940 Act.
AIM Limited Maturity Treasury Fund's investment policies permit it to invest in repurchase agreements with banks and broker-dealers pertaining to U.S. Treasury obligations. However, in order to maximize the Fund's dividends which are exempt from state income taxation, as a matter of operating policy, the Fund does not currently invest in repurchase agreements.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are agreements that involve the sale of securities held by a Fund to financial institutions such as banks and broker-dealers, with an agreement that the Fund will repurchase the securities at an agreed upon price and date. A Fund may employ reverse repurchase agreements (i) for temporary emergency purposes, such as to meet unanticipated net redemptions so as to avoid liquidating other portfolio securities during unfavorable market conditions; (ii) to cover short-term cash requirements resulting from the timing of trade settlements (except AIM Limited Maturity Treasury Fund); or (iii) to take advantage of market situations where the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. At the time it enters into a reverse repurchase agreement, a Fund will segregate liquid assets (U.S. Treasury obligations in the case of AIM Limited Maturity Treasury Fund) having a dollar value equal to the repurchase price, and will subsequently continually monitor the account to ensure that such equivalent value is maintained at all times. Reverse repurchase agreements involve the risk that the market value of securities to be purchased by the Fund may decline below the price at which it is obligated to repurchase the securities, or that the other party may default on its obligation, so that the Fund is delayed or prevented from completing the transaction. Reverse repurchase agreements are considered borrowings by a Fund under the 1940 Act.
DOLLAR ROLLS. AIM Income Fund, AIM Intermediate Government Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund may engage in dollar roll transactions with respect to mortgage securities issued by GNMA, FNMA and FHLMC. A dollar roll involves the sale of a security, with an agreement to repurchase a substantially similar (i.e., same type, coupon and maturity) security at an agreed upon price and date. The mortgage securities that are purchased will bear the same interest rate as those sold, but will generally be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, a Fund will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for a Fund exceeding the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event the buyer of securities under a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. At the time a Fund enters into a dollar roll, it will segregate liquid assets having a dollar value equal to the repurchase price, and will monitor the account to ensure that such equivalent value is maintained. The Funds typically enter into dollar roll transactions on mortgage securities to enhance their return either on an income or total return basis or to manage pre-payment risk. Dollar rolls are considered borrowings by a Fund under the 1940 Act.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be disposed of within seven days in the normal course of business at the price at which they are valued. Illiquid securities may include securities that are subject to restrictions on resale because they have not been registered under the
Securities Act of 1933 (the "1933 Act"). Restricted securities may, in certain circumstances, be resold pursuant to Rule 144A under the 1933 Act 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, 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.
UNSEASONED ISSUERS. Investments in the equity securities of companies having less than three years' continuous operations (including operations of any predecessor) involve more risk than investments in the securities of more established companies because unseasoned issuers have only a brief operating history and may have more limited markets and financial resources. As a result, securities of unseasoned issuers tend to be more volatile than securities of more established companies.
SALE OF MONEY MARKET SECURITIES. AIM Money Market Fund does not seek profits through short-term trading and will generally hold portfolio securities to maturity. However, AIM may seek to enhance the yield of the Fund by taking advantage of yield disparities that occur in the money markets. For example, market conditions frequently result in similar securities trading at different prices. AIM may dispose of any portfolio security prior to its maturity if such disposition and reinvestment of proceeds are expected to enhance yield consistent with AIM's judgment as to desirable portfolio maturity structure. AIM may also dispose of any portfolio security prior to maturity to meet redemption requests, and as a result of a revised credit evaluation of the issuer or other circumstances or considerations. The Fund's policy of investing in securities with maturities of 397 days or less will result in high portfolio turnover. Since brokerage commissions are not normally paid on investments of the type made by the Fund, the high turnover should not adversely affect the Fund's net income.
Derivatives
AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund may each invest in forward currency contracts (except for AIM Intermediate Government Fund and AIM Short Term Bond Fund), futures contracts, options on securities, options on indices, options on currencies, and options on futures contracts to attempt to hedge against the overall level of investment and currency risk normally associated with each Fund's investments. AIM Real Estate Fund may also invest in equity-linked derivative products designed to replicate the composition and performance of particular indices. 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.
EQUITY-LINKED DERIVATIVES. Equity-Linked Derivatives are interests in a securities portfolio designed to replicate the composition and performance of a particular index. Equity-Linked Derivatives are exchange traded. The performance results of Equity-Linked Derivatives will not replicate exactly the performance of the pertinent index due to transaction and other expenses, including fees to service providers, borne by the Equity-Linked Derivatives. Examples of such products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed Securities ("OPALS"). Investments in Equity-Linked Derivatives involve the same risks associated with a direct investment in the types of securities included in the indices such products are designed to track. There can be no assurance that the trading price of the Equity-Linked Derivatives will equal the underlying value of the basket of securities purchased to replicate a particular index or that such basket will replicate the index. Investments in Equity-Linked Derivatives may constitute investments in other investment companies and, therefore, a Fund may be subject to the same investment restrictions with Equity-Linked Derivatives as with other investment companies. See "Other Investment Companies."
PUT AND CALL OPTIONS. A call option gives the purchaser the right to buy the underlying security, contract or foreign currency at the stated exercise price at any time prior to the expiration of the option (or on a specified date if the option is a European style option), regardless of the market price or exchange rate of the security, contract or foreign currency, as the case may be at the time of exercise. If the purchaser exercises the call option, the writer of a call option is obligated to sell the underlying security, contract or foreign currency. A put option gives the purchaser the right to write (sell) the underlying security, contract or foreign currency at the stated exercise price at any time prior to the expiration date of the option (or on a specified date if the option is a European style option), regardless of the market price or exchange rate of the security, contract or foreign currency, as the case may be at the time of exercise. If the purchaser exercises the put option, the writer of a put option is obligated to buy the underlying security, contract or foreign currency. The premium paid to the writer is consideration for undertaking the obligations under the option contract. Until an option expires or is offset, the option is said to be "open." When an option expires or is offset, the option is said to be "closed."
A Fund will not write (sell) options if, immediately after such sale, the aggregate value of securities or obligations underlying the outstanding options exceeds 20% of the Fund's total assets. A Fund will not purchase options if, at any time of the investment, the aggregate premiums paid for the options will exceed 5% of the Fund's total assets.
Pursuant to federal securities rules and regulations, if a Fund writes options it may be required to set aside assets to reduce the risks associated with writing those options. This process is described in more detail below in the section "Cover."
Writing Options. A Fund may write put and call options in an attempt to realize, through the receipt of premiums, a greater current return than would be realized on the underlying security, contract, or foreign currency alone. A Fund may only write a call option on a security if it owns an equal amount of such securities or securities convertible into, or exchangeable, without payment of further consideration, for securities of the same issue as, and equal in amount to, the securities subject to the call option. In return for the premium received for writing a call option, the Fund foregoes the opportunity for profit from a price increase in the underlying security, contract, or foreign currency above the exercise price so long as the option remains open, but retains the risk of loss should the price of the security, contract, or foreign currency decline.
A Fund may write a put option without owning the underlying security if it covers the option as described below in the section "Cover." A Fund may only write a put option on a security as part of an investment strategy, and not for speculative purposes. In return for the premium received for writing a put option, the Fund assumes the risk that the price of the underlying security, contract, or foreign currency will decline below the exercise price, in which case the put would be exercised and the Fund would suffer a loss.
If an option that a Fund has written expires, it will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security, contract or currency during the option period. If the call option is exercised, a Fund will realize a gain or loss from the sale of the underlying security, contract or currency, which will be increased or offset by the premium received. A Fund would write a put option at an exercise price that, reduced by the premium received on the option, reflects the price it is willing to pay for the underlying security, contract or currency. The obligation imposed upon the writer of an option is terminated upon the expiration of the option, or such earlier time at which a Fund effects a closing purchase transaction by purchasing an option (put or call as the case may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. Closing transactions may be effected in order to realize a profit on an outstanding call option, to prevent an underlying security, contract or currency from being called or to permit the sale of the underlying security, contract or currency. Furthermore, effecting a closing transaction will permit a Fund to write another call option on the underlying security, contract or currency with either a different exercise price or expiration date, or both.
Purchasing Options. A Fund may purchase a call option for the purpose of acquiring the underlying security, contract or currency for its portfolio. The Fund is not required to own the underlying security in order to purchase a call option, and may only cover this transaction with cash, liquid assets and/or short-term debt securities. Utilized in this fashion, the purchase of call options would enable a Fund to acquire the security, contract or currency at the exercise price of the call option plus the premium paid. So long as it holds such a call option, rather than the underlying security or currency itself, the Fund is partially protected from any unexpected increase in the market price of the underlying security, contract or currency. If the market price does not exceed the exercise price, the Fund could purchase the security on the open market and could allow the call option to expire, incurring a loss only to the extent of the premium paid for the option. The Funds may also purchase call options on underlying securities, contracts or currencies against which it has written other call options. For example, where a Fund has written a call option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a call option with a different exercise strike and/or expiration date that would eliminate some or all of the risk associated with the written call. Used in combinations, these strategies are commonly referred to as "call spreads."
A Fund may only purchase a put option on an underlying security, contract or currency ("protective put") owned by the Fund in order to protect against an anticipated decline in the value of the security, contract or currency. Such hedge protection is provided only during the life of the put option. The premium paid for the put option and any transaction costs would reduce any profit realized when the security, contract or currency is delivered upon the exercise of the put option. Conversely, if the underlying security, contract or currency does not decline in value, the option may expire worthless and the premium paid for the protective put would be lost. A Fund may also purchase put options on underlying securities, contracts or currencies against which it has written other put options. For example, where a Fund has written a put option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a put option with a different exercise price and/or expiration date that would eliminate some or all of the risk associated with the written put. Used in combinations, these strategies are commonly referred to as "put spreads." Likewise, a Fund may write call options on underlying securities, contracts or currencies against which it has purchased protective put options. This strategy is commonly referred to as a "collar."
Over-The-Counter Options. Options may be either listed on an exchange or traded in over-the-counter ("OTC") markets. Listed options are third-party contracts (i.e., performance of the obligations of the purchaser and seller is guaranteed by the exchange or clearing corporation) and have standardized strike prices and expiration dates. OTC options are two-party contracts with negotiated strike prices and expiration dates. A Fund will not purchase an OTC option unless it believes that daily valuations for such options are readily obtainable. OTC options differ from exchange-traded options in that OTC options are transacted with dealers directly and not through a clearing corporation (which guarantees performance). Consequently, there is a risk of non-performance by the dealer. Since no exchange is involved, OTC options are valued on the basis of an average of the last bid prices obtained from dealers, unless a quotation from only one dealer is available, in which case only that dealer's price will be used. In the case of OTC options, there can be no assurance that a liquid secondary market will exist for any particular option at any specific time. Because purchased OTC options in certain cases may be difficult to dispose of in a timely manner, the Fund may be required to treat some or all of these options (i.e., the market value) 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.
Pursuant to federal securities rules and regulations, if a Fund writes index options it may be required to set aside assets to reduce the risks associated with writing those options. This process is described in more detail below in the section "Cover."
STRADDLES. The Funds, 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 Funds' overall position. A possible combined position would involve writing a covered call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written covered call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out.
WARRANTS. Warrants are, in effect, longer-term call options. They give the holder the right to purchase a given number of shares of a particular company at specified prices within certain periods of time. The purchaser of a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus giving him a profit. Since the market price may never exceed the exercise price before the expiration date of the warrant, the purchaser of the warrant risks the loss of the entire purchase price of the warrant. Warrants generally trade in the open market and may be sold rather than exercised. Warrants are sometimes sold in unit form with other securities of an issuer. Units of warrants and common stock may be employed in financing young, unseasoned companies. The purchase price of a warrant varies with the exercise price of the warrant,
the current market value of the underlying security, the life of the warrant and various other investment factors.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract is a two party agreement to buy or sell a specified amount of a specified security or currency (or delivery of a cash settlement price, in the case of an index future) for a specified price at a designated date, time and place (collectively, "Futures Contracts"). A stock index Futures Contract provides for the delivery, at a designated date, time and place, of an amount of cash equal to a specified dollar amount times the difference between the stock index value at the close of trading on the contract and the price agreed upon in the Futures Contract; no physical delivery of stocks comprising the index is made. Brokerage fees are incurred when a Futures Contract is bought or sold, and margin deposits must be maintained at all times when a Futures Contract is outstanding.
A Fund will enter into Futures Contracts for hedging purposes only; that is, Futures Contracts will be sold to protect against a decline in the price of securities or currencies that the Fund owns, or Futures Contracts will be purchased to protect the Fund against an increase in the price of securities or currencies it has committed to purchase or expects to purchase. A Fund's hedging may include sales of Futures Contracts as an offset against the effect of expected increases in interest rates, and decreases in currency exchange rates and stock prices, and purchases of Futures Contracts as an offset against the effect of expected declines in interest rates, and increases in currency exchange rates or stock prices.
The Funds currently may not invest in any security (including futures contracts or options thereon) that is secured by physical commodities.
The Funds will only enter into Futures Contracts that are traded (either domestically or internationally) on futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading thereon in the United States are regulated under the Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges and trading thereon are not regulated by the CFTC and are not subject to the same regulatory controls. For a further discussion of the risks associated with investments in foreign securities, see "Foreign Investments" in this Statement of Additional Information.
Closing out an open Futures Contract is effected by entering into an offsetting Futures Contract for the same aggregate amount of the identical financial instrument or currency and the same delivery date. There can be no assurance, however, that a Fund will be able to enter into an offsetting transaction with respect to a particular Futures Contract at a particular time. If a Fund is not able to enter into an offsetting transaction, it will continue to be required to maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that must be deposited by a Fund in order to initiate Futures Contracts trading and maintain its open positions in Futures Contracts. A margin deposit made when the Futures Contract is entered ("initial margin") is intended to ensure the Fund's performance under the Futures Contract. The margin required for a particular Futures Contract is set by the exchange on which the Futures Contract is traded and may be significantly modified from time to time by the exchange during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures commission merchant through which a Fund entered into the Futures Contract will be made on a daily basis as the price of the underlying security, currency or index fluctuates making the Futures Contract more or less valuable, a process known as marking-to-market.
If a Fund were unable to liquidate a Futures Contract or an option on a Futures Contract position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily variation
margin payments and might be required to maintain the position being hedged by the Futures Contract or option or to maintain cash or securities in a segregated account.
OPTIONS ON FUTURES CONTRACTS. Options on Futures Contracts are similar to options on securities or currencies except that options on Futures Contracts give the purchaser the right, in return for the premium paid, to assume a position in a Futures Contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the Futures Contract position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's Futures Contract margin account. The Funds currently may not invest in any security (including futures contracts or options thereon) that is secured by physical commodities.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS AND ON CERTAIN OPTIONS ON CURRENCIES. To the extent that a Fund enters into Futures Contracts, options on Futures Contracts and options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are "in-the-money") will not exceed 5% of the total assets of the Fund, after taking into account unrealized profits and unrealized losses on any contracts it has entered into. This guideline may be modified by the Board, without a shareholder vote. This limitation does not limit the percentage of the Fund's assets at risk to 5%.
Pursuant to federal securities rules and regulations, a Fund's use of Futures Contracts and options on Futures Contracts may require that Fund to set aside assets to reduce the risks associated with using Futures Contracts and options on Futures Contracts. This process is described in more detail below in the section "Cover."
FORWARD CURRENCY CONTRACTS. A forward currency contract is an obligation, usually arranged with a commercial bank or other currency dealer, to purchase or sell a currency against another currency at a future date and price as agreed upon by the parties. A Fund either may accept or make delivery of the currency at the maturity of the forward currency contract. A Fund may also, if its contra party agrees prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Forward currency contracts are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, it may be more difficult to value such contracts, and it may be difficult to enter into closing transactions.
Each of the Funds may engage in forward currency transactions in anticipation of, or to protect itself against, fluctuations in exchange rates. A Fund may enter into forward currency contracts with respect to a specific purchase or sale of a security, or with respect to its portfolio positions generally. When a Fund purchases a security denominated in a foreign currency for settlement in the near future, it may immediately purchase in the forward market the currency needed to pay for and settle the purchase. By entering into a forward currency contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the Fund can secure an exchange rate between the trade and settlement dates for that purchase or sale transaction. This practice is sometimes referred to as "transaction hedging." Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward currency contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on a principal basis, no fees or commissions are involved. The use of forward currency contracts does not eliminate fluctuations in the prices of the underlying securities a Fund owns or intends to acquire, but it does establish a rate of exchange in advance. In addition, while forward currency contract sales limit the risk of loss due to a decline in the value of the hedged currencies, they also limit any potential gain that might result should the value of the currencies increase.
Pursuant to federal securities rules and regulations, a Fund's use of forward currency contracts may require that Fund to set aside assets to reduce the risks associated with using forward currency contracts. This process is described in more detail below in the section "Cover."
COVER. Transactions using forward currency contracts, futures contracts and options (other than options purchased by a Fund) expose a Fund to an obligation to another party. A Fund will not enter into any such transactions unless, in addition to complying with all the restrictions noted in the disclosure above, it owns either (1) an offsetting ("covered") position in securities, currencies, or other options, forward currency contracts or futures contracts or (2) cash, liquid assets and/or short-term debt securities with a value sufficient at all times to cover its potential obligations not covered as provided in (1) above. Each Fund will comply with SEC guidelines regarding cover for these instruments and, if the guidelines so require, set aside cash or liquid securities. To the extent that a futures contract, forward currency contract or option is deemed to be illiquid, the assets used to "cover" the Fund's obligation will also be treated as illiquid for purposes of determining the Fund's maximum allowable investment in illiquid securities.
Even though options purchased by the Funds do not expose the Funds to an obligation to another party, but rather provide the Funds with a right to exercise, the Funds intend to "cover" the cost of any such exercise. To the extent that a purchased option is deemed illiquid, the Fund will treat the market value of the option (i.e., the amount at risk to the Fund) as illiquid, but will not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the corresponding forward currency contract, futures contract or option is open, unless they are replaced with other appropriate assets. If a large portion of a Fund's assets is used for cover or otherwise set aside, it could affect portfolio management or the Fund's ability to meet redemption requests or other current obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by the Funds of options, futures contracts and forward currency contracts involves special considerations and risks, as described below. Risks pertaining to particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability to correctly predict the direction of changes in the value of the applicable markets and securities, contracts and/or currencies. While AIM is experienced in the use of these instruments, there can be no assurance that any particular hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between the price movements of an instrument (such as an option contract) and the price movements of the investments being hedged. For example, if a "protective put" is used to hedge a potential decline in a security and the security does decline in price, the put option's increased value may not completely offset the loss in the underlying security. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as changing interest rates, market liquidity, and speculative or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for any particular option, futures contract or option thereon or forward currency contract at any particular time.
(5) As described above, a Fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in instruments involving obligations to third parties. If a Fund were unable to close out its positions in such instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. The requirements might impair a Fund's ability to sell a portfolio security or make
an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions. For example, if a Fund determines that the cost of hedging will exceed the potential benefit to the Fund, the Fund will not enter into such transaction.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following
investment restrictions, which may be changed only by a vote of such Fund's
outstanding shares, except that AIM Real Estate Fund is not subject to
restriction (4) and only AIM Municipal Bond Fund is subject to restriction (9).
Fundamental restrictions may be changed only by a vote of the lesser of (i) 67%
or more of the Fund's shares present at a meeting if the holders of more than
50% of the outstanding shares are present in person or represented by proxy, or
(ii) more than 50% of the Fund's outstanding shares. Any investment restriction
that involves a maximum or minimum percentage of securities or assets (other
than with respect to borrowing) shall not be considered to be violated unless an
excess over or a deficiency under the percentage occurs immediately after, and
is caused by, an acquisition or disposition of securities or utilization of
assets by the Fund.
(1) The Fund is a "diversified company" as defined in the 1940 Act. The Fund will not purchase the securities of any issuer if, as a result, the Fund would fail to be a diversified company within the meaning of the 1940 Act, and the rules and regulations promulgated thereunder, as such statute, rules and regulations are amended from time to time or are interpreted from time to time by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or except to the extent that the Fund may be permitted to do so by exemptive order or similar relief (collectively, with the 1940 Act Laws and Interpretations, the "1940 Act Laws, Interpretations and Exemptions"). In complying with this restriction, however, the Fund may purchase securities of other investment companies to the extent permitted by the 1940 Act Laws, Interpretations and Exemptions.
(2) The Fund may not borrow money or issue senior securities, except as permitted by the 1940 Act Laws, Interpretations and Exemptions.
(3) The Fund may not underwrite the securities of other issuers. This restriction does not prevent the Fund from engaging in transactions involving the acquisition, disposition or resale of its 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.
AIM Real Estate Fund will concentrate (as such term may be defined or interpreted by the 1940 Act Laws, Interpretations and Exemptions) its investments in the securities of domestic and foreign real estate and real estate-related companies. For purposes of AIM Real Estate Fund's fundamental restriction regarding industry concentration, real estate and real estate-related companies shall consist of companies (i) that at least 50% of its assets, gross income or net profits are attributable to ownership, construction, management, or sale of residential, commercial or industrial real estate, including listed equity REITs that own property, and mortgage REITs which make short-term construction and development mortgage loans or which invest in long-term mortgages or mortgage pools, or (ii) whose
products and services are related to the real estate industry, such as manufacturers and distributors of building supplies and financial institutions which issue or service mortgages.
(5) The Fund may not purchase real estate or sell real estate unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from investing in issuers that invest, deal, or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein.
(6) The Fund may not purchase physical commodities or sell physical commodities unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities.
(7) The Fund may not make personal loans or loans of its assets to persons who control or are under common control with the Fund, except to the extent permitted by 1940 Act Laws, Interpretations and Exemptions. This restriction does not prevent the Fund from, among other things, purchasing debt obligations, entering into repurchase agreements, loaning its assets to broker-dealers or institutional investors, or investing in loans, including assignments and participation interests.
(8) The Fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objectives, policies and restrictions as the Fund.
(9) Under normal circumstances, AIM Municipal Bond Fund will invest at least 80% of the value of its assets (as that term may be defined or interpreted by the 1940 Act Laws, Interpretations and Exemptions) in investments the income from which is exempt from federal income tax under regular tax rules.
The investment restrictions set forth above provide each of the Funds with the ability to operate under new interpretations of the 1940 Act or pursuant to exemptive relief from the SEC without receiving prior shareholder approval of the change. Even though each of the Funds has this flexibility, the Board has adopted non-fundamental restrictions for each of the Funds relating to certain of these restrictions which the Funds' advisor and, when applicable, the Fund's sub-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.
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment restrictions apply to each of the Funds, except AIM Real Estate Fund is not subject to restriction (3). 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 AIM Funds,
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 33 1/3% of its total assets (including
the amount borrowed) less liabilities (other than borrowings). The Fund may borrow from banks, broker-dealers or an AIM 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 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 33 1/3% of its total assets and may lend money to an AIM Fund, on such terms and conditions as the SEC may require in an exemptive order.
(5) Notwithstanding the fundamental restriction with regard to investing all assets in an open-end fund, the Fund may not invest all of its assets in the securities of a single open-end management investment company with the same fundamental investment objectives, policies and restrictions as the Fund.
(6) Notwithstanding the fundamental restriction with regard to engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities, the Fund currently may not invest in any security (including futures contracts or options thereon) that is secured by physical commodities.
(7) The Fund may not acquire any securities of registered open-end investment companies or registered unit investment trusts in reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
ADDITIONAL NON-FUNDAMENTAL POLICIES. As non-fundamental policies:
(1) AIM High Yield Fund normally invests at least 80% of its assets in non-investment grade debt securities, i.e., "junk bonds". For purposes of the foregoing sentence, "assets" means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
(2) AIM Intermediate Government Fund normally invests at least 80% of its assets in debt securities issued, guaranteed or otherwise backed by the U.S. government. For purposes of the foregoing sentence, "assets" means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
(3) AIM Limited Maturity Treasury Fund normally invests at least 80% of its assets in direct obligations of the U.S. Treasury, including bills, notes, and bonds. For purposes of the foregoing sentence, "assets" means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
(4) AIM Real Estate Fund normally invests at least 80% of its assets in securities of real estate and real estate-related companies. For purposes of the foregoing sentence, "assets" means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
(5) AIM Short Term Bond Fund normally invests at least 80% of its assets in a diversified portfolio of investment-grade fixed income securities. For purposes of the foregoing sentence, "assets"
means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
(6) AIM Total Return Bond Fund normally invests at least 80% of its assets in a diversified portfolio of investment grade fixed income securities generally represented by the sector categories within the Lehman Brothers Aggregate Bond Index. For purposes of the foregoing sentence, "assets" means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
(7) Under normal circumstances, AIM Municipal Bond Fund will invest at least 80% of the value of its assets (as that term may be defined or interpreted by the 1940 Act Laws, Interpretations and Exemptions) in investments the income from which will not constitute an item of tax preference under the alternative minimum tax rules.
(8) AIM Municipal Bond Fund will not: invest 25% or more of its assets in (a) securities whose issuers are located in the same state; (b) securities the interest upon which is paid from revenues of similar type projects; or (c) industrial development bonds. The policy described in (b) does not apply, however, if the securities are subject to a guarantee. For securities subject to a guarantee, the Fund does not intend to purchase any such security if, after giving effect to the purchase, 25% or more of the Fund's assets would be invested in securities issued or guaranteed by entities in a particular industry. Securities issued or guaranteed by a bank or subject to financial guaranty insurance are not subject to the limitations set forth in the preceding sentence.
The Trust has obtained an opinion of Dechert LLP, 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 or other conditions, or atypical circumstances such as unusually large cash inflows or redemptions, the Funds may temporarily hold all or a portion of their assets in cash, cash equivalents or (with the exception of AIM Limited Maturity Treasury Fund) high-quality debt instruments. Each of the Funds may also invest up to 25% of its total assets in Affiliated Money Market Funds for these purposes.
MANAGEMENT OF THE TRUST
BOARD
The overall management of the business and affairs of the Funds and the Trust is vested in the Board. The Board 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. Certain trustees and officers of the Trust are affiliated with AIM and A I M Management Group Inc. ("AIM Management"), the parent corporation of AIM. All of the Trust's executive officers hold similar offices with some or all of the other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust, their principal occupations during at least the last five years and certain other information concerning them are set forth in Appendix B.
The standing committees of the Board are the Audit Committee, the Governance Committee, the Investments Committee, the Valuation Committee, and the Special Committee Relating to Market Timing Issues.
The members of the Audit Committee are Bob R. Baker, James T. Bunch, Edward K. Dunn, Jr. (Chair), Lewis F. Pennock, Dr. Larry Soll, Dr. Prema Mathai-Davis and Ruth H. Quigley (Vice Chair). The Audit Committee is responsible for: (i) the appointment, compensation and oversight of any independent auditors employed by the Funds (including monitoring the independence, qualifications and performance of such auditors and resolution of disagreements between the Funds' management and the auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services; (ii) overseeing the financial reporting process of the Funds; (iii) monitoring the process and the resulting financial statements prepared by management to promote accuracy and integrity of the financial statements and asset valuation; (iv) assisting the Board's oversight of the Funds' compliance with legal and regulatory requirements that related to the Funds' accounting and financial reporting, internal control over financial reporting and independent audits; (v) to the extent required by Section 10A of the Securities Exchange Act of 1934, pre-approving all permissible non-audit services provided to each Fund by its independent auditors; (vi) pre-approving, in accordance with Item
2.01(c)(7)(ii) of Regulation S-X, certain non-audit services provided by the Fund's independent auditors to the Funds' investment advisor and certain other affiliated entities; and (vii) to the extent required by Regulation 14A, preparing an audit committee report for inclusion in the Fund's annual proxy statement. During the fiscal year ended July 31, 2003, the Audit Committee held nine meetings.
The members of the Governance Committee are Frank S. Bayley, Bruce L.
Crockett (Chair), Albert R. Dowden, Jack M. Fields (Vice Chair), Gerald J. Lewis
and Louis S. Sklar. The Governance Committee is responsible for: (i) nominating
persons who are not interested persons of the Trust for election or appointment:
(a) as additions to the Board, (b) to fill vacancies which, from time to time,
may occur in the Board and (c) for election by shareholders of the Trust at
meetings called for the election of trustees; (ii) nominating persons for
appointment as members of each committee of the Board, including, without
limitation, the Audit Committee, the Governance Committee, the Investments
Committee and the Valuation Committee, and to nominate persons for appointment
as chair and vice chair of each such committee; (iii) reviewing from time to
time the compensation payable to the trustees and making recommendations to the
Board regarding compensation; (iv) reviewing and evaluating from time to time
the functioning of the Board and the various committees of the Board; (v)
selecting independent legal counsel to the independent trustees and approving
the compensation paid to independent legal counsel; and (vi) approving the
compensation paid to independent counsel and other advisers, if any, to the
Audit Committee of the Trust.
The Governance Committee 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 Governance Committee or the Board, as applicable, shall make the
final determination of persons to be nominated. During the fiscal year ended
July 31, 2003, the Governance Committee held five meetings.
Notice procedures set forth in the Trust's bylaws require that any shareholder of a Fund desiring to nominate a trustee for election at a shareholder meeting must submit to the Trust's Secretary the nomination in writing not later than the close of business on the later of the 90th day prior to such shareholder meeting or the tenth day following the day on which public announcement is made of the shareholder meeting and not earlier than the close of business on the 120th day prior to the shareholder meeting.
The members of the Investments Committee are Messrs. Baker (Vice Chair), Bayley (Vice Chair), Bunch, Crockett, Dowden (Chair), Dunn, Fields, Lewis, Pennock, Sklar and Soll, and Carl Frischling, and 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. During the fiscal year ended July 31, 2003, the Investments Committee held four meetings.
The members of the Valuation Committee are Messrs. Dunn and Pennock
(Chair), and Miss Quigley (Vice Chair). The Valuation Committee meets on an ad
hoc basis when the Board is not available to review matters related to
valuation. During the fiscal year ended July 31, 2003, the Valuation Committee
held one meeting.
The members of the Special Committee Relating to Market Timing Issues are Messrs. Crockett, Dowden, Dunn, and Lewis (Chair). The purpose of the Special Committee Relating to Market Timing Issues is to remain informed on matters relating to alleged excessive short term trading in shares of the Funds ("market timing") and to provide guidance to special counsel for the independent trustees on market timing issues and related matters between meetings of the independent trustees. During the fiscal year ended July 31, 2003, the Special Committee Relating to Market Timing issues did not meet.
Trustee Ownership of Fund Shares
The dollar range of equity securities beneficially owned by each trustee (i) in the Funds and (ii) on an aggregate basis, in all registered investment companies overseen by the trustee within the AIM Funds complex, is set forth in Appendix B.
Factors Considered in Approving the Investment Advisory Agreement and the Sub-Advisory Agreement
The advisory agreement with AIM (the "Advisory Agreement"), and the
sub-advisory agreement between AIM and INVESCO Institutional (N.A.), Inc.
("INVESCO, Inc." or the "Sub-Advisor") (collectively with AIM, the "Advisors")
for AIM Real Estate Fund (the "Sub-Advisory Agreement") were (collectively with
the Advisory Agreement, the "Advisory Agreements") was re-approved for each
Fund by the Trust's Board at a meeting held on May 13-14, 2003. In evaluating
the fairness and reasonableness of the Advisory Agreement, the Board considered
a variety of factors for each Fund as applicable, including: the requirements of
each Fund for investment supervisory and administrative services; the quality of
AIM's services, including a review of each Fund's investment performance, if
applicable, and AIM's investment personnel; the size of the fees in
relationship to the extent and quality of the investment advisory services
rendered; fees charged to the Advisors; other clients; fees charged by
competitive investment advisors; the size of the fees in light of services
provided other than investment advisory services; the expenses borne by each
Fund as a percentage of its assets and in relationship to contractual
limitations; any fee waivers (or payments of Fund expenses) by the Advisors; the
Advisors profitability; the benefits received by the Advisors from its
relationship to each Fund, including soft dollar arrangements, and the extent to
which each Fund shares in those benefits; the organizational capabilities and
financial condition of the Advisors and conditions and trends prevailing in the
economy, the securities markets and the mutual fund industry; and the historical
relationship between each Fund and AIM.
In considering the above factors, the Board also took into account the fact that uninvested cash and cash collateral from securities lending arrangements (collectively, "cash balances") of each Fund may be invested in money market funds advised by AIM pursuant to the terms of an exemptive order. The Board found that each Fund may realize certain benefits upon investing cash balances in AIM advised money market funds, including a higher net return, increased liquidity, increased diversification or decreased transaction costs. The Board also found that each Fund will not receive reduced services if it invests its cash balances in such money market funds. The Board further determined that the proposed securities lending program and related procedures with respect to each of the lending Funds is in the best interests of each lending Fund and its respective shareholders. The Board therefore concluded that the investment of cash collateral received in connection with the securities lending program in the money market funds according to the procedures is in the best interests of each lending Fund and its respective shareholders.
After consideration of these factors, the Board found that with respect to each Fund: (i) the services provided to the Fund and its shareholders were adequate; (ii) the Advisory Agreement was fair and reasonable under the circumstances; and (iii) the fees payable under the Advisory Agreements would have been obtained through arm's length negotiations. The Board therefore concluded that each Fund's Advisory Agreement was in the best interests of each Fund and its shareholders and approved the Advisory Agreement.
COMPENSATION
Each trustee who is not affiliated with AIM is compensated for his or her services according to a fee schedule which recognizes the fact that such trustee also serves as a director or trustee of other AIM Funds. Each such trustee receives a fee, allocated among the AIM Funds for which he or she serves as a director or trustee, which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each trustee of the Trust who was not affiliated with AIM during the year ended December 31, 2003 is found in Appendix C.
Retirement Plan For Trustees
The trustees have adopted a retirement plan for the trustees of the Trust who are not affiliated with AIM. The retirement plan includes a retirement policy as well as retirement benefits for the non-AIM-affiliated trustees.
The retirement policy permits each non-AIM-affiliated trustee to serve until December 31 of the year in which the trustee turns 72. A majority of the trustees may extend from time to time the retirement date of a trustee.
Annual retirement benefits are available to each non-AIM-affiliated
trustee of the Trust and/or the other AIM Funds (each, a "Covered Fund") who has
at least five years of credited service as a trustee (including service to a
predecessor fund) for a Covered Fund. The retirement benefits will equal 75% of
the trustee's annual retainer paid or accrued by any Covered Fund to such
trustee during the twelve-month period prior to retirement, including the amount
of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the trustee. The annual retirement benefits are
payable in quarterly installments for a number of years equal to the lesser of
(i) ten or (ii) the number of such trustee's credited years of service. A death
benefit is also available under the plan that provides a surviving spouse with a
quarterly installment of 50% of a deceased trustee's retirement benefits for the
same length of time that the trustee would have received based on his or her
service. A trustee must have attained the age of 65 (55 in the event of death or
disability) to receive any retirement benefit.
Deferred Compensation Agreements
Messrs. Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis (for purposes of this paragraph only, the "Deferring Trustees") have each executed a Deferred Compensation Agreement (collectively, the "Compensation Agreements"). Pursuant to the Compensation Agreements, the Deferring Trustees have the option to elect to defer receipt of up to 100% of their compensation payable by the Trust, and 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 Board, in its sole discretion, also may accelerate or extend the distribution of such deferral accounts after the Deferring Trustee's retirement benefits commence under the Plan. The Board, in its sole discretion, also may accelerate or extend the distribution of such deferral accounts after the Deferring Trustee's termination of service as a trustee of the Trust. If a Deferring Trustee dies prior to the distribution of amounts in his or her deferral account, the balance of the deferral account will be distributed to his or her designated beneficiary. The Compensation Agreements are not funded and, with respect to the payments of amounts held in the deferral accounts, the Deferring Trustees have the status of unsecured creditors of the Trust and of each other AIM Fund from which they are deferring compensation.
Purchase of Class A Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may purchase
Class A shares of the AIM Funds without paying an initial sales charge. AIM
Distributors permits such purchases because there is a reduced sales effort
involved in sales to such purchasers, thereby resulting in relatively low
expenses of distribution. For a complete description of the persons who will not
pay an initial sales charge on purchases of Class A shares of the Funds, see
"Purchase, Redemption and Pricing of Shares - Purchase and Redemption of Shares
- Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money
Market Fund - Purchases of Class A Shares at Net Asset Value."
CODES OF ETHICS
AIM, the Trust, AIM Distributors and INVESCO Institutional (N.A.), Inc. ("the Sub-Advisor") have each adopted a Code of Ethics governing, as applicable, personal trading activities of all trustees, officers of the Trust, persons who, in connection with their regular functions, play a role in the recommendation of any purchase or sale of a security by any of the Funds or obtain information pertaining to such purchase or sale, and certain other employees. The Codes of Ethics are intended to prohibit conflicts of interest with the Trust that may arise from personal trading. Personal trading, including personal trading involving securities that may be purchased or held by a Fund, is permitted by persons covered under the relevant Codes subject to certain restrictions; however those persons are generally required to pre-clear all security transactions with the Compliance Officer or his designee and to report all transactions on a regular basis.
PROXY VOTING POLICIES
The Board has delegated responsibility for decisions regarding proxy voting for securities held by each Fund (except AIM Real Estate Fund) to AIM, the Fund's investment advisor. The Board has delegated responsibility for decisions regarding proxy voting for securities held by AIM Real Estate Fund to the Fund's Investment Sub-Advisor. The investment advisor or Sub-Advisor will vote such proxies in accordance with its proxy policies and procedures, which have been reviewed and approved by the Board, and which are found in Appendix D.
Any material changes to the proxy policies and procedures will be submitted to the Board for approval. The Board will be supplied with a summary quarterly report of each Fund's proxy voting record.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of each Fund's shares by beneficial or record owners of such Fund and by trustees and officers as a group is found in Appendix E. A shareholder who owns beneficially 25% or more of the outstanding shares of a Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Funds' investment advisor, was organized in 1976, and along with its subsidiaries, manages or advises over 200 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 Investment Advisory Agreement provides that, in fulfilling its responsibilities, AIM may engage the services of other investment managers with respect to one or more of the Funds. The investment advisory services of AIM and the investment sub-advisory services of the sub-advisors to the Funds are not exclusive and AIM and sub-advisors are free to render investment advisory services to others, including other investment companies.
AIM is also responsible for furnishing to each Fund, at AIM's expense, the services of persons believed to be competent to perform all supervisory and administrative services required by each Fund, in the judgment of the trustees, to conduct their respective businesses effectively, as well as the offices, equipment and other facilities necessary for their operations. Such functions include the maintenance of each Fund's accounts and records, and the preparation of all requisite corporate documents such as tax returns and reports to the SEC and shareholders.
The Master Investment Advisory Agreement provides that each Fund will pay or cause to be paid all expenses of such Fund not assumed by AIM, including, without limitation: brokerage commissions, taxes, legal, auditing or governmental fees, the cost of preparing share certificates, custodian, transfer and shareholder service agent costs, expenses of issue, sale, redemption, and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to trustee and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees and other expenses incurred by the Trust on behalf of each Fund in connection with membership in investment company organizations, and the cost of printing copies of prospectuses and statements of additional information distributed to shareholders.
AIM, at its own expense, furnishes to the Trust office space and facilities. AIM furnishes to the Trust all personnel for managing the affairs of the Trust and each of its series of shares.
Pursuant to the Master Investment 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 0.55%
Next $500 million 0.50%
Amount over $1 billion 0.45%
AIM Income Fund First $200 million 0.50%
AIM Intermediate Government Fund Next $300 million 0.40%
AIM Municipal Bond Fund Next $500 million 0.35%
Amount over $1 billion 0.30%
AIM Money Market Fund First $1 billion 0.55%
Amount over $1 billion 0.50%
AIM Limited Maturity Treasury Fund First $500 million 0.20%
Amount over $500 million 0.175%
AIM Real Estate Fund All Assets 0.90%
AIM Short Term Bond Fund All Assets 0.40%
AIM Total Return Bond First $500 million 0.50%
Next $500 million 0.45%
Amount over $1 billion 0.40%
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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. Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus may not be terminated or amended to the Funds' detriment during the period stated in the agreement between AIM and the Fund.
AIM has voluntarily agreed to waive a portion of advisory fees payable by each Fund. The amount of the waiver will equal 25% of the advisory fee AIM receives from the Affiliated Money Market Funds as a result of each Fund's Investment of uninvested cash in an Affiliated Money Market Fund. Termination of this agreement requires approval by the Board. See "Description of the Funds and Their Investments and Risks - Investment Strategies and Risks - Other Investments - Other Investment Companies."
AIM has contractually agreed through July 31, 2004, to waive fees and/or reimburse expenses (excluding interest, taxes, dividends on short sales, fund merger and reorganization expenses, extraordinary items and increases in expenses due to expense offset arrangements, if any) for AIM Total Return Bond Fund's Class A, Class B and Class C shares to the extent necessary to limit the total operating expenses of Class A shares to 1.25% (e.g., if AIM waives 1.86% of Class A expenses, AIM will also waive 1.86% of Class B and Class C expenses). Such contractual fee waivers or reductions are set forth in the Fee Table to the Fund's Prospectus and may not be terminated or amended to the Funds' detriment during the period stated in the agreement between AIM and the Fund.
AIM has contractually agreed through July 31, 2004, to waive fees and/or reimburse expenses (excluding interest, taxes, dividends on short sales, fund merger and reorganization expenses, extraordinary items and increases in expenses due to expense offset arrangements, if any) for AIM Short Term Bond Fund's Class C shares to the extent necessary to limit the total operating expenses of Class C shares to 1.20%. Such contractual fee waivers or reductions are set forth in the Fee Table to the Fund's Prospectus and may not be terminated or amended to the Fund's detriment during the period stated in the agreements between AIM and the Fund.
INVESTMENT SUB-ADVISOR
AIM has entered into a Master Sub-Advisory contract with INVESCO Institutional (N.A.), Inc. ("INVESCO, Inc.") (the "Sub-Advisor") to provide investment sub-advisory services to AIM Real Estate Fund.
INVESCO, Inc. is registered as an investment advisor under the Advisers Act. INVESCO, Inc. believes it has one of the nation's largest discretionary portfolios of tax-exempt accounts (such as pension and profit sharing funds for corporations and state and local governments). Funds are supervised by investment managers who utilize INVESCO, Inc.'s facilities for investment research and analysis, review of current economic conditions and trends, and consideration of long-range investment policy matters.
AIM and INVESCO, Inc. are indirect wholly owned subsidiaries of
AMVESCAP (formerly, AMVESCO PLC and INVESCO PLC).
For the services to be rendered by INVESCO, Inc. under its Master Sub-Advisory Contract, the Advisor will pay the Sub-Advisor a fee which will be computed daily and paid as of the last day of each month on the basis of the Fund's daily net asset value, using for each daily calculation the most recently determined net asset value of the Fund. (See "Computation of Net Asset Value.") On an annual basis, the sub-advisory fee is equal to 0.40% of the Advisor's compensation of the sub-advised assets per year, for AIM Real Estate Fund.
The management fees payable by the Fund, the amounts waived by AIM and the net fee paid by the Fund for the last three fiscal years ended July 31, are found in Appendix F.
SECURITIES LENDING ARRANGEMENTS. If a Fund engages in securities lending, AIM will provide the Fund investment advisory services and related administrative services. The advisory agreement describes the administrative services to be rendered by AIM if a Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Services to be provided include: (a) overseeing participation in the
securities lending program to ensure compliance with all applicable regulatory
and investment guidelines; (b) assisting the securities lending agent or
principal (the "agent") in determining which specific securities are available
for loan; (c) monitoring the agent to ensure that securities loans are effected
in accordance with AIM's instructions and with procedures adopted by the Board;
(d) preparing appropriate periodic reports for, and seeking appropriate
approvals from, the Board with respect to securities lending activities; (e)
responding to agent inquiries; and (f) performing such other duties as may be
necessary.
AIM's compensation for advisory services rendered in connection with securities lending is included in the advisory fee schedule. As compensation for the related administrative services AIM will provide, a lending Fund will pay AIM a fee equal to 25% of the net monthly interest or fee income retained or paid to the Fund from such activities. AIM currently intends to waive such fee, and has agreed to seek Board approval prior to its receipt of all or a portion of such fee.
SERVICE AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Trust have entered into a Master Administrative Services Agreement ("Administrative Services Agreement") pursuant to which AIM may perform or arrange for the provision of certain accounting and other administrative services to each Fund which are not required to be performed by AIM under the advisory agreement. The Administrative Services Agreement provides that it will remain in effect and continue from year to year only if such continuance is specifically approved at least annually by the Board, 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. Currently, AIM is reimbursed for the services of the Trust's principal financial officer and her staff, and any expenses related to fund accounting services.
Administrative services fees paid to AIM by each Fund for the last three fiscal years ended July 31, are found in Appendix G.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. AIM Investment Services, Inc. ("AIS") (formerly, A I M Fund Services, Inc.), 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 AIS provides that AIS will perform certain shareholder services for the Funds. The Transfer Agency and Service Agreement provides that AIS 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. AIS 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).
Primerica Shareholder Services, Inc. ("PSS"), 3120 Breckinridge Boulevard, Duluth, Georgia 30099-0001 has also entered into an agreement with the Trust (and certain other AIM Funds), and AISI pursuant to which PSS is paid a per account fee to perform certain shareholder sub-accounting services for its customers who beneficially own shares of the Funds.
CUSTODIANS. State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and cash of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund. The Bank of New York, 100 Church Street, New York, New York 10286, is custodian of all securities and cash of AIM Limited Maturity Fund, AIM Money Market Fund and AIM Municipal Bond Fund. Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as sub-custodian for purchases of shares of the Funds. The Bank of New York also serves as sub-custodian to facilitate cash management.
The custodians are authorized to establish separate accounts in foreign countries and to cause foreign securities owned by the Funds to be held outside the United States in branches of U.S. banks and, to the extent permitted by applicable regulations, in certain foreign banks and securities depositories. AIM is responsible for selecting eligible foreign securities depositories and for assessing the risks associated with investing in foreign countries, including the risk of using eligible foreign securities depositories in a country. The custodians are responsible for monitoring eligible foreign securities depositories.
Under their contracts with the Trust, the custodians maintain the portfolio securities of the Funds, administer the purchases and sales of portfolio securities, collect interest and dividends and other distributions made on the securities held in the portfolios of the Funds and perform other ministerial duties. These services do not include any supervisory function over management or provide any protection against any possible depreciation of assets.
AUDITORS. The Funds' independent public accountants are responsible for auditing the financial statements of the Funds. The Board has selected Ernst & Young LLP, 5 Houston Center, 1401 McKinney, Suite 1200, Houston, Texas 77010-4035, as the independent public accountants to audit the financial statements of the Funds.
COUNSEL TO THE TRUST. Legal matters for the Trust have been passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania 19103-7599.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Sub-Advisor has adopted compliance procedures that cover, among other items, brokerage allocation and other trading practices. Unless specifically noted, the Sub-Advisor's procedures do not materially differ from AIM's procedures as set forth below.
BROKERAGE TRANSACTIONS
AIM or the Sub-Advisor as applicable, 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 (except AIM Real Estate Fund) 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 to the broker-dealer, including electronic communication networks.
Traditionally, commission rates have not been negotiated on stock markets outside the United States. Although in recent years many overseas stock markets have adopted a system of negotiated rates, a number of markets maintain an established schedule of minimum commission rates.
Brokerage commissions paid by each of the Funds during the last three fiscal years ended July 31, are found in Appendix H.
COMMISSIONS
During the last three fiscal years ended July 31, none of the Funds paid brokerage commissions to brokers affiliated with the Funds, AIM, AIM Distributors, or any affiliates of such entities.
The Funds may engage in certain principal and agency transactions with banks and their affiliates that own 5% or more of the outstanding voting securities of an AIM Fund, provided the conditions of an exemptive order received by the AIM Funds from the SEC are met. In addition, a Fund may purchase or sell a security from or to certain other Funds or accounts (and may invest in Affiliated Money Market Funds) provided the Funds follow procedures adopted by the Boards of 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 Board and a determination is made that the placement fee or other remuneration paid by the issuer to a person affiliated with the Trust is fair and reasonable in relation to the fees charged by others performing similar services.
BROKERAGE SELECTION
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM, under certain circumstances, lawfully may cause an account to pay a higher commission than the lowest available. Under Section 28(e)(1), AIM must make a good faith determination that the commissions paid are "reasonable in relation to the value of the brokerage and research services provided ... viewed in terms of either that particular transaction or [AIM's] overall responsibilities with respect to the accounts as to which [it] exercises investment discretion." The services provided by the broker also must lawfully and appropriately assist AIM in the performance of its investment decision-making responsibilities. Accordingly, in recognition of research services provided to it, a Fund may pay a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment 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 provide a more in-depth analysis of a broader universe of securities and other matters than AIM's staff can follow. In addition, the research provides AIM with a diverse perspective on financial markets. Research services provided to AIM by broker-dealers are available for the benefit of all accounts managed or advised by AIM or by its affiliates. Some broker-dealers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by AIM's clients, including the Funds. However, the Funds are not under any obligation to deal with any broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the broker-dealer providing them. In other cases, the research services may be obtainable from alternative sources in return for cash payments. AIM believes that the research services are beneficial in supplementing AIM's research and analysis and that they improve the quality of AIM's investment advice. The advisory fee paid by the Funds is not reduced because AIM receives such services. However, to the extent that AIM would have purchased research services had they not been provided by broker-dealers, the expenses to AIM could be considered to have been reduced accordingly.
AIM may determine target levels of brokerage business with various brokers on behalf of its clients (including the Funds) over a certain time period. The target levels will be based upon the following factors, among others: (1) the execution services provided by the broker and; (2) the research services provided by the broker. Fund transactions also may be effected through broker-dealers that recommend the Funds to their clients, or that act as agent in the purchase of a Fund's shares for their clients. AIM will not enter into a binding commitment with brokers to place trades with such brokers involving brokerage commissions in precise amounts.
DIRECTED BROKERAGE (RESEARCH SERVICES)
Directed brokerage (research services) paid by each of the Funds during the last fiscal year ended July 31, 2003 are found in Appendix I.
REGULAR BROKERS OR DEALERS
Information concerning each Funds' acquisition of securities of their regular brokers or dealers during the last fiscal year ended July 31, 2003 is found in Appendix I.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous other investment accounts. Some of these accounts may have investment objectives similar to the Funds. Occasionally, identical securities will be appropriate for investment by one of the Funds and by another Fund or one or more of these investment accounts. However, the position of each account in the same securities and the length of time that each account may hold its investment in the same securities may vary. The timing and amount of purchase by each account will also be determined by its cash position. If the purchase or sale of securities is consistent with the investment policies of the Fund(s) and one or more of these accounts, and is considered at or about the same time, AIM will fairly allocate transactions in such securities among the Fund(s) and these accounts. AIM may combine such transactions, in accordance with applicable laws and regulations, to obtain the most favorable execution. Simultaneous transactions could, however, adversely affect a Fund's ability to obtain or dispose of the full amount of a security which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among the various investment accounts advised by AIM results in transactions which could have an adverse effect on the price or amount of securities available to a Fund. In making such allocations, AIM considers the investment objectives and policies of its advisory clients, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held, and the judgments of the persons responsible for recommending the investment. This procedure would apply to transactions in both equity and fixed income securities.
ALLOCATION OF INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS
Certain of the AIM Funds or other accounts managed by AIM may become interested in participating in IPOs. Purchases of IPOs by one AIM Fund or account may also be considered for purchase by one or more other AIM Funds or accounts. It shall be AIM's practice to specifically combine or otherwise bunch indications of interest for IPOs for all AIM Funds and accounts participating in purchase transactions for that IPO, and to allocate such transactions in accordance with the following procedures:
AIM will determine the eligibility of each AIM Fund and account that seeks to participate in a particular IPO by reviewing a number of factors, including suitability of the investment with the AIM Fund's or account's investment objective, policies and strategies, the liquidity of the AIM Fund or account if such investment is purchased, and whether the portfolio manager intends to hold the security as a long-term investment. The allocation of securities issued in IPOs will be made to eligible AIM Funds and accounts in a manner designed to be fair and equitable for the eligible AIM Funds and accounts, and so that there is equal allocation of IPOs over the longer term. Where multiple funds or accounts are eligible, rotational participation may occur, based on the extent to which an AIM Fund or account has participated in previous IPOs as well as the size of the AIM Fund or account. Each eligible AIM Fund and account will be placed in one of four tiers, depending upon each AIM Fund's or account's asset level. The AIM Funds and accounts in the tier containing funds and accounts with the smallest asset levels will participate first, each receiving a 40 basis point allocation (rounded to the nearest share round lot that approximates 40 basis points) (the "Allocation"), based on that AIM Fund's or account's net assets. This process continues until all of the AIM Funds and accounts in the four tiers receive their Allocations, or until the shares are all allocated. Should securities remain after this process, eligible AIM Funds and accounts will receive their Allocations on a straight pro rata basis. In addition, Incubator Funds, as described in AIM's Incubator and New Fund Investment Policy, and any other AIM Fund which has more than 5% of its outstanding shares owned by AIM or one of its affiliates, officers, directors or employees; will each be limited to a 40 basis point allocation only. Such allocations will be allocated to the nearest share round lot that approximates 40 basis points.
When any AIM Funds and/or accounts with substantially identical investment objectives and policies participate in IPOs, they will do so in amounts that are substantially proportionate to each other. In these cases, the net assets of the largest participating AIM Fund will be used to determine in which tier, as described in the paragraph above, such group of AIM Funds or accounts will be placed. If no
AIM Fund is participating, then the net assets of the largest account will be used to determine tier placement. The price per share of securities purchased in such IPOs transactions will be the same for each AIM Fund and account.
On occasion, when the Sub-Advisor is purchasing certain thinly-traded securities or shares in an initial public offering for the Funds or other clients, the situation may arise that the Sub-Advisor is unable to obtain sufficient securities to fill the orders of the Funds or all other relevant clients. In that situation, the Sub-Advisor is required to use pro-rata allocation methods that ensure the fair and equitable treatment of all clients. (Such methods may include, for example, pro-rata allocation on each relevant trade, or "rotational" allocation).
The requirement of pro-rata allocation is subject to limited exceptions
- such as when the Funds or accounts are subject to special investment
objectives or size constraints on investment positions.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE AND REDEMPTION OF SHARES
Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money Market Fund
INITIAL SALES CHARGES. Each AIM Fund (other than AIM Money Market Fund, AIM Tax-Exempt Cash Fund and AIM Short Term Bond Fund) is grouped into one of three categories to determine the applicable initial sales charge for its Class A Shares. The sales charge is used to compensate AIM Distributors and participating dealers for their expenses incurred in connection with the distribution of the Funds' shares. You may also be charged a transaction or other fee by the financial institution managing your account.
Class A Shares of AIM Tax-Exempt Cash Fund, Class A3 Shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money Market Fund are sold without an initial sales charge.
CATEGORY I FUNDS
AIM Aggressive Growth Fund
AIM Asia Pacific Growth Fund
AIM Asset Allocation Fund
AIM Basic Value Fund
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Charter Fund
AIM Conservative Allocation Fund
AIM Constellation Fund
AIM Dent Demographic Trends Fund
AIM Diversified Dividend Fund
AIM Emerging Growth Fund
AIM European Growth Fund
AIM European Small Company Fund
AIM Global Value Fund
AIM International Emerging Growth Fund
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund
AIM Libra Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund
AIM Mid Cap Growth Fund
AIM Moderate Allocation Fund
AIM Opportunities I Fund
AIM Opportunities II Fund
AIM Opportunities III Fund
AIM Premier Equity Fund
AIM Select Equity Fund
AIM Small Cap Equity Fund
AIM Small Cap Growth Fund
AIM Trimark Endeavor Fund
AIM Trimark Fund
AIM Trimark Small Companies Fund
AIM Weingarten 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 Opportunities I Fund will not accept any single purchase in excess of $250,000.
CATEGORY II FUNDS
AIM Balanced Fund
AIM Basic Balanced Fund
AIM Developing Markets Fund
AIM Global Aggressive Growth Fund
AIM Global Growth Fund
AIM Global Health Care Fund
AIM Global Equity Fund
AIM High Income Municipal Fund
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM Municipal Bond Fund
AIM Real Estate Fund
AIM Total Return Bond 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
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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
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AIM SHORT TERM BOND 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 2.50% 2.56% 2.00%
$100,000 but less than $ 250,000 2.00 2.04 1.50
$250,000 but less than $ 500,000 1.50 1.52 1.25
$500,000 but less than $1,000,000 1.25 1.27 1.00
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Beginning on October 31, 2003 Class A Shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund was closed to new investors. Current investors must maintain a share balance in order to continue to make incremental purchases.
LARGE PURCHASES OF CLASS A SHARES. Investors who purchase $1,000,000 or more of Class A Shares of Category I, II or III Funds and Class A shares of AIM Short Term Bond Fund do not pay an initial sales charge. In addition, investors who currently own Class A shares of Category I, II, or III Funds and Class A shares of AIM Short Term Bond Fund 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 and Class A shares of AIM Short Term Bond Fund, however, each share will generally be subject to a 1.00% contingent deferred sales charge ("CDSC") if the investor redeems those shares within 18 months after purchase.
AIM Distributors may pay a dealer concession and/or advance a service fee on Large Purchases, as set forth below. Exchanges between the AIM Funds may affect total compensation paid.
AIM Distributors may make the following payments to dealers of record
for Large Purchases of Class A shares of Category I or II Funds or AIM Short
Term Bond Fund by investors other than: (i) retirement plans that are maintained
pursuant to Sections 401 and 457 of the Internal Revenue Code of 1986, as
amended (the Code"), and (ii) retirement plans that are maintained pursuant to
Section 403 of the Code if the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3) of the Code:
PERCENT OF PURCHASES
1% of the first $2 million
plus 0.80% of the next $1 million plus 0.50% of the next $17 million plus 0.25% of amounts in excess of $20 million
If (i) the amount of any single purchase order plus (ii) the net asset value of all other shares owned by the same customer submitting the purchase order on the day on which the purchase order is received equals or exceeds $1,000,000, the purchase will be considered a "jumbo accumulation purchase." With regard to any individual jumbo accumulation purchase, AIM Distributors may make payment to the dealer of record based on the cumulative total of jumbo accumulation purchases made by the same customer over the life of his or her account(s).
If an investor made a Large Purchase of Class A shares of a Category III Fund on and after November 15, 2001 and through October 30, 2002 and exchanges those shares for Class A shares of a Category I or II Fund, AIM Distributors will pay an additional dealer concession of 0.75% upon exchange.
If an investor makes a Large Purchase of Class A shares of a Category I or II Fund or AIM Short Term Bond Fund on or after November 15, 2001 and exchanges those shares for Class A shares of a Category III Fund, AIM Distributors will not pay any additional dealer compensation upon the exchange. Beginning on February 17, 2003, Class A Shares of a Category I or II Fund or AIM Short Term Bond Fund may not be exchanged for Class A Shares of a Category III Fund.
If an investor makes a Large Purchase of Class A3 shares of a Category III Fund on and after October 31, 2002 and exchanges those shares for Class A shares of a Category I or II Fund or AIM Short Term Bond Fund, AIM Distributors will pay 1.00% of such purchases as dealer compensation upon the exchange. The Class A Shares of the Category I or II Fund or AIM Short Term Bond Fund received in exchange generally will be subject to a 1.00% CDSC if the investor redeems such shares within 18 months from the date of exchange.
If an investor makes a Large Purchase of Class A shares of a Category III Fund and exchanges those shares for Class A shares of another Category III Fund, AIM Distributors will not pay any additional dealer concession upon the exchange. Beginning on February 17, 2003, Class A Shares of a Category III Fund may not be exchanged for Class A Shares of another Category III Fund.
PURCHASES OF CLASS A SHARES BY CERTAIN RETIREMENT PLANS AT NAV. Effective November 1, 2002, for purchases of Class A shares of Category I and II Funds and AIM Short Term Bond Fund, AIM Distributors may make the following payments to investment dealers or other financial service firms for sales of such shares at net asset value ("NAV") to certain retirement plans provided that the applicable dealer of record is able to establish that the retirement plan's purchase of Class A shares is a new investment (as defined below):
PERCENT OF PURCHASE
0.50% of the first $20 million
plus 0.25% of amounts in excess of $20 million
This payment schedule will be applicable to purchases of Class A shares at NAV by the following types of retirement plans: (i) all plans maintained pursuant to Sections 401 and 457 of the Code, and (ii) plans maintained pursuant to Section 403 of the Code if the employer or plan sponsor is a tax-exempt organization operated pursuant to Section 501(c)(3) of the Code.
A "new investment" means a purchase paid for with money that does not represent (i) the proceeds of one or more redemptions of AIM Fund shares, (ii) an exchange of AIM Fund shares or (iii) the repayment of one or more retirement plan loans that were funded through the redemption of AIM Fund shares. If AIM Distributors pays a dealer concession in connection with a plan's purchase of Class A shares at NAV, such shares may be subject to a CDSC of 1.00% of net assets for 12 months, commencing on the date the plan first invests in Class A shares of an AIM Fund. If the applicable dealer of record is unable to establish that a plan's purchase of Class A shares at NAV is a new investment, AIM Distributors will not pay a dealer concession in connection with such purchase and such shares will not be subject to a CDSC.
With regard to any individual jumbo accumulation purchase, AIM Distributors may make payment to the dealer of record based on the cumulative total of jumbo accumulation purchases made by the same plan over the life of the plan's account(s).
PURCHASERS QUALIFYING FOR REDUCTIONS IN INITIAL SALES CHARGES. As shown in the tables above, purchases of certain amounts of AIM Fund shares may reduce the initial sales charges. These
reductions are available to purchasers that meet the qualifications listed below. We will refer to purchasers that meet these qualifications as "Qualified Purchasers."
INDIVIDUALS
- an individual (including his or her spouse or domestic partner, and children);
- any trust established exclusively for the benefit of an individual ;
- a retirement plan established exclusively for the benefit of an individual, specifically including, but not limited to, a Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, Solo 401(k), Keogh plan, or a tax-sheltered 403(b)(7) custodial account; and
- a qualified tuition plan account, maintained pursuant to
Section 529 of the Code, or a Coverdell Education Savings
Account, maintained pursuant to Section 530 of the Code (in
either case, the account must be established by an individual
or have an individual named as the beneficiary thereof).
EMPLOYER-SPONSORED RETIREMENT PLANS
- a retirement plan maintained pursuant to Sections 401, 403 (only if the employer or plan sponsor is a tax-exempt organization operated pursuant to Section 501(c)(3) of the Code), 408 (includes SEP, SARSEP and SIMPLE IRA plans) or 457 of the Code, if:
a. the employer or plan sponsor submits all contributions for all participating employees in a single contribution transmittal (the AIM Funds will not accept separate contributions submitted with respect to individual participants);
b. each transmittal is accompanied by a single check or wire transfer; and
c. if the AIM Funds are expected to carry separate accounts in the names of each of the plan participants, (i) the employer or plan sponsor notifies AIM Distributors in writing that the separate accounts of all plan participants should be linked, and (ii) all new participant accounts are established by submitting an appropriate Account Application on behalf of each new participant with the contribution transmittal.
TRUSTEES AND FIDUCIARIES
- a trustee or fiduciary purchasing for a single trust, estate or fiduciary account.
OTHER GROUPS
- any organized group of persons, whether incorporated or not, purchasing AIM Fund shares through a single account provided that:
a. the organization has been in existence for at least six months; and
b. the organization has some purpose other than the purchase at a discount of redeemable securities of a registered investment company.
HOW TO QUALIFY FOR REDUCTIONS IN INITIAL SALES CHARGES. The following sections discuss different ways that a Qualified Purchaser can qualify for a reduction in the initial sales charges for purchases of Class A shares of the AIM Funds.
LETTERS OF INTENT
A Qualified Purchaser may pay reduced initial sales charges by (i) indicating on the Account Application that he, she or it intends to provide a Letter of Intent ("LOI"); and (ii) subsequently fulfilling the conditions of that LOI.
The LOI confirms the total investment in shares of the AIM Funds that the Qualified Purchaser intends to make within the next 13 months. By marking the LOI section on the account application and by signing the account application, the Qualified Purchaser indicates that he, she or it understands and agrees to the terms of the LOI and is bound by the provisions described below:
Calculating the Initial Sales Charge
- Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI (to determine what the applicable public offering price is, look at the sales charge table in the section on "Initial Sales Charges" above).
- 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.
- 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.
- 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
- 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.
- 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.
- 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.
- The Transfer Agent will process necessary adjustments upon the expiration or completion date of the LOI.
Fulfilling the Intended Investment
- 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.
- 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.
- 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
- 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.
- 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 entered into an LOI to purchase $1,000,000 or more of Class A shares of a Category III Fund on and after November 15, 2001 and through October 30, 2002, such shares will be subject to a 12-month, 0.25% CDSC. Purchases of Class A shares of a Category III Fund made pursuant to an LOI to purchase $1,000,000 or more of shares entered into prior to November 15, 2001 or after October 30, 2002 will not be subject to this CDSC. All LOIs to purchase $1,000,000 or more of Class A Shares of Category I and II Funds and AIM Short Term Bond Fund are subject to an 18-month, 1% CDSC.
RIGHTS OF ACCUMULATION
A Qualified Purchaser may also qualify for reduced initial sales charges based upon his, her or its existing investment in shares of any of the AIM Funds at the time of the proposed purchase. To determine whether or not a reduced initial sales charge applies to a proposed purchase, AIM Distributors takes into account not only the money which is invested upon such proposed purchase, but also the value of all shares of the AIM Funds owned by such purchaser, calculated at their then current public offering price.
If a purchaser qualifies for a reduced sales charge, the reduced sales charge applies to the total amount of money being invested, even if only a portion of that amount exceeds the breakpoint for the reduced sales charge. For example, if a purchaser already owns qualifying shares of any AIM Fund with a value of $20,000 and wishes to invest an additional $20,000 in a fund with a maximum initial sales charge of 5.50%, the reduced initial sales charge of 5.25% will apply to the full $20,000 purchase and not just to the $15,000 in excess of the $25,000 breakpoint.
To qualify for obtaining the discount applicable to a particular purchase, the purchaser or his dealer must furnish the Transfer Agent with a list of the account numbers and the names in which such accounts of the purchaser are registered at the time the purchase is made.
Rights of Accumulation are also available to holders of the Connecticut General Guaranteed Account, established for tax-qualified group annuities, for contracts purchased on or before June 30, 1992.
If an investor's new purchase of Class A shares of a Category I or II Fund or AIM Short Term Bond Fund is at net asset value, the newly purchased shares will be subject to a CDSC if the investor redeems them prior to the end of the 18 month holding period (12 months for Category III Fund shares). For new purchases of Class A shares of Category III Funds at net asset value made on and after November 15, 2001 and through October 30, 2002, the newly purchased shares will be subject to a CDSC if the investor redeems them prior to the end of the 12 month holding period.
OTHER REQUIREMENTS FOR REDUCTIONS IN INITIAL SALES CHARGES. As discussed above, investors or dealers seeking to qualify orders for a reduced initial sales charge must identify such orders and, if necessary, support their qualification for the reduced charge. AIM Distributors reserves the right to determine whether any purchaser is entitled to the reduced sales charge based on the definition of a Qualified Purchaser listed above. No person or entity may distribute shares of the AIM Funds without payment of the applicable sales charge other than to Qualified Purchasers.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 Shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash Reserve Shares of AIM Money Market Fund, and Class B and Class C shares of AIM Floating Rate Fund and Investor Class shares of any kind 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:
- 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
- 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:
- AIM Management and its affiliates, or their clients;
- 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-- any foundation, trust or employee benefit plan established exclusively for the benefit of, or by, such persons and any deferred compensation plan for trustees of investment companies sponsored by A I M Management or its affiliates;
- Any current or retired officer, director, or employee (and members of their immediate family), of DST Systems, Inc. or Personix, a division of Fiserv Solutions, Inc.;
- 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;
- Purchases through approved fee-based programs;
- Employer-sponsored retirement plans that are Qualified Purchasers, as defined above, provided that:
a. a plan's initial investment is at least $1 million;
b. the employer or plan sponsor signs a $1 million LOI;
c. there are at least 100 employees eligible to participate in the plan; or
d. all plan transactions are executed through a single omnibus account per AIM Fund and the financial institution or service organization has entered into the appropriate agreement with the distributor; further provided that
e. retirement plans maintained pursuant to Section 403(b) of the Code are not eligible to purchase shares at NAV based on the aggregate investment made by the plan or the number of eligible employees unless the employer or plan sponsor is a tax-exempt organization operated pursuant to Section 501(c)(3) of the Code; and
f. purchases of AIM Opportunities I Fund by all retirement plans are subject to initial sales charges;
- 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;
- 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;
- 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;
- 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;
- 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;
- 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;
- 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;
- Qualified Tuition Programs created and maintained in accordance with
Section 529 of the Code;
- Shareholders of Investor Class shares of an AIM Fund;
- Initial purchases made by Qualified Purchasers, as defined above, within one (1) year after the registered representative who services their account(s) has become affiliated with a selling group member with which AIM Distributors has entered into a written agreement; and
- Participants in select brokerage programs for retirement plans and rollover IRAs who purchase shares through an electronic brokerage platform offered by entities with which AIM Distributors has entered into a written agreement.
As used above, immediate family includes an individual and his or her spouse or domestic partner, children, parents and parents of spouse or domestic partner.
In addition, an investor may acquire shares of any of the AIM Funds at net asset value in connection with:
- the reinvestment of dividends and distributions from a Fund;
- exchanges of shares of certain Funds;
- use of the reinstatement privilege; or
- 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 out of its own financial resources or as an expense for which it may be compensated or reimbursed by an AIM Fund under a distribution plan, if applicable, make cash payments to dealer firms as an incentive to sell shares of the funds and/or to promote retention of their customers' assets in the funds. Such cash payments may be calculated on sales of shares of AIM Funds ("Sales-Based Payments"), in which case the total amount of such payments shall not exceed 0.25% of the public offering price of all shares sold by the dealer firm during the applicable period. Such cash payments also may be calculated on the average daily net assets of the applicable AIM Fund(s) attributable to that particular dealer ("Asset-Based Payments"), in which case the total amount of such cash payments shall not exceed 0.25% per annum of those assets during a defined period. AIM Distributors may agree to make such cash payments to a dealer firm in the form of either or both Sales-Based Payments and Asset-Based Payments. AIM Distributors may also make other cash payments to dealer firms in addition to or in lieu of Sales-Based Payments and Asset-Based Payments, in the form of payment for travel expenses, including lodging, incurred in connection with trips taken by qualifying registered representatives of those dealer firms and their families to places within or outside the United States; meeting fees; entertainment; transaction processing and transmission charges; advertising or other promotional expenses; or other amounts as determined in AIM Distributor's discretion. In certain cases these other payments could be significant to the dealer firms. To the extent dealer firms sell more shares of the Funds or cause clients to retain their investment in the Funds, AIM benefits from management and other fees it is paid with respect to those assets. Any payments described above 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. AIM Distributors determines the cash payments described above in its discretion in response to requests from dealer firms, based on factors it deems relevant. Dealers may not use sales of the AIM Funds' shares to qualify for any incentives to the extent that such incentives may be prohibited by the laws of any state."
Purchases of Class B Shares
Class B shares are sold at net asset value, and are not subject to an initial sales charge. Instead, investors may pay a CDSC if they redeem their shares within six years after purchase. See the Prospectus for additional information regarding contingent deferred sales charges. AIM Distributors may pay sales commissions to dealers and institutions who sell Class B shares of the AIM Funds at the time of such sales. Payments will equal 4.00% of the purchase price and will consist of a sales commission equal to 3.75% plus an advance of the first year service fee of 0.25%.
Purchases of Class C Shares
Class C shares are sold at net asset value, and are not subject to an initial sales charge. Instead, investors may pay a CDSC if they redeem their shares within the first year after purchase (no CDSC applies to Class C shares of AIM Short Term Bond Fund unless you exchange shares of another AIM Fund that are subject to a CDSC into AIM Short Term Bond Fund). See the Prospectus for additional information regarding this CDSC. AIM Distributors may pay sales commissions to dealers and institutions who sell Class C shares of the AIM Funds (except for Class C shares of AIM Short Term Bond Fund) at the time of such sales. Payments will equal 1.00% of the purchase price and will consist of a sales commission of 0.75% plus an advance of the first year service fee of 0.25%. These commissions are not paid on sales to investors exempt from the CDSC, including shareholders of record of AIM Advisor Funds, Inc. on April 30, 1995, who purchase additional shares in any of the Funds on or after May 1, 1995, and in circumstances where AIM Distributors grants an exemption on particular transactions.
AIM Distributors may pay dealers and institutions who sell Class C shares of AIM Short Term Bond Fund an annual fee of 0.50% of average daily net assets. These payments will consist of an asset-based fee of 0.25% and a service fee of 0.25% and will commence immediately.
Purchases of Class R Shares
Class R shares are sold at net asset value, and are not subject to an initial sales charge. If AIM Distributors pays a concession to the dealer of record, however, the Class R shares are subject to a 0.75% CDSC at the time of redemption if all retirement plan assets are redeemed within one year from the date of the retirement plan's initial purchase. For purchases of Class R shares of Category I or II Funds, AIM Distributors may make the following payments to dealers of record provided that the applicable dealer of record is able to establish that the purchase of Class R shares is a new investment or a rollover from a retirement plan in which an AIM Fund was offered as an investment option:
Percent of Cumulative Purchases
0.75% of the first $5 million
plus 0.50% of amounts in excess of $5 million
With regard to any individual purchase of Class R shares, AIM Distributors may make payment to the dealer of record based on the cumulative total of purchases made by the same plan over the life of the plan's account(s).
Purchases of Investor Class Shares
Investor Class shares are sold at net asset value, and are not subject to an initial sales charge. or to a CDSC. AIM Distributors may pay dealers and institutions an annual service fee of 0.25% of average daily net assets and such payments will commence immediately.
Exchanges
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to be acquired by exchange are purchased at their net asset value or applicable offering price, as the case may be, determined on the date that such request is received, but under unusual market conditions such purchases may be delayed for up to five business days if it is determined that a fund would be materially disadvantaged by an immediate transfer of the proceeds of the exchange. If a shareholder is exchanging into a fund paying daily dividends, and the release of the exchange proceeds is delayed for the foregoing five-day period, such shareholder will not begin to accrue dividends until the sixth business day after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with certain dealers and investment advisory firms to accept telephone instructions to exchange shares between any of the AIM Funds. AIM Distributors reserves the right to impose conditions on dealers or investment advisors who make telephone exchanges of shares of the funds, including the condition that any such dealer or investment advisor enter into an agreement (which contains additional conditions with respect to exchanges of shares) with AIM Distributors. To exchange shares by telephone, a shareholder, dealer or investment advisor who has satisfied the foregoing conditions must call AIS at (800) 959-4246. If a shareholder is unable to reach AIS 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 AIS as long as such request is received prior to the close of the customary trading session of the New York Stock Exchange ("NYSE"). AIS 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 AIS, 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 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 AIS as his true and lawful attorney-in-fact to surrender for redemption any and all unissued shares held by AIS in the designated account(s), present or future, with full power of substitution in the premises. AIS 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 AIS 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. AIS reserves the right to cease to act as attorney-in-fact subject to this appointment, and AIM Distributors reserves the right to modify or terminate the telephone redemption privilege at any time without notice. An investor may elect not to have this privilege by marking the appropriate box on the application. Then any redemptions must be effected in writing by the investor.
SYSTEMATIC REDEMPTION PLAN. A Systematic Redemption Plan permits a shareholder of an AIM Fund to withdraw on a regular basis at least $50 per withdrawal. Under a Systematic Redemption Plan, all shares are to be held by AIS and all dividends and distributions are reinvested in shares of the applicable AIM Fund by AIS. To provide funds for payments made under the Systematic Redemption Plan, AIS redeems sufficient full and fractional shares at their net asset value in effect at the time of each such redemption.
Payments under a Systematic Redemption Plan constitute taxable events. Since such payments are funded by the redemption of shares, they may result in a return of capital and in capital gains or losses, rather than in ordinary income. Because sales charges are imposed on additional purchases of shares (other than Class B, Class C or Class R shares of the Funds), it is disadvantageous to effect such purchases while a Systematic Redemption Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic Redemption Plan.
Contingent Deferred Sales Charges Imposed upon Redemption of Shares
A CDSC may be imposed upon the redemption of Large Purchases of Class A shares of Category I and II Funds and AIM Short Term Bond Fund, or upon the redemption of Class B shares or Class C shares (no CDSC applies to Class C shares of AIM Short Term Bond Fund unless you exchange shares of another AIM Fund that are subject to a CDSC into AIM Short Term Bond Fund) and, in certain circumstances, upon the redemption of Class R shares.
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:
- Redemptions of shares of Category I or II Funds and AIM Short Term Bond Fund, held more than 18 months;
- Redemptions of shares of Category III Funds purchased prior to November 15, 2001 or after October 30, 2002;
- Redemptions of shares of Category III Funds purchased on or after November 15, 2001 and through October 30, 2002 and held for more than 12 months;
- Redemptions of shares held by retirement plans in cases where
(i) the plan has remained invested in Class A shares of an AIM
Fund for at least 12 months, or (ii) the redemption is not a
complete redemption of shares held by the plan;
- Redemptions from private foundations or endowment funds;
- 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;
- Redemptions of shares of Category I, II or III Funds, AIM Cash Reserve Shares of AIM Money Market Fund or AIM Short Term Bond Fund acquired by exchange from Class A shares of a Category I or II Fund or AIM Short Term Bond Fund, unless the shares acquired by exchange (on or after November 15, 2001 and through October 30, 2002 with respect to Category III Funds) are redeemed within 18 months of the original purchase of the exchanges of Category I or II Fund or AIM Short Term Bond Fund shares;
- 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;
- Redemptions of shares of Category I or II Funds or AIM Short Term Bond Fund acquired by exchange from Class A shares of a Category III Fund purchased on and after November 15, 2001 and through October 30, 2002, unless the shares acquired by exchange are redeemed within 18 months of the original purchase of the exchanged Category III Fund shares;
- Redemptions of shares of Category III Funds, shares of AIM Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired by exchange from Class A shares of a Category III Fund purchased on and after November 15, 2001 and through October 30, 2002, unless the shares acquired by exchange are redeemed within 12 months of the original purchase of the exchanged Category III Fund shares;
- Redemptions of shares of Category I or II Funds or AIM Short Term Bond Fund 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 or AIM Short Term Bond Fund, unless the Category I or II Fund or AIM Short Term Bond Fund shares acquired by exchange are redeemed within 18 months of the original purchase of the exchanged Category I or II Funds or AIM Short Term Bond Fund shares;
- Redemptions of Category I or II Funds or AIM Short Term Bond Fund by retirement plan participants resulting from a total redemption of the plan assets that occurs more than one year from the date of the plan's initial purchase; and
- Redemptions of shares of Category I or II Funds or AIM Short Term Bond Fund held by an Investor Class shareholder.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS B AND C SHARES. Investors who purchased former GT Global funds Class B shares before June 1, 1998 are subject to the following waivers from the CDSC otherwise due upon redemption:
- Total or partial redemptions resulting from a distribution following retirement in the case of a tax-qualified employer-sponsored retirement;
- 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;
- 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;
- Redemptions made in connection with participant-directed exchanges between options in an employer-sponsored benefit plan;
- Redemptions made for the purpose of providing cash to fund a loan to a participant in a tax-qualified retirement plan;
- 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;
- Redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in
Section 401(k) of the Code to a participant or beneficiary
under Section 401(k)(2)(B)(IV) of the Code upon hardship of
the covered employee (determined pursuant to Treasury
Regulation Section 1.401(k)-1(d)(2)); and
- 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:
- Additional purchases of Class C shares of AIM International Core Equity Fund (formerly known as AIM International Value Fund) and AIM Real Estate Fund by shareholders of record on April 30, 1995, of these Funds, except that shareholders whose broker-dealers maintain a single omnibus account with AISI 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;
- 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;
- Certain distributions from individual retirement accounts,
Section 403(b) retirement plans, Section 457 deferred
compensation plans and Section 401 qualified plans, where
redemptions result from (i) required minimum distributions to
plan participants or beneficiaries who are age 70 1/2 or
older, and only with respect to that portion of such
distributions that does not exceed 12% annually of the
participant's or beneficiary's account value in a particular
AIM Fund; (ii) in kind transfers of assets where the
participant or beneficiary notifies the distributor of the
transfer no later than the time the transfer occurs; (iii)
tax-free rollovers or transfers of assets to another plan of
the type described above invested in Class B or Class C shares
of one or more of the AIM Funds; (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;
- Amounts from a Systematic Redemption Plan of up to an annual amount of 12% of the account value on a per fund basis, at the time the withdrawal plan is established, provided the investor reinvests his dividends;
- Liquidation by the Fund when the account value falls below the minimum required account size of $500; and
- Investment account(s) of AIM.
CDSCs will not apply to the following redemptions of Class C shares:
- A total or partial redemption of shares where the investor's dealer of record notified the distributor prior to the time of investment that the dealer would waive the upfront payment otherwise payable to him;
- A total or partial redemption which is necessary to fund a distribution requested by a participant in a retirement plan maintained pursuant to Section 401, 403, or 457 of the Code;
- Redemptions of Class C shares of an AIM Fund other than AIM Short Term Bond Fund if you received such Class C shares by exchanging Class C shares of AIM Short Term Bond Fund; and
- Redemptions of Class C shares of AIM Short Term Bond Fund unless you received such Class C shares by exchanging Class C shares of another AIM Fund and the original purchase was subject to a CDSC.
CDSCs will not apply to the following redemptions of Class R shares:
- Class R shares where the retirement plan's dealer of record notifies the distributor prior to the time of investment that the dealer waives the upfront payment otherwise payable to him; and
- Redemptions of shares held by retirement plans in cases where
(i) the plan has remained invested in Class R shares of an AIM
Fund for at least 12 months, or (ii) the redemption is not a
complete redemption of all Class R shares held by the plan.
General Information Regarding Purchases, Exchanges and Redemptions
GOOD ORDER. Purchase, exchange and redemption orders must be received in good order. To be in good order, an investor must supply AIS 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 AIS 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 AIS. 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 AIS' current Signature Guarantee Standards and Procedures, such as certain domestic banks, credit unions, securities dealers, or securities exchanges. AIS 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 AIS.
TRANSACTIONS BY TELEPHONE. By signing an account application form, an investor appoints AIS as his true and lawful attorney-in-fact to surrender for redemption any and all unissued shares held by AIS 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. AIS 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 AIS 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. AIS reserves the right to modify or terminate the telephone exchange privilege at any time without notice. An investor may elect not to have this privilege by marking the appropriate box on the application. Then any exchanges must be effected in writing by the investor.
INTERNET TRANSACTIONS. An investor may effect transactions in his account through the internet by establishing a Personal Identification Number (PIN). By establishing a PIN the investor acknowledges and agrees that neither AIS nor AIM Distributors will be liable for any loss, expense or cost arising out of any internet transaction effected by them in accordance with any instructions submitted by a user who transmits the PIN as authentication of his or her identity. Procedures for verification of internet transactions include requests for confirmation of the shareholder's personal identification number and mailing of confirmations promptly after the transactions. The investor also acknowledges that the ability to effect internet transactions may be terminated at any time by the AIM Funds.
ABANDONED PROPERTY. It is the responsibility of the investor to ensure that AIS maintains a correct address for his account(s). An incorrect address may cause an investor's account statements and other mailings to be returned to AIS. Upon receiving returned mail, AIS will attempt to locate the investor or rightful owner of the account. If unsuccessful, AIS will retain a shareholder locator service with a national information database to conduct periodic searches for the investor. If the search firm is unable to locate the investor, the search firm will determine whether the investor's account has legally been abandoned. AIS is legally obligated to escheat (or transfer) abandoned property to the appropriate state's unclaimed property administrator in accordance with statutory requirements. The investor's last known address of record determines which state has jurisdiction.
OFFERING PRICE
The following formula may be used to determine the public offering price per Class A share of an investor's investment:
Net Asset Value / (1 - Sales Charge as % of Offering Price ) = Offering Price.
For example, at the close of business on July 31, 2003, AIM High Yield Fund - Class A shares had a net asset value per share of $4.11. The offering price, assuming an initial sales charge of 4.75%, therefore was $4.31.
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 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 Income Fund, AIM Intermediate Government Fund, AIM Limited Maturity Treasury Fund, AIM Municipal Bond Fund, AIM Real Estate Fund, AIM Short Term Bond Fund, AIM Total Return Bond Fund
Each Fund determines its net asset value per share once daily as of the close of the customary trading session of the NYSE (generally 4:00 p.m. Eastern time) on each business day of the Fund. In the event the NYSE closes early (i.e., before 4:00 p.m. Eastern time) on a particular day, each Fund determines its net asset value per share as of the close of the NYSE on such day. For purposes of determining net asset value per share, the Fund will generally use futures and options contract closing prices which are available fifteen (15) minutes after the close of the customary trading session of the NYSE. The Funds determine net asset value per share by dividing the value of a Fund's securities, cash and other assets (including interest accrued but not collected) attributable to a particular class, less all its liabilities (including accrued expenses and dividends payable) attributable to that class, by the total
number of shares outstanding of that class. Determination of a Fund's net asset value per share is made in accordance with generally accepted accounting principles. The net asset value for shareholder transactions may be different than the net asset value reported in the Fund's financial statement due to adjustments required by generally accepted accounting principles made to the net assets of the Fund at period end.
Each security (excluding convertible bonds) held by a Fund is valued at its last sales price on the exchange where the security is principally traded or, lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") or absent a NOCP, at the closing bid price on that day; option contracts are valued at the mean between the closing bid and asked prices on the exchange where the contracts are principally traded; futures contracts are valued at final settlement price quotations from the primary exchange on which they are traded. Debt securities (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data.
Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and ask prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board. Short-term investments are valued at amortized cost when the security has 60 days or less to maturity. AIM Municipal Bond Fund values all variable rate securities with an unconditional demand or put feature exercisable within seven (7) days or less are valued at par, which reflects the market value of such securities.
Generally, trading in 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 the Fund's shares are determined at such times. Occasionally, events affecting the values of such securities may occur between the times at which such values are determined and the close of the customary trading session of the NYSE which will not be reflected in the computation of the Fund's net asset value. If a development/event has actually caused that closing price to no longer reflect actual value, the closing prices may be adjusted to reflect the fair value of the affected securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board.
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of each Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of a Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures, and exchange-traded funds.
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
Although the Funds generally intend to pay redemption proceeds solely in cash, the Funds reserve the right to satisfy redemption requests by making payment in securities or other property (known as redemption in kind). A fund may make redemption in kind, for instance, if cash redemption would disrupt its operations or performance. Securities delivered as payment in redemptions in kind will be 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 transaction and brokerage costs on their subsequent sales of such securities, and the securities may increase or decrease in value until the shareholder sells them. If a Fund has made an election under Rule 18f-1 under the 1940 Act, the Fund is obligated to redeem for cash all shares presented to such Fund for redemption by any one shareholder in an amount up to the lesser of $250,000 or 1% of that Fund's net assets in any 90-day period.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification number or, alternatively, a completed IRS Form W-8 (for non-resident aliens) or Form W-9 (certifying exempt status) accompanying the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, generally must withhold 28% of redemption payments and reportable dividends (whether paid or accrued) in the case of any shareholder who fails to provide the Fund with a taxpayer identification number ("TIN") and a certification that he is not subject to backup withholding.
An investor is subject to backup withholding if:
1. the investor fails to furnish a correct TIN to the Fund;
2. the IRS notifies the Fund that the investor furnished an incorrect TIN;
3. the investor or the Fund is notified by the IRS that the investor is subject to backup withholding because the investor failed to report all of the interest and dividends on such investor's tax return (for reportable interest and dividends only);
4. the investor fails to certify to the Fund that the investor is not subject to backup withholding under (3) above (for reportable interest and dividend accounts opened after 1983 only); or
5. the investor does not certify his TIN. This applies only to non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in all five situations discussed above. Redemption proceeds and long-term gain distributions are subject to backup withholding only if (1), (2) or (5) above applies.
Certain payees and payments are exempt from backup withholding and information reporting. AIM or AIS 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 each Fund (except AIM Real Estate Fund) to declare daily and pay monthly net investment income dividends and declare and pay annually any capital gain distributions. It is each Fund's intention to distribute substantially all of its net investment income and realized net capital gains. In determining the amount of capital gains, if any, available for distribution, capital gains will be offset against available net capital 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 to shareholders of record immediately prior to the determination of the net asset value of each Fund. For each Fund, except AIM Money Market Fund AIM Cash Reserve Shares purchase orders received prior to noon EST and AIM Real Estate Fund, dividends begin accruing on the first business day after a purchase order for shares of the Fund is effective (settle date), and accrue through and including the day to which a redemption order is effective (settle date). Thus, if a purchase order is effective on Friday, dividends will begin accruing on Monday (unless Monday is not a business day of the Fund). For AIM Money Market Fund AIM Cash Reserve Shares purchase orders received prior to noon EST, dividends begin accruing on the first business day of the purchase order for shares of the Fund and accrue through the day prior to the redemption order.
AIM Real Estate Fund makes quarterly distributions of its net investment income typically during the months of March, June, September and December. For taxable clients, a portion of the dividends paid by a REIT may be considered return of capital and would not currently be regarded as taxable income.
Distributions paid by a Fund, other than daily dividends, have the effect of reducing the net asset value per share on the ex-dividend date by the amount of the dividend or distribution. Therefore, a dividend or distribution declared shortly after a purchase of shares by an investor would represent, in substance, a return of capital to the shareholder with respect to such shares even though it would be subject to income taxes.
Dividends on Class B and Class C shares are expected to be lower than those for Class A or Class A3 shares because of higher distribution fees paid by Class B and Class C shares. Dividends on Class R shares may be lower than those for Class A shares, depending on whether the Class R shares pay higher distribution fees than the Class A shares. Other class-specific expenses may also affect dividends on shares of those classes. Expenses attributable to a particular class ("Class Expenses") include distribution plan expenses, which must be allocated to the class for which they are incurred. Other expenses may be allocated as Class Expenses, consistent with applicable legal principles under the 1940 Act and the Code.
Should the Trust incur or anticipate any unusual expense, loss or depreciation, which would adversely affect the net asset value per share of the AIM Money Market Fund or the net income per share of a class of the Fund for a particular period, the Board 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 might suspend further dividend payments on shares of the Fund until the net asset value returns to $1.00. Thus, such expense, loss or depreciation might result in a shareholder receiving no dividends for the period during which it held shares of the Fund and/or its receiving upon redemption a price per share lower than that which it paid.
TAX MATTERS
The following is only a summary of certain additional tax considerations generally affecting the Funds and their shareholders that are not described in the Prospectus. No attempt is made to present a detailed explanation of the tax treatment of each Fund or its shareholders, and the discussion here and in the Prospectus is not intended as a substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each Fund has elected to be taxed under Subchapter M of the Code as a regulated investment company and intends to maintain its qualification as such in each of its taxable years. As a regulated investment company, each Fund is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and capital gain net income (i.e., the excess of capital gains over capital losses) that it distributes to shareholders, provided that it distributes an equal amount to (i) at least 90% of its investment company taxable income (i.e., net investment income, net foreign currency ordinary gain or loss and the excess of net short-term capital gain over net long-term capital loss) and (ii) at least 90% of the excess of its tax-exempt interest income under Code Section 103(a) over its deductions disallowed under Code Sections 265 and 171(a)(2) for the taxable year (the "Distribution Requirement"), and satisfies certain other requirements of the Code that are described below. Distributions by a Fund made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year, will be considered distributions of income and gain of the taxable year and can therefore satisfy the Distribution Requirement.
A fund may use "equalization accounting" in determining the portion of its net investment income and capital gain net income that has been distributed. A Fund that elects to use equalization accounting will allocate a portion of its realized investment income and capital gains to redemptions of Fund shares and will reduce the amount of such income and gains that it distributes in cash. However, each Fund intends to make cash distributions for each taxable year in an aggregate amount that is sufficient to satisfy the Distribution Requirement without taking into account its use of equalization accounting. The Internal Revenue Service has not published any guidance concerning the methods to be used in allocating investment income and capital gains to redemptions of shares. In the event that the Internal Revenue Service determines that a Fund is using an improper method of allocation and has underdistributed its net investment income and capital gain net income for any taxable year, such Fund may be liable for additional federal income tax.
In addition to satisfying the Distribution Requirement, a regulated investment company must derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies (to the
extent such currency gain is directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including, but not limited to, gains from options, futures or forward contracts) derived from its business of investing in such stock, securities or currencies (the "Income Requirement"). Under certain circumstances, a Fund may be required to sell portfolio holdings in order to meet this requirement.
In addition to satisfying the requirements described above, each Fund must satisfy an asset diversification test in order to qualify as a regulated investment company (the "Asset Diversification Test"). Under this test, at the close of each quarter of each Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers, as to which the Fund has not invested more than 5% of the value of the Fund's total assets in securities of such issuer and as to which the Fund does not hold more than 10% of the outstanding voting securities of such issuer, and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or of two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses.
Treasury regulations permit a regulated investment company, in determining its investment company taxable income and net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) for any taxable year, to elect (unless it has made a taxable year election for excise tax purposes as discussed below) to treat all or part of any net capital loss, any net long-term capital loss or any net foreign currency loss incurred after October 31 as if it had been incurred in the succeeding year.
For purposes of the Asset Diversification Test, the IRS has ruled that the issuer of a purchased listed call option on stock is the issuer of the stock underlying the option. The IRS has also informally ruled that, in general, the issuers of purchased or written call and put options on securities, of long and short positions on futures contracts on securities and of options on such future contracts are the issuers of the securities underlying such financial instruments where the instruments are traded on an exchange.
Where the writer of a listed call option owns the underlying securities, the IRS has ruled that the Asset Diversification Test will be applied solely to such securities and not to the value of the option itself. With respect to options on securities indexes, futures contracts on securities indexes and options on such futures contracts, the IRS has informally ruled that the issuers of such options and futures contracts are the separate entities whose securities are listed on the index, in proportion to the weighing of securities in the computation of the index. It is unclear under present law who should be treated as the issuer of forward foreign currency exchange contracts, of options on foreign currencies, or of foreign currency futures and related options. It has been suggested that the issuer in each case may be the foreign central bank or the foreign government backing the particular currency. Due to this uncertainty and because the Funds may not rely on informal rulings of the IRS, the Funds may find it necessary to seek a ruling from the IRS as to the application of the Asset Diversification Test to certain of the foregoing types of financial instruments or to limit its holdings of some or all such instruments in order to stay within the limits of such test.
If for any taxable year a Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable as ordinary dividends to the extent of such Fund's current and accumulated earnings and profits. Such distributions generally will be eligible for the dividends received deduction in the case of corporate shareholders and will be included in the qualified dividend income of noncorporate shareholders. See "Fund Distributions" below.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In general, gain or loss recognized by a Fund on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by a Fund at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time the Fund held the debt obligation unless the
Fund made an election to accrue market discount into income. If a Fund purchases a debt obligation that was originally issued at a discount, the Fund is generally required to include in gross income each year the portion of the original issue discount which accrues during such year. In addition, under the rules of Code Section 988, gain or loss recognized on the disposition of a debt obligation denominated in a foreign currency or an option with respect thereto (but only to the extent attributable to changes in foreign currency exchange rates), and gain or loss recognized on the disposition of a foreign currency forward contract or of foreign currency itself, will generally be treated as ordinary income or loss. In certain cases, a Fund may make an election to treat such gain or loss as capital.
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, qualified dividend income, or long-term capital gain may also differ from the book income of the Fund and may be increased or decreased as compared to a fund that did not engage in such transactions.
AIM Limited Maturity Treasury Fund may enter into notional principal contracts, including interest rate swaps, caps, floors and collars. Under Treasury regulations, in general, the net income or deduction from a notional principal contract for a taxable year is included in or deducted from gross income for that taxable year. The net income or deduction from a notional principal contract for a taxable year equals the total of all of the periodic payments (generally, payments that are payable or receivable at fixed periodic intervals of one year or less during the entire term of the contract) that are recognized from that contract for the taxable year and all of the non-periodic payments (including premiums for caps, floors and collars), even if paid in periodic installments, that are recognized from that contract for the taxable year. A periodic payment is recognized ratably over the period to which it relates. In general, a non-periodic payment must be recognized over the term of the notional principal contract in a manner that reflects the economic substance of the contract. A non-periodic payment that relates to an interest rate swap, cap, floor or collar shall be recognized over the term of the contract by allocating it in accordance with the values of a series of cash-settled forward or option contracts that reflect the specified index and notional principal amount upon which the notional principal contract is based (or, in the case of a swap or of a cap or floor that hedges a debt instrument, under alternative methods contained in the regulations and, in the case of other notional principal contracts, under alternative methods that the IRS may provide in a revenue procedure).
EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of ordinary taxable income for the calendar year and 98% of capital gain net income (excess of capital gains over capital losses) for the one-year period ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a "taxable year election")). The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund generally intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, in the event that the Internal Revenue Service determines that a Fund is using an improper method of allocation for purposes of equalization accounting (as discussed above), such Fund may be liable for excise tax. Moreover, investors should note that a Fund may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability. In addition, under certain circumstances, a Fund may elect to pay a minimal amount of excise tax.
PFIC INVESTMENTS. The Funds are permitted to invest in foreign equity securities and thus may invest in stocks of foreign companies that are classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign company is classified as a PFIC if at least one-half of its assets constitute investment-type assets or 75% or more of its gross income is investment-type income.
The application of the PFIC rules may affect, among other things, the character of gain, the amount of gain or loss and the timing of the recognition and character of income with respect to PFIC stock, as well as subject the Funds themselves to tax on certain income from PFIC stock. For these reasons the amount that must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not invest in PFIC stock.
SWAP AGREEMENTS. AIM Income Fund, AIM Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund may each enter into swap agreements. The rules governing the tax aspects of swap agreements are in a developing stage and are not entirely clear in certain respects. Accordingly, while such Funds intend to account for such transactions in a manner deemed to be appropriate, the IRS might not accept such treatment. If it did not, the status of the Trust as a regulated investment company might be affected. The Trust intends to monitor developments in this area. Certain requirements that must be met under the Code in order for the Trust to qualify as a regulated investment company may limit the extent to which these Funds will be able to engage in swap agreements.
FUND DISTRIBUTIONS. Each Fund anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions will be taxable to shareholders as ordinary income and treated as dividends for federal income tax purposes, but they will qualify for the 70% dividends received deduction for corporations and as qualified dividend income for individuals and other noncorporate taxpayers to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital gain (net long-term capital gain over net short-term capital loss) for each taxable year. Each Fund currently intends to distribute any such amounts. If net capital gain is distributed and designated as a capital gain dividend, it will be taxable to shareholders as long-term capital gain (currently taxable at a maximum rate of 15% for noncorporate shareholders) regardless of the length of time the shareholder has held his shares or whether such gain was recognized by the Fund prior to the date on which the shareholder acquired his shares. 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.
Ordinary income dividends paid by a Fund with respect to a taxable year will qualify for the 70% dividends received deduction generally available to corporations (other than corporations, such as "S" corporations, which are not eligible for the deduction because of their special characteristics and other than for purposes of special taxes such as the accumulated earnings tax and the personal holding company tax) to the extent of the amount of qualifying dividends, if any, received by the Fund from domestic corporations for the taxable year. However, the alternative minimum tax applicable to corporations may reduce the value of the dividends received deduction.
Ordinary income dividends paid by a Fund to individuals and other noncorporate taxpayers will be treated as qualified dividend income that is subject to tax as a maximum rate of 15% to the extent of the amount of qualifying dividends, if any, received by the Fund from domestic corporations and from foreign corporations that are either incorporated in a possession of the United States, or are eligible for benefits under certain income tax treaties with the United States that include an exchange of information program. In addition, qualifying dividends include dividends paid with respect to stock of a foreign corporation that is readily tradable on an established securities market in the United States. However, dividends received by the Fund from foreign personal holding companies, foreign investment companies or PFICs are not qualifying dividends. If the qualifying dividend income received by a Fund is equal to 95% (or a greater percentage) of the Fund's gross income (exclusive of net capital gain) in any taxable year, all of the ordinary income dividends paid by the Fund will be qualifying dividend income.
Alternative minimum tax ("AMT") is imposed in addition to, but only to the extent it exceeds, the regular tax and is computed at a maximum rate of 28% for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount. However, the AMT on capital gain dividends and qualified dividend income paid by a Fund to a noncorporate shareholder may not exceed a maximum rate of 15%. The corporate dividends
received deduction is not itself an item of tax preference that must be added back to taxable income or is otherwise disallowed in determining a corporation's AMTI. However, corporate shareholders will generally be required to take the full amount of any dividend received from the Fund into account (without a dividends received deduction) in determining their adjusted current earnings, which are used in computing an additional corporate preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted current earnings over its AMTI (determined without regard to this item and the AMTI net operating loss deduction)) that is includable in AMTI. However, certain small corporations are wholly exempt from the AMT.
Distributions by a Fund that do not constitute earnings and profits will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any excess will be treated as gain from the sale of its 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.
If the net asset value of shares is reduced below a shareholder's cost as a result of a distribution by a Fund, such distribution generally will be taxable even though it represents a return of invested capital. Investors should be careful to consider the tax implications of buying shares of a Fund just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which generally will be taxable to them.
AIM MUNICIPAL BOND FUND. With respect to interest income that is exempt from federal income tax, the Fund intends to comply with Section 852(b)(5) of the Code, which enables exempt-interest dividends paid by the Fund from exempt interest to be treated as tax-exempt income by shareholders. Interest income that the Fund receives from municipal securities is generally tax-exempt for purposes of the regular income tax and the alternative minimum tax, subject to the exceptions described below.
Exempt-interest dividends derived from certain private activity bonds issued after August 7, 1986 will generally constitute an item of tax preference for taxpayers that are subject to alternative minimum tax. In addition, exempt-interest dividends derived from all other municipal securities must be taken into account by corporations subject to alternative minimum tax in determining their adjusted current earnings adjustment. Consistent with its stated investment objective, AIM Municipal Bond Fund intends to limit its investments in private activity bonds subject to the alternative minimum tax to no more than 20% of its total assets in any given year.
Original issue discount on tax-exempt bonds shall be accrued by the Fund as tax-exempt interest (except for a portion thereof in the case of certain stripped tax-exempt bonds), and included in the tax basis of the security for capital gain and loss computation purposes. Any gain or loss from the sale or other disposition of a tax-exempt security is generally treated as either long-term or short-term capital gain or loss, depending upon its holding period, and is fully taxable. However, gain recognized from the sale or other disposition of a tax-exempt security purchased after April 30, 1993, will be treated as ordinary income to the extent of the accrued market discount on such security.
Interest on indebtedness incurred by shareholders will not be deductible for federal income tax purposes to the extent the proceeds of the borrowing was used to purchase or carry Fund shares. The purchase of Fund shares may be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchase of Fund shares. Further, certain persons who regularly use facilities financed by municipal securities in their trade or business (or persons related thereto) may be "substantial users" of such facilities and should consult their tax advisors before purchasing Fund shares.
Income that is exempt from federal income tax or alternative minimum tax is not necessarily exempt from tax under state and local laws. Shareholders should consult their tax advisors as to the treatment of exempt-interest dividends under state and local laws.
The 1986 Act also applied limitations on the issuance of bonds whose proceeds are used by organizations exempt from tax under Code Section 501(c)(3), as well as general limitations on the amount of Qualified Private Activity Bonds governmental units may issue.
The 1986 Act limitations on tax-exempt bonds apply generally to bonds issued after August 16, 1986. The private activity bond rules are generally applicable to bonds issued on or after September 1, 1986, with the alternative minimum tax rules applicable generally to bonds issued on or after August 7, 1986. Municipal Bond intends to limit its investments in Qualified Private Activity Bonds and taxable securities to no more than 20% of its total assets in any given year, consistent with its stated investment objective.
The exemption of interest income for FIT purposes does not necessarily result in exemption under state and local laws. Shareholders should consult their tax advisors as to the treatment of such income under state and local laws.
SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss on the sale or redemption of shares of a Fund in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be deferred under the wash sale rules if the shareholder purchases other shares of the Fund within 30 days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of a Fund will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. Currently, any long-term capital gain recognized by a non-corporate shareholder will be subject to a maximum tax rate of 15%. However, any capital loss arising from the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on such shares. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a non-corporate taxpayer, $3,000 of ordinary income.
If a shareholder (a) incurs a sales load in acquiring shares of a Fund,
(b) disposes of such shares less than 91 days after they are acquired, and (c)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right t o 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 the amount of loss that may be taken into account on disposition after
such adjustments.
BACKUP WITHHOLDING. The Funds may be required to withhold 28% of taxable distributions and/or redemption payments. For more information refer to "Purchase, Redemption and Pricing of Shares - Backup Withholding".
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder"), depends on whether the income from a Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder. If the income from a Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, distributions (other than distributions of long-term capital gain) will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the distribution. Such a foreign shareholder would generally be exempt from U.S. federal income tax on gains realized on the redemption of shares of a Fund, capital gain dividends and amounts retained by a Fund that are designated as undistributed net capital gain.
If the income from a Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends and any gains realized upon the sale or redemption of shares of the Fund will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be required to withhold U.S. federal income tax at a rate of 28% on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of their foreign status.
Foreign shareholders may be subject to U.S. withholding tax on 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 adviser or the IRS.
Transfers by gift of shares of a Fund by a foreign shareholder who is a nonresident alien individual will not be subject to U.S. federal gift tax. An individual who, at the time of death, is a foreign shareholder will nevertheless be subject to U.S. federal estate tax with respect to shares at the graduated rates applicable to U.S. citizens and residents, unless a treaty exception applies. In the absence of a treaty, there is a $13,000 statutory estate tax credit.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund, including the applicability of foreign tax.
FOREIGN INCOME TAX. Investment income received by each Fund from sources within foreign countries may be subject to foreign income tax withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle the Funds to a reduced rate of, or exemption from, tax on such income. It is impossible to determine the effective rate of foreign tax in advance since the amount of a Fund's assets to be invested in various countries is not known.
If more than 50% of the value of a Fund's total assets at the close of each taxable year consists of the stock or securities of foreign corporations, the Fund may elect to "pass through" to the Fund's shareholders the amount of foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to the Foreign Tax Election, shareholders will be required (i) to include in gross income, even though not actually received, their respective pro-rata shares of the foreign income tax paid by the Fund that are attributable to any distributions they receive; and (ii) either to deduct their pro-rata share of foreign tax in computing their taxable income, or to use it (subject to various Code limitations) as a foreign tax credit against Federal income tax (but not both). No deduction for foreign tax may be claimed by a non-corporate shareholder who does not itemize deductions or who is subject to alternative minimum tax.
Unless certain requirements are met, a credit for foreign tax is
subject to the limitation that it may not exceed the shareholder's U.S. tax
(determined without regard to the availability of the credit)
attributable to the shareholder's foreign source taxable income. In determining the source and character of distributions received from a Fund for this purpose, shareholders will be required to allocate Fund distributions according to the source of the income realized by the Fund. Each Fund's gain from the sale of stock and securities and certain currency fluctuation gain and loss will generally be treated as derived from U.S. sources. In addition, the limitation on the foreign tax credit is applied separately to foreign source "passive" income, such as dividend income, and the portion of foreign source income consisting of qualified dividend income is reduced by approximately 57% to account for the tax rate differential. Individuals who have no more than $300 ($600 for married persons filing jointly) of creditable foreign tax included on Form 1099 and whose foreign source income is all "qualified passive income" may elect each year to be exempt from the foreign tax credit limitation and will be able to claim a foreign tax credit without filing Form 1116 with its corresponding requirement to report income and tax by country. Moreover, no foreign tax credit will be allowable to any shareholder who has not held his shares of the 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 April 30, 2004. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income, qualified dividend income and capital gain dividends may differ from the rules for U.S. federal income taxation described above. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in the Funds.
DISTRIBUTION OF SECURITIES
DISTRIBUTION PLANS
The Trust has adopted distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to each Fund's Class A shares (other than AIM Money Market Fund ), Class A3 shares of AIM Limited Maturity Treasury Fund, Class B shares (other than AIM Short Term Bond Fund), Class C shares, Class R (other than AIM Short Term Bond Fund) shares and Investor Class shares, if applicable, and AIM Cash Reserve Shares of AIM Money Market Fund (collectively the "Plans"). Each Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate, shown immediately below, of the Fund's average daily net assets of the applicable class.
INVESTOR
FUND CLASS A* CLASS A3 CLASS B CLASS C CLASS R CLASS
---- -------- -------- ------- ------- ------- --------
AIM High Yield Fund 0.25% N/A 1.00% 1.00% N/A 0.25%
AIM Income Fund 0.25 N/A 1.00 1.00 0.50% 0.25
AIM Intermediate Government Fund 0.25 N/A 1.00 1.00 0.50 0.25
AIM Limited Maturity Treasury Fund 0.15 0.35% N/A N/A N/A N/A
AIM Money Market Fund 0.25 N/A 1.00 1.00 0.50 0.25
AIM Municipal Bond Fund 0.25 N/A 1.00 1.00 N/A 0.25
AIM Real Estate Fund 0.35 N/A 1.00 1.00 0.50 0.25
AIM Short Term Bond Fund 0.35 N/A N/A 1.00 0.50 N/A
AIM Total Return Bond Fund 0.35 N/A 1.00 1.00 0.50 N/A
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*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, Class A3, Class C, Class R or Investor Class shares. Voluntary fee waivers or reductions may be rescinded at any time without further notice to investors. During periods of voluntary fee waivers or reductions, AIM Distributors will retain its ability to be reimbursed for such fee prior to the end of each fiscal year. Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus may not be terminated or amended to the Fund's detriment during the period stated in the agreement between AIM Distributors and the Fund.
AIM Distributors has contractually agreed through July 31, 2004, to waive up to 0.10% of average net assets of AIM Total Return Bond Fund's Class A shares Rule 12b-1 distribution plan payments. This contractual fee waiver is set forth in the Fee Table to the Fund's Prospectus and may not be terminated or amended to the Fund's detriment during the period stated in the agreement between AIM Distributors and the Fund.
AIM Distributors has contractually agreed through July 31, 2004, to waive 0.40% of average net assets of AIM Short Term Bond Fund's Class C shares Rule 12b-1 distribution plan payments. This contractual fee waiver is set forth in the Fee Table to the Fund's Prospectus and may not be terminated or amended to the Fund's detriment during the period stated in the agreement between AIM Distributors and the Fund.
The Funds may pay a service fee of 0.25% of the average daily net assets of the Class A, Class A3, Class B, Class C, Class R and Investor Class shares (0.15% of the average daily net assets of the Class A shares of AIM Limited Maturity Treasury Fund), as applicable, attributable to the customers of selected dealers and financial institutions to such dealers and financial institutions, including AIM Distributors, acting as principal, who furnish continuing personal shareholder services to their customers who purchase and own the applicable class of shares of the Fund. Under the terms of a shareholder service agreement, such personal shareholder services include responding to customer inquiries and providing customers with information about their investments. Any amounts not paid as a service fee under each Plan would constitute an asset-based sales charge.
AIM Distributors may pay dealers and institutions who sell Class R shares an annual fee of 0.50% of average daily net assets. These payments will consist of an asset-based fee of 0.25% and a service fee of 0.25% and will commence either on the thirteenth month after the first purchase, on accounts on which a dealer concession was paid, or immediately, on accounts on which a dealer concession was not paid. If AIM Distributors pays a dealer concession, it will retain all payments received by it relating to Class R shares for the first year after they are purchased. AIM Distributors will make quarterly payments to dealers and institutions based on the average net asset value of Class R shares which are attributable to shareholders for whom the dealers and institutions are designated as dealers of record.
Under a Shareholder Service Agreement, a Fund agrees to pay periodically fees to selected dealers and other institutions who render the foregoing services to their customers. The fees payable under a Shareholder Service Agreement will be calculated at the end of each payment period for each business day of the Funds during such period at the annual rate specified in each agreement based on the average daily net asset value of the Funds' shares purchased or acquired through exchange. Fees shall be paid only to those selected dealers or other institutions who are dealers or institutions of record at the close of business on the last business day of the applicable payment period for the account in which such Fund's shares are held.
Selected dealers and other institutions entitled to receive compensation for selling Fund shares may receive different compensation for selling shares of one particular class over another. Under the Plans, certain financial institutions which have entered into service agreements and which sell shares of the Funds on an agency basis, may receive payments from the Funds pursuant to the respective Plans. AIM Distributors does not act as principal, but rather as agent for the Funds, in making dealer incentive and shareholder servicing payments to dealers and other financial institutions under the Plans. These payments are an obligation of the Funds and not of AIM Distributors.
Payments pursuant to the Plans are subject to any applicable limitations imposed by rules of the National Association of Securities Dealers, Inc. ("NASD").
See Appendix J for a list of the amounts paid by each class of shares of each Fund to AIM Distributors pursuant to the Plans for the fiscal year ended July 31, 2003 and Appendix K for an estimate by category of the allocation of actual fees paid by each class of shares of each Fund pursuant to its respective distribution plan for the fiscal year ended July 31, 2003.
As required by Rule 12b-1, the Plans and related forms of Shareholder Service Agreements were approved by the Board, including a majority of the trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of the Plans or in any agreements related to the Plans (the "Rule 12b-1 Trustees"). In approving the Plans in accordance with the requirements of Rule 12b-1, the trustees considered various factors and determined that there is a reasonable likelihood that the Plans would benefit each class of the Funds and its respective shareholders.
The anticipated benefits that may result from the Plans with respect to each Fund and/or the classes of each Fund and its shareholders include but are not limited to the following: (1) rapid account access; (2) relatively predictable flow of cash; and (3) a well-developed, dependable network of shareholder service agents to help to curb sharp fluctuations in rates of redemptions and sales, thereby reducing the chance that an unanticipated increase in net redemptions could adversely affect the performance of each Fund.
Unless terminated earlier in accordance with their terms, the Plans continue from year to year as long as such continuance is specifically approved, in person, at least annually by the Board, including a majority of the Rule 12b-1 Trustees. A Plan may be terminated as to any Fund or class by the vote of a majority of the Rule 12b-1 Trustees or, with respect to a particular class, by the vote of a majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution expenses paid by the applicable class requires shareholder approval; otherwise, the Plans may be amended by the trustees, including a majority of the Rule 12b-1 Trustees, by votes cast in person at a meeting called for the purpose of voting upon such amendment. As long as the Plans are in effect, the selection or nomination of the Independent Trustees is committed to the discretion of the Independent Trustees.
The Class B Plan obligates Class B shares to continue to make payments to AIM Distributors following termination of the Class B shares Distribution Agreement with respect to Class B shares sold by or attributable to the distribution efforts of AIM Distributors or its predecessors, unless there has been a complete termination of the Class B Plan (as defined in such Plan) and the Class B Plan expressly
authorizes AIM Distributors to assign, transfer or pledge its rights to payments pursuant to the Class B Plan.
DISTRIBUTOR
The Trust has entered into master distribution agreements, as amended, relating to the Funds (the "Distribution Agreements") with AIM Distributors, a registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to which AIM Distributors acts as the distributor of shares of the Funds. The address of AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain trustees and officers of the Trust are affiliated with AIM Distributors. See "Management of the Trust."
The Distribution Agreements provide AIM Distributors with the exclusive right to distribute shares of the Funds on a continuous basis directly and through other broker-dealers with whom AIM Distributors has entered into selected dealer agreements. AIM Distributors has not undertaken to sell any specified number of shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own resources to dealers and institutions who sell Class B and Class C shares of the Funds at the time of such sales.
Payments with respect to Class B shares will equal 4.00% of the purchase price of the Class B shares sold by the dealer or institution, and will consist of a sales commission equal to 3.75% of the purchase price of the Class B shares sold plus an advance of the first year service fee of 0.25% with respect to such shares. The portion of the payments to AIM Distributors under the Class B Plan which constitutes an asset-based sales charge (0.75%) is intended in part to permit AIM Distributors to recoup a portion of such sales commissions plus financing costs. In the future, if multiple distributors serve a Fund, each such distributor (or its assignee or transferee) would receive a share of the payments under the Class B Plan based on the portion of the Fund's Class B shares sold by or attributable to the distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions who sell Class C shares of the AIM Funds (except for AIM Short Term Bond Fund) at the time of such sales. Payments with respect to Class C shares (except for AIM Short Term Bond Fund) will equal 1.00% of the purchase price of the Class C shares sold by the dealer or institution, and will consist of a sales commission of 0.75% of the purchase price of the Class C shares sold plus an advance of the first year service fee of 0.25% with respect to such shares. AIM Distributors will retain all payments received by it relating to Class C shares (except for AIM Short Term Bond Fund) for the first year after they are purchased. The portion of the payments to AIM Distributors under the Class A, Class C and Class R Plan attributable to Class C shares which constitutes an asset-based sales charge (0.75%) is intended in part to permit AIM Distributors to recoup a portion of the sales commissions to dealers plus financing costs, if any. After the first full year, AIM Distributors will make quarterly payments to dealers and institutions based on the average net asset value of Class C shares which are attributable to shareholders for whom the dealers and institutions are designated as dealers of record. These payments will consist of an asset-based sales charge of 0.75% and a service fee of 0.25%.
AIM Distributors may pay dealers and institutions who sell Class C shares of AIM Short Term Bond Fund an annual fee of 0.50% of average daily net assets. These payments will consist of an asset-based fee of 0.25% and a service fee of 0.25% and will commence immediately.
The Trust (on behalf of any class of any Fund) or AIM Distributors may terminate the Distribution Agreements on 60 days' written notice without penalty. The Distribution Agreements will terminate automatically in the event of their assignment. In the event the Class B shares Distribution Agreement is terminated, AIM Distributors would continue to receive payments of asset-based distribution fees in respect of the outstanding Class B shares attributable to the distribution efforts of AIM Distributors or its predecessors; provided, however that a complete termination of the Class B Plan (as defined in such Plan) would terminate all payments to AIM Distributors. Termination of the Class B Plan or the
Distribution Agreement for Class B shares would not affect the obligation of Class B shareholders to pay contingent deferred sales charges.
Total sales charges (front end and contingent deferred sales charges) paid in connection with the sale of shares of each class of each Fund, if applicable, for the last three fiscal years ended July 31, are found in Appendix L.
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 one, five, or ten year periods);
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one, five and
ten year periods at the end of the one, five, or ten
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 A3, Class B, Class C and Class R, Investor Class and AIM Cash Reserve shares, if applicable, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are found in Appendix M.
Total returns quoted in advertising reflect all aspects of a Fund's return, including the effect of reinvesting dividends and capital gain distributions, and any change in the Fund's net asset value per share over the period. Cumulative total return reflects the performance of a Fund over a stated period of time. Average annual total returns are calculated by determining the growth or decline in value of a hypothetical investment in a Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period.
Each Fund's total return is calculated in accordance with a standardized formula for computation of annualized total return. Standardized total return for: (1) Class A shares reflects the deduction of a Fund's maximum front-end sales charge at the time of purchase; (2) Class A3 shares does not reflect a deduction of any sales charges since that class is sold and redeemed at net asset value; (3) Class B and Class C shares reflects the deduction of the maximum applicable CDSC on a redemption of shares held for the period; (4) Class R shares does not reflect a deduction of any sales charge since that class is generally sold and redeemed at net asset value; and (5) Investor Class shares does not reflect a deduction of any sales charge since that class is sold and redeemed at net asset value. Standardized total return for AIM Cash Reserve Shares does not reflect a deduction of any sales charge, since that class is sold and redeemed at net asset value.
A Fund's total return shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. A cumulative total return reflects the Fund's performance over a stated period of time. An average annual total return reflects the
hypothetical compounded annual rate of return that would have produced the same cumulative total return if the Fund's performance had been constant over the entire period. Because average annual returns tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its cumulative and average annual returns into income results and capital gains or losses.
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; and
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; and
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, Class A3, Class B, Class C and Class R, Investor Class and AIM Cash Reserve shares, if applicable, shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are found in Appendix M.
Calculation of Certain Performance Data
Funds offering Class A3 or Class R shares may use a restated or a blended performance calculation to derive certain performance data shown in this Statement of Additional Information and in each Fund's advertisements and other sales material. If the Fund's Class A3 or Class R shares were not offered to the public during the performance period covered, the performance data shown will be the restated historical performance of the Fund's Class A shares at net asset value, adjusted to reflect the higher Rule 12b-1 fees applicable to the Class A3 and Class R shares. If the Fund's Class A3 or Class R shares were offered to the public only during a portion of the performance period covered, the performance data shown will be the blended returns of the historical performance of the Fund's Class A3 or Class R shares since their inception and the restated historical performance of the Fund's Class A shares (for periods prior to inception of the Class A3 or Class R shares). If the Fund's Class A3 or Class R shares were offered to the public during the entire performance period covered, the performance data shown will be the historical performance of the Fund's Class A3 or Class R shares.
AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund, AIM Municipal Bond Fund and AIM Real Estate Fund may also use a restated or a blended performance calculation to derive certain performance data shown for their Investor Class shares in this Statement of Additional Information and in the Funds' advertisements and other sales material. If the Funds' Investor Class shares were not offered to the public during the performance period covered, the
performance data shown will be the restated historical performance of the Funds' Class A shares at net asset value and reflecting the Rule 12b-1 fees applicable to the Class A shares. If the Funds' Investor Class shares were offered to the public only during a portion of the performance period covered, the performance data shown will be the blended returns of the historical performance of the Funds' Investor Class shares since their inception and the restated historical performance of the Funds' Class A shares (for periods prior to inception of the Investor Class shares) at net asset value and reflecting the Rule 12b-1 fees applicable to the Class A shares. If the Funds' Investor Class shares were offered to the public during the entire performance period covered, the performance data shown will be the historical performance of the Funds' Investor Class shares.
A restated or blended performance calculation may be used to derive (i) the Funds', except for AIM Money Market Fund, standardized average annual total returns over a stated period and (ii) the Funds', except for AIM Money Market Fund, non-standardized cumulative total returns over a stated period.
A restated or blended performance calculation may be used to derive (i) AIM Money Market Fund's non-standardized average annual total returns over a stated period, and (ii) AIM Money Market Fund's non-standardized cumulative total returns over a stated period.
Average Annual Total Return (After Taxes on Distributions) Quotations
A Fund's average annual total return (after taxes on distributions) shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. It reflects the deduction of federal income taxes on distributions, but not on redemption proceeds. Average annual total returns (after taxes on distributions) are calculated by determining the after-tax growth or decline in value of a hypothetical investment in a Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. Because average annual total returns (after taxes on distributions) tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, the Fund may separate its average annual total returns (after taxes on distributions) into income results and capital gains or losses.
The standard formula for calculating average annual total return (after taxes on distributions) is:
P(1+T)(n)=ATV(D)
where P = a hypothetical initial payment of $1,000 ;
T = average annual total return (after taxes on
distributions);
n = number of years; and
ATV(D) = ending value of a hypothetical $1,000 payment made at
the beginning of the one, five, or ten year periods (or
since inception, if applicable) at the end of the one,
five, or ten year periods (or since inception, if
applicable), after taxes on fund distributions but not
after taxes on redemption.
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Standardized average annual total return (after taxes on distributions) for: (1) Class A shares reflects the deduction of a Fund's maximum front-end sales charge at the time of purchase; (2) Class A3 shares does not reflect a deduction of any sales charge since that class is sold and redeemed at net asset value; (3) Class B and Class C shares reflects the deduction of the maximum applicable CDSC on a redemption of shares held for the period; and (4) Investor Class shares does not reflect a deduction of any sales charge since that class is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the taxes due on such distributions, are reinvested at the price calculated as stated in the prospectus on the reinvestment dates during the period. Taxes on a Fund's distributions are calculated by applying to each component of the distribution (e.g., ordinary income and long-term capital gain) the highest corresponding individual
marginal federal income tax rates in effect on the reinvestment date. The taxable amount and tax character of each distribution is as specified by the Fund on the dividend declaration date, but reflects any subsequent recharacterizations of distributions. The effect of applicable tax credits, such as the foreign tax credit, are also taken into account. The calculations only reflect federal taxes, and thus do not reflect state and local taxes or the impact of the federal alternative minimum tax.
The average annual total returns (after taxes on distributions) for each Fund, with respect to its Class A, Class A3, Class B, Class C and Investor Class shares, for the one, five, and ten year periods (or since inception if less than ten years) ended January 31, 2004 are found in Appendix M.
Average Annual Total Return (After Taxes on Distributions and Sale of Fund Shares) Quotation
A Fund's average annual total return (after taxes on distributions and sale of Fund shares) shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. It reflects the deduction of federal income taxes on both distributions and proceeds. Average annual total returns (after taxes on distributions and redemption) are calculated by determining the after-tax growth or decline in value of a hypothetical investment in a Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. Because average annual total returns (after taxes on distributions and redemption) tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its average annual total returns (after taxes on distributions and redemption) into income results and capital gains or losses.
The standard formula for calculating average annual total return (after taxes on distributions and redemption) is:
P(1+T)(n)=ATV(DR)
where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on
distributions and redemption);
n = number of years; and
ATV(DR) = ending value of a hypothetical $1,000 payment made at
the beginning of the one, five, or ten year periods (or
since inception, if applicable) at the end of the one,
five, or ten year periods (or since inception, if
applicable), after taxes on fund distributions and
redemption.
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Standardized average annual total return (after taxes on distributions and redemption) for: (1) Class A shares reflects the deduction of a Fund's maximum front-end sales charge at the time of purchase; (2) Class A3 shares does not reflect a deduction of any sales charge since that class is generally sold and redeemed at net asset value; (3) Class B and Class C shares reflects the deduction of the maximum applicable CDSC on a redemption of shares held for the period; and (4) Investor Class shares does not reflect a deduction of any sales charge since that class is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the taxes due on such distributions, are reinvested at the price calculated as stated in the prospectus on the reinvestment dates during the period. Taxes due on the Fund's distributions are calculated by applying to each component of the distribution (e.g., ordinary income and long-term capital gain) the highest corresponding individual marginal federal income tax rates in effect on the reinvestment date. The taxable amount and tax character of each distribution is as specified by the Fund on the dividend declaration date, but reflects any subsequent recharacterizations of distributions. The effect of applicable tax credits, such as the foreign tax credit, are also taken into account. The calculations only reflect federal taxes, and thus do not reflect state and local taxes or the impact of the federal alternative minimum tax.
The ending values for each period assume a complete liquidation of all shares. The ending values for each period are determined by subtracting capital gains taxes resulting from the sale of Fund shares and adding the tax benefit from capital losses resulting from the sale of Fund shares. The capital gain or loss upon sale of Fund shares is calculated by subtracting the tax basis from the proceeds. Capital gains taxes (or the benefit resulting from tax losses) are calculated using the highest federal individual capital gains tax rate for gains of the appropriate character (e.g., ordinary income or long-term) in effect on the date of the sale of Fund shares and in accordance with federal tax law applicable on that date. The calculations assume that a shareholder may deduct all capital losses in full.
The basis of shares acquired through the $1,000 initial investment are tracked separately from subsequent purchases through reinvested distributions. The basis for a reinvested distribution is the distribution net of taxes paid on the distribution. Tax basis is adjusted for any distributions representing returns of capital and for any other tax basis adjustments that would apply to an individual taxpayer.
The amount and character (i.e., short-term or long-term) of capital gain or loss upon sale of Fund shares is determined separately for shares acquired through the $1,000 initial investment and each subsequent purchase through reinvested distributions. The tax character is determined by the length of the measurement period in the case of the initial $1,000 investment and the length of the period between reinvestment and the end of the measurement period in the case of reinvested distributions.
The average annual total returns (after taxes on distributions and redemption) for each fund, with respect to its Class A, Class A3, Class B, Class C and Investor Class shares, for the one, five, and ten year periods (or since inception if less than ten years) ended January 31, 2004 are found in Appendix M.
Yield Quotation
Yield is a function of the type and quality of a Fund's investments, the maturity of the securities held in a Fund's portfolio and the operating expense ratio of the Fund. Yield is computed in accordance with standardized formulas described below and can be expected to fluctuate from time to time and is not necessarily indicative of future results. Accordingly, yield information may not provide a basis for comparison with investments which pay a fixed rate of interest for a stated period of time.
A Fund's tax equivalent yield is the rate an investor would have to earn from a fully taxable investment in order to equal the Fund's yield after taxes. Tax equivalent yields are calculated by dividing the Fund's yield by one minus a stated tax rate (if only a portion of the Fund's yield was tax-exempt, only that portion would be adjusted in the calculation).
A Fund may quote its distribution rate, which uses the most recent dividend paid annualized as a percentage of the Fund's offering price.
Income calculated for purposes of calculating a Fund's yield differs from income as determined for other accounting purposes. Because of the different accounting methods used, and because of the compounding assumed in yield calculations, the yield quoted for a Fund may differ from the rate of distributions from the Fund paid over the same period or the rate of income reported in the Fund's financial statements.
The standard formula for calculating yield for each Fund is as follows:
Where a = dividends and interest earned during a stated 30-day
period. For purposes of this calculation, dividends are
accrued rather than recorded on the ex-dividend date.
Interest earned under this formula must generally be
calculated based on the yield to maturity of each
obligation (or, if more appropriate, based on yield to
call date).
b = expenses accrued during period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
|
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, the yield and corresponding tax-equivalent yield for AIM Municipal Bond Fund, and the annualized and effective annualized yield for the AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class shares of AIM Money Market Fund are found in Appendix M. In addition, the distribution rates for each Fund (other than AIM Money Market Fund) are found in Appendix M.
Performance Information
All advertisements of the Funds will disclose the maximum sales charge (including deferred sales charges) imposed on purchases of a Fund's shares. If any advertised performance data does not reflect the maximum sales charge (if any), such advertisement will disclose that the sales charge has not been deducted in computing the performance data, and that, if reflected, the maximum sales charge would reduce the performance quoted. Further information regarding each Fund's performance is contained in that Fund's annual report to shareholders, which is available upon request and without charge.
From time to time, AIM or its affiliates may waive all or a portion of their fees and/or assume certain expenses of any Fund. Fee waivers or reductions or commitments to reduce expenses will have the effect of increasing that Fund's yield and total return.
Certain Funds may participate in the initial public offering (IPO) market in some market cycles. Because of these Funds' small asset bases, any investment the Funds may make in IPOs may significantly increase these Funds' total returns. As the Funds' assets grow, the impact of IPO investments will decline, which may decrease the Funds' total returns.
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 Bloomberg Inc. Pensions & Investments Broker World Institutional Investor Personal Investor Business Week Insurance Forum Philadelphia Inquirer Changing Times Insurance Week The Bond Buyer Christian Science Monitor Investor's Business Daily USA Today Consumer Reports Journal of the American U.S. News & World Report Economist Society of CLU & ChFC Wall Street Journal FACS of the Week Kiplinger Letter Washington Post Financial Planning Money CNN Financial Product News Mutual Fund Forecaster CNBC Financial Services Week 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 Lipper, Inc. Bloomberg Mutual Fund Values (Morningstar) Donoghue's Stanger Lehman Live Weisenberger |
Each Fund's performance may also be compared in advertising to the performance of comparative benchmarks such as the following:
Lehman Brothers High Yield Index
Lehman Brothers Intermediate U.S. Government and Mortgage Index
Lehman Brothers 1-2 year Government Bond Index
Lehman Brothers 1-3 year Government/Credit Index
Lehman Brothers Municipal Bond Index
Lehman Brothers U.S. Credit Index
Lehman Brothers U.S. Aggregate Bond Index
Lipper BBB Rated Fund Index
Lipper General Municipal Debt Fund Index
Lipper High Yield Bond Fund Index
Lipper Intermediate Investment Grade Debt Fund Index
Lipper Intermediate U.S. Government Fund Index
Lipper Real Estate Fund Index
Lipper Short Investment Grade Debt Index
Lipper Short U.S. Treasury Category Average
Morgan Stanley REIT Index
Standard & Poor's 500 Index
Each Fund may also compare its performance to rates on Certificates of Deposit and other fixed rate investments such as the following:
10 year Treasury Notes
90 day Treasury Bills
Advertising for the Funds may from time to time include discussions of general economic conditions and interest rates. Advertising for such Funds may also include references to the use of those Funds as part of an individual's overall retirement investment program. From time to time, sales literature and/or advertisements for any of the Funds may disclose: (i) the largest holdings in the Funds' portfolios; (ii) certain selling group members; (iii) certain institutional shareholders; (iv) measurements of risk, including standard deviation, Beta and Sharpe ratios; and/or (v) capitalization and sector analysis of holdings in the Funds' portfolios.
From time to time, the Funds' sales literature and/or advertisements may discuss generic topics pertaining to the mutual fund industry. This includes, but is not limited to, literature addressing general information about mutual funds, discussions regarding investment styles, such as the growth, value or GARP (growth at a reasonable price) styles of investing, variable annuities, dollar-cost averaging, stocks, bonds, money markets, certificates of deposit, retirement, retirement plans, asset allocation, tax-free investing, college planning and inflation.
PENDING LITIGATION
A number of civil lawsuits, including purported class action and shareholder derivative suits, have been filed that involve one or more AIM or INVESCO Funds, their former and/or current investment adviser and/or certain other related parties and that are related to the claims filed by the SEC and/or the New York Attorney General against these parties. A list of such lawsuits that have been served or for which service of process has been waived, as of March 18, 2004 is set forth in Appendix N.
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt ratings of Moody's, S&P and Fitch:
MOODY'S LONG-TERM DEBT RATINGS
Moody's corporate ratings areas follows:
Aaa: Bonds and preferred stock which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds and preferred stock which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. These are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk in Aa rated bonds appear somewhat larger than those securities rated Aaa.
A: Bonds and preferred stock which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds and preferred stock which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba: Bonds and preferred stock which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa: Bonds and preferred stock which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca: Bonds and preferred stock which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds and preferred stock which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
MOODY'S SHORT-TERM PRIME RATING SYSTEM
Moody's short-term ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. Such obligations generally have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following designations, all judged to be investment grade , to indicate the relative repayment ability of rated issuers.
PRIME-1: Issuers (or supporting institutions) rated Prime-1 have a superior ability for repayment of senior short-term obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable ability for repayment of senior short-term debt obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating categories.
Note: In addition, in certain countries the prime rating may be modified by the issuer's or guarantor's senior unsecured long-term debt rating.
Moody's municipal ratings are as follows:
MOODY'S U.S. LONG-TERM MUNICIPAL BOND RATING DEFINITIONS
Municipal Ratings are opinions of the investment quality of issuers and issues in the US municipal and tax-exempt markets. As such, these ratings incorporate Moody's assessment of the default probability and loss severity of these issuers and issues.
Municipal Ratings are based upon the analysis of four primary factors relating to municipal finance: economy, debt, finances, and administration/management strategies. Each of the factors is evaluated individually and for its effect on the other factors in the context of the municipality's ability to repay its debt.
Aaa: Issuers or issues rated Aaa demonstrate the strongest creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Aa: Issuers or issues rated Aa demonstrate very strong creditworthiness relative to other US municipal or tax-exempt issuers or issues.
A: Issuers or issues rated A present above-average creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Baa: Issuers or issues rated Baa represent average creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Ba: Issuers or issues rated Ba demonstrate below-average creditworthiness relative to other US municipal or tax-exempt issuers or issues.
B: Issuers or issues rated B demonstrate weak creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Caa: Issuers or issues rated Caa demonstrate very weak creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Ca: Issuers or issues rated Ca demonstrate extremely weak creditworthiness relative to other US municipal or tax-exempt issuers or issues.
C: Issuers or issues rated C demonstrate the weakest creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa to Caa. The modifier 1 indicates that the issue ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic category.
MOODY'S MIG/VMIG US SHORT-TERM RATINGS
In municipal debt issuance, there are three rating categories for short-term obligations that are considered investment grade. These ratings are designated as Moody's Investment Grade (MIG) and are divided into three levels - MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality are designated SG, or speculative grade.
In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned. The first element represents Moody's evaluation of the degree of risk associated with scheduled principal and interest payments. The second element represents Moody's evaluation of the degree of risk associated with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is designated as VMIG. When either the long- or short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating expirations will be a function of each issue's specific structural or credit features.
Gradations of investment quality are indicated by rating symbols, with each symbol representing a group in which the quality characteristics are broadly the same.
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of protection are ample although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
STANDARD & POOR'S LONG-TERM CORPORATE AND MUNICIPAL RATINGS
Issue credit ratings are based in varying degrees, on the following considerations: likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; nature of and provisions of the obligation; and protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above.
S&P describes its ratings for corporate and municipal bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree.
A: Debt rated A has a strong capacity to meet its financial commitments although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to meet its financial commitment on the obligation.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having significant speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
NR: Not Rated.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity and the commercial paper rating symbols for the put option (for example, AAA/A-1+). With short-term demand debt, the note rating symbols are used with the commercial paper rating symbols (for example, SP-1+/A-1+).
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days.
These categories are as follows:
A-1: This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
B: Issues rated 'B' are regarded as having only speculative capacity for timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
D: Debt rated 'D' is in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless Standard & Poor's believes such payments will be made during such grace period.
S&P SHORT-TERM MUNICIPAL RATINGS
An S&P note rating reflect the liquidity factors and market-access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment: amortization schedule (the larger the final maturity relative to other maturities, the more likely it will be treated as a note); and source of payment (the more dependant the issue is on the market for its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH LONG-TERM CREDIT RATINGS
Fitch Ratings provides an opinion on the ability of an entity or of a securities issue to meet financial commitments, such as interest, preferred dividends, or repayment of principal, on a timely basis. These credit ratings apply to a variety of entities and issues, including but not limited to sovereigns, governments, structured financings, and corporations; debt, preferred/preference stock, bank loans, and counterparties; as well as the financial strength of insurance companies and financial guarantors.
Credit ratings are used by investors as indications of the likelihood
of getting their money back in accordance with the terms on which they invested.
Thus, the use of credit ratings defines their function: "investment grade"
ratings (international Long-term 'AAA' - 'BBB' categories; Short-term 'F1' -
'F3') indicate a relatively low probability of default, while those in the
"speculative" or "non-investment grade" categories (international Long-term 'BB'
- 'D'; Short-term 'B' - 'D') either signal a higher probability of default or
that a default has already occurred. Ratings imply no specific prediction of
default probability. However, for example, it is relevant to note that over the
long term, defaults on 'AAA' rated U.S. corporate bonds have averaged less than
0.10% per annum, while the equivalent rate for 'BBB' rated bonds was 0.35%, and
for 'B' rated bonds, 3.0%.
Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated.
Entities or issues carrying the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk.
Fitch credit and research are not recommendations to buy, sell or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature of taxability of payments of any security.
The ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch Ratings believes to be reliable. Fitch Ratings does not audit or verify the truth or accuracy of such information. Ratings may be changed or withdrawn as a result of changes in, or the unavailability of, information or for other reasons.
Our program ratings relate only to standard issues made under the
program concerned; it should not be assumed that these ratings apply to every
issue made under the program. In particular, in the case of non-standard issues,
i.e., those that are linked to the credit of a third party or linked to the
performance of an index, ratings of these issues may deviate from the applicable
program rating.
Credit ratings do not directly address any risk other than credit risk. In particular, these ratings do not deal with the risk of loss due to changes in market interest rates and other market considerations.
AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong capacity for timely payment of financial commitments, which is unlikely to be affected by foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The obligor has a very strong capacity for timely payment of financial commitments which is not significantly vulnerable to foreseeable events.
A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of good credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances are more likely to impair this capacity.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or refinanced and at Fitch's discretion, when Fitch Ratings deems the amount of information available to be inadequate for ratings purposes.
RATINGWATCH: Ratings are placed on RatingWatch to notify investors that there is a reasonable possibility of a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for potential downgrade, or "Evolving," if ratings may be raised, lowered or maintained. RatingWatch is typically resolved over a relatively short period.
FITCH SPECULATIVE GRADE BOND RATINGS
BB: Bonds are considered speculative. There is a possibility of credit risk developing, particularly as the result of adverse economic changes over time. However, business and financial alternatives may be available to allow financial commitments to be met.
B: Bonds are considered highly speculative. Significant credit risk is present but a limited margin of safety remains. While bonds in this class are currently meeting financial commitments, the capacity for continued payment is contingent upon a sustained, favorable business and economic environment.
CCC: Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments.
CC: Default of some kind appears probable.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and are valued on the basis of their prospects for achieving partial or full recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in categories below CCC.
FITCH SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency ratings. A Short-term rating has a time horizon of less than 12 months for most obligations, or up to three years for U.S. public finance securities, and thus places greater emphasis on the liquidity necessary to meet financial commitments in a timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as in the case of the higher ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate, however, near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment.
D: Default. Issues assigned this rating are in actual or imminent payment default.
APPENDIX B
TRUSTEES AND OFFICERS
As of April 30, 2004
The address of each trustee and officer is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 112 portfolios in the AIM Funds and INVESCO Funds complex, except for Messrs. Baker, Bunch, Lewis and Soll who oversee 111 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust's organizational documents. Column two below includes length of time served with predecessor entities, if any.
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER OTHER TRUSTEESHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
-----------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group None
Trustee, Chairman and Inc. (financial services holding company);
President Director and Vice Chairman, AMVESCAP PLC and
Chairman of AMVESCAP PLC - AIM Division (parent
of AIM and a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.; Director,
Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director and
Chairman, A I M Capital Management, Inc.
(registered investment advisor),
A I M Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund Management
Company (registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC - Managed
Products
-----------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), and
Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC - AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and
Chief Executive Officer, INVESCO Funds Group,
Inc. and INVESCO Distributors, Inc.; Chief
-----------------------------------------------------------------------------------------------------------------------
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(1) Mr. Graham is considered an interested person of the Trust because he is a director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust.
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER OTHER TRUSTEESHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
----------------------------------------------------------------------------------------------------------------------
Executive Officer, AMVESCAP PLC - Managed
Products; Chairman and Chief Executive Officer
of NationsBanc Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
----------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
----------------------------------------------------------------------------------------------------------------------
Bob R. Baker - 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and
Chief Executive Officer, First Columbia
Financial Corporation
----------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee Formerly: Partner, law firm of Baker & McKenzie (registered investment
company)
----------------------------------------------------------------------------------------------------------------------
James T. Bunch - 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
----------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited
Trustee (technology consulting company) (insurance company);
and Captaris, Inc.
(unified messaging
provider)
----------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group, (Chairman)
Ltd. (private investment and management) and (registered
Magellan Insurance Company investment company);
Annuity and Life Re
Formerly: Director, President and Chief (Holdings), Ltd.
Executive Officer, Volvo Group North America, (insurance company)
Inc.; Senior Vice President, AB Volvo; and
director of various affiliated Volvo companies
----------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
----------------------------------------------------------------------------------------------------------------------
|
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER OTHER TRUSTEESHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
----------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff; and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund
(non-profit)
-------------------------------- ----------- -------------------------------------------------- ----------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered
investment company)
-------------------------------- ----------- -------------------------------------------------- ----------------------
Gerald J. Lewis - 1933 2003 Chairman, Lawsuit Resolution Services (San Diego, General Chemical
Trustee California) Group, Inc.
Formerly: Associate Justice of the California
Court of Appeals
-------------------------------- ----------- -------------------------------------------------- ----------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the None
Trustee USA
-------------------------------- ----------- -------------------------------------------------- ----------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
-------------------------------- ----------- -------------------------------------------------- ----------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
-------------------------------- ----------- -------------------------------------------------- ----------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and None
Trustee Operations, Hines Interests Limited Partnership
(real estate development company)
-------------------------------- ----------- -------------------------------------------------- ----------------------
Larry Soll, Ph.D. - 1942 2003 Retired None
Trustee
----------------------------------------------------------------------------------------------------------------------
|
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER OTHER TRUSTEESHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
OTHER OFFICERS
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President, Chief General Counsel, A I M Management Group Inc.
Legal Officer and Secretary (financial services holding company) and A I M
Advisors, Inc.; and Vice President, A I M
Capital Management, Inc., A I M Distributors,
Inc. and AIM Investment Services, Inc.;
Director, Vice President and General Counsel,
Fund Management Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel,
Liberty Funds Group, LLC
Stuart W. Coco -- 1955 Vice 2002 Managing Director and Director of Money Market N/A
President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
Melville B. Cox -- 1943 1992 Vice President and Chief Compliance Officer, N/A
Vice President A I M Advisors, Inc. and A I M Capital Management,
Inc.; and Vice President, AIM Investment
Services, Inc.
Sidney Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Vice President, A I M Distributors,
Inc.; and Senior Vice President, AIM Investment
Services, Inc.
Karen Dunn Kelly -- 1960 1992 Managing Director and Chief Cash Management Officer, N/A
Vice President AIM Capital Management, Inc.; Director and President,
Fund Management Company; and Vice President, AIM
Advisors, Inc.
Edgar M. Larsen -- 1940 1999 Director and Executive Vice President, A I M N/A
Vice President Management Groups Inc.; Director and Senior Vice
President, A I M Advisors, Inc.; and Director,
Chairman, President, Director of Investments,
Chief Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
|
TRUSTEE OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2003
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY TRUSTEE
DOLLAR RANGE OF EQUITY SECURITIES IN THE AIM FAMILY OF FUNDS
NAME OF TRUSTEE PER FUND -- REGISTERED TRADEMARK --
------------------------ ----------------------------------------------- ------------------------------
Robert H. Graham High Yield $50,001 - $100,000 Over $100,000
Limited Maturity Treasury Over $100,000
Municipal Bond Over $100,000
Mark H. Williamson - 0 - Over $100,000
Bob R. Baker High Yield $1 - $10,000 Over $100,000
Income $1 - $10,000
Intermediate Government $1 - $10,000
Money Market $1 - $10,000
Municipal Bond $1 - $10,000
Real Estate $1 - $10,000
Frank S. Bayley Income $10,001 - $50,000 $50,001 - $100,000
James T. Bunch High Yield $1 - $10,000 Over $100,000
Income $1 - $10,000
Intermediate Government $1 - $10,000
Money Market $1 - $10,000
Municipal Bond $1 - $10,000
Real Estate $1 - $10,000
Bruce L. Crockett - 0 - $10,001 - $50,000
Albert R. Dowden High Yield $10,001 - $50,000 Over $100,000
Edward K. Dunn, Jr. High Yield $1 - $10,000 Over $100,000
Money Market Over $100,000
Jack M. Fields - 0 - Over $100,000(3)
Carl Frischling High Yield $10,001 - $50,000 Over $100,000(3)
Gerald J. Lewis High Yield $1 - $10,000 $50,001 - $100,000
Income $1 - $10,000
Intermediate Government $1 - $10,000
Money Market $1 - $10,000
Municipal Bond $1 - $10,000
Real Estate $1 - $10,000
|
3 Includes the total amount of compensation deferred by the trustee at his or her election pursuant to a deferred compensation plan. Such deferred compensation is placed in a deferral account and deemed to be invested in one or more of the AIM Funds.
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY TRUSTEE
DOLLAR RANGE OF EQUITY SECURITIES IN THE AIM FAMILY OF FUNDS
NAME OF TRUSTEE PER FUND -- REGISTERED TRADEMARK --
------------------------ ----------------------------------------------- ------------------------------
Prema Mathai-Davis - 0 - $1 - $10,000
Lewis F. Pennock High Yield $1 - $10,000 $50,001 - $100,000
Ruth H. Quigley -0- $1 -$10,000
Louis S. Sklar - 0 - Over $100,000(3)
Larry Soll High Yield $1 - $10,000 Over $100,000
Income $1 - $10,000
Intermediate Government $1 - $10,000
Money Market $1 - $10,000
Municipal Bond $1 - $10,000
Real Estate $1 - $10,000
|
3 Includes the total amount of compensation deferred by the trustee at his or her election pursuant to a deferred compensation plan. Such deferred compensation is placed in a deferral account and deemed to be invested in one or more of the AIM Funds.
APPENDIX C
TRUSTEES COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for each trustee of the Trust who was not affiliated with AIM during the year ended December 31, 2003:
ESTIMATED
ANNUAL
RETIREMENT BENEFITS
AGGREGATE BENEFITS UPON TOTAL
COMPENSATION FROM ACCRUED RETIREMENT COMPENSATION
THE BY ALL FROM ALL FROM ALL AIM
TRUSTEE TRUST(1) AIM FUNDS(2) AIM FUNDS(3) FUNDS(4)
-------------------------------------------------------------------------------------------------------
Bob R. Baker(5) N/A $ 32,635 $114,131 $ 154,554
Frank S. Bayley $12,020 131,228 90,000 159,000
James T. Bunch(5) N/A 20,436 90,000 138,679
Bruce L. Crockett 12,025 46,000 90,000 160,000
Albert R. Dowden 12,020 57,716 90,000 159,000
Edward K. Dunn, Jr. 12,025 94,860 90,000 160,000
Jack M. Fields 12,023 28,036 90,000 159,000
Carl Frischling(6) 12,099 40,447 90,000 160,000
Gerald J. Lewis(5) N/A 20,436 90,000 142,054
Prema Mathai-Davis 12,099 33,142 90,000 160,000
Lewis F. Pennock 12,099 49,610 90,000 160,000
Ruth H. Quigley 12,099 126,050 90,000 160,000
Louis S. Sklar 12,025 72,786 90,000 160,000
Larry Soll(5) N/A 48,830 108,090 140,429
|
(1) Amounts shown are based on the fiscal year ended July 31, 2003. The total amount of compensation deferred by all trustees of the Trust during the fiscal year ended July 31, 2003, including earnings, was $44,159.
(2) During the fiscal year ended July 31, 2003, the total amount of expenses allocated to the Trust in respect of such retirement benefits was $65,550.
(3) These amounts represent the estimated annual benefits payable by the AIM Funds and INVESCO Funds upon the trustee's retirement. These estimated benefits assume each trustee serves until his or her normal retirement date and has ten years of service.
(4) All trustees currently serve as trustees of nineteen registered investment companies advised by AIM.
(5) Messrs. Baker, Bunch and Lewis and Dr. Soll were elected as trustees of the Trust on October 21, 2003 and therefore receive no compensation from the Trust during the fiscal year ended July 31, 2003.
(6) During the fiscal year ended July 31, 2003, the Trust paid $32,038 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.
APPENDIX D
PROXY VOTING POLICIES
PROXY POLICIES AND PROCEDURES
Reviewed and approved by the AIM Funds Board of Directors/Trustees February 19, 2004 Adopted by the Board of Directors of each of A I M Advisors, Inc., A I M Capital Management, Inc., AIM Private Asset Management, Inc. and AIM Alternative Asset Management Company, Inc. June 26, 2003, as revised effective January 8, 2004
A. PROXY POLICIES
Each of A I M Advisors, Inc., A I M Capital Management, Inc., AIM Private Asset Management, Inc. and AIM Alternative Asset Management Company, Inc. (each an "AIM Advisor" and collectively "AIM") has the fiduciary obligation to, at all times, make the economic best interest of advisory clients the sole consideration when voting proxies of companies held in client accounts. As a general rule, each AIM Advisor shall vote against any actions that would reduce the rights or options of shareholders, reduce shareholder influence over the board of directors and management, reduce the alignment of interests between management and shareholders, or reduce the value of shareholders' investments. At the same time, AIM believes in supporting the management of companies in which it invests, and will accord proper weight to the positions of a company's board of directors, and the AIM portfolio managers who chose to invest in the companies. Therefore, on most issues, our votes have been cast in accordance with the recommendations of the company's board of directors, and we do not currently expect that trend to change. Although AIM's proxy voting policies are stated below, AIM's proxy committee considers all relevant facts and circumstances, and retains the right to vote proxies as deemed appropriate.
I. BOARDS OF DIRECTORS
A board that has at least a majority of independent directors is integral to good corporate governance. Key board committees, including audit, compensation and nominating committees, should be completely independent.
There are some actions by directors that should result in votes being withheld. These instances include directors who:
- Are not independent directors and (a) sit on the board's audit, compensation or nominating committee, or (b) sit on a board where the majority of the board is not independent;
- Attend less than 75 percent of the board and committee meetings without a valid excuse;
- Implement or renew a dead-hand or modified dead-hand poison pill;
- Sit on the boards of an excessive number of companies;
- Enacted egregious corporate governance or other policies or failed to replace management as appropriate;
- Have failed to act on takeover offers where the majority of the shareholders have tendered their shares; or
- Ignore a shareholder proposal that is approved by a majority of the shares outstanding.
Votes in a contested election of directors must be evaluated on a case-by-case basis, considering the following factors:
- Long-term financial performance of the target company relative to its industry;
- Management's track record;
- Portfolio manager's assessment;
- Qualifications of director nominees (both slates);
- Evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met; and
- Background to the proxy contest.
II. INDEPENDENT AUDITORS
A company should limit its relationship with its auditors to the audit engagement, and certain closely related activities that do not, in the aggregate, raise an appearance of impaired independence. We will support the reappointment of the company's auditors unless:
- It is not clear that the auditors will be able to fulfill their function;
- There is reason to believe the independent auditors have rendered an opinion that is neither accurate nor indicative of the company's financial position; or
- The auditors have a significant professional or personal relationship with the issuer that compromises the auditors' independence.
III. COMPENSATION PROGRAMS
Appropriately designed equity-based compensation plans, approved by shareholders, can be an effective way to align the interests of long-term shareholders and the interests of management, employees and directors. Plans should not substantially dilute shareholders' ownership interests in the company, provide participants with excessive awards or have objectionable structural features. We will consider all incentives, awards and compensation, and compare them to a company-specific adjusted allowable dilution cap and a weighted average estimate of shareholder wealth transfer and voting power dilution.
- We will generally vote against equity-based plans where the total dilution (including all equity-based plans) is excessive.
- We will support the use of employee stock purchase plans to increase company stock ownership by employees, provided that shares purchased under the plan are acquired for no less than 85% of their market value.
- We will vote against plans that have any of the following structural features: ability to re-price underwater options without shareholder approval, ability to issue options with an exercise price below the stock's current market price, ability to issue reload options, or automatic share replenishment ("evergreen") feature.
- We will vote for proposals to reprice options if there is a value-for-value (rather than a share-for-share) exchange.
- We will generally support the board's discretion to determine and grant appropriate cash compensation and severance packages.
IV. CORPORATE MATTERS
We will review management proposals relating to changes to capital structure, reincorporation, restructuring and mergers and acquisitions on a case by case basis, considering the impact of the changes on corporate governance and shareholder rights, anticipated financial and operating benefits, portfolio manager views, level of dilution, and a company's industry and performance in terms of shareholder returns.
- We will vote for merger and acquisition proposals that the proxy committee and relevant portfolio managers believe, based on their review of the materials, will result
in financial and operating benefits, have a fair offer price, have favorable prospects for the combined companies, and will not have a negative impact on corporate governance or shareholder rights.
- We will vote against proposals to increase the number of authorized shares of any class of stock that has superior voting rights to another class of stock.
- We will vote for proposals to increase common share authorization for a stock split, provided that the increase in authorized shares would not result in excessive dilution given a company's industry and performance in terms of shareholder returns.
- We will vote for proposals to institute open-market share repurchase plans in which all shareholders participate on an equal basis.
V. SHAREHOLDER PROPOSALS
Shareholder proposals can be extremely complex, and the impact on share value can rarely be anticipated with any high degree of confidence. The proxy committee reviews shareholder proposals on a case-by-case basis, giving careful consideration to such factors as: the proposal's impact on the company's short-term and long-term share value, its effect on the company's reputation, the economic effect of the proposal, industry and regional norms applicable to the company, the company's overall corporate governance provisions, and the reasonableness of the request.
- We will generally abstain from shareholder social and environmental proposals.
- We will generally support the board's discretion regarding shareholder proposals that involve ordinary business practices.
- We will generally vote for shareholder proposals that are designed to protect shareholder rights if the company's corporate governance standards indicate that such additional protections are warranted.
- We will generally vote for proposals to lower barriers to shareholder action.
- We will generally vote for proposals to subject shareholder rights plans to a shareholder vote. In evaluating these plans, we give favorable consideration to the presence of "TIDE" provisions (short-term sunset provisions, qualified bid/permitted offer provisions, and/or mandatory review by a committee of independent directors at least every three years).
VI. OTHER
- We will vote against any proposal where the proxy materials lack sufficient information upon which to base an informed decision.
- We will vote against any proposals to authorize the proxy to conduct any other business that is not described in the proxy statement.
- We will vote any matters not specifically covered by these proxy policies and procedures in the economic best interest of advisory clients.
AIM's proxy policies, and the procedures noted below, may be amended from time to time.
B. PROXY COMMITTEE PROCEDURES
The proxy committee currently consists of representatives from the Legal and Compliance Department, the Investments Department and the Finance Department.
The committee members review detailed reports analyzing the proxy issues and have access to proxy statements and annual reports. The committee then discusses the issues and determines the vote. The committee shall give appropriate and significant weight to portfolio managers' views regarding a proposal's impact on shareholders. A proxy committee meeting requires a quorum of three committee members, voting in person or by proxy.
AIM's proxy committee shall consider its fiduciary responsibility to all clients when addressing proxy issues and vote accordingly. The proxy committee may enlist the services of reputable outside professionals and/or proxy evaluation services, such as Institutional Shareholder Services or any of its subsidiaries ("ISS"), to assist with the analysis of voting issues and/or to carry out the actual voting process. To the extent the services of ISS or another provider are used, the proxy committee shall periodically review the policies of that provider.
In addition to the foregoing, the following shall be strictly adhered to unless contrary action receives the prior approval of the Funds' Board of Directors/Trustees:
1. Other than by voting proxies and participating in Creditors' committees, AIM shall not engage in conduct that involves an attempt to change or influence the control of a company.
2. AIM will not publicly announce its voting intentions and the reasons therefore.
3. AIM shall not participate in a proxy solicitation or otherwise seek proxy-voting authority from any other public company shareholder.
4. All communications regarding proxy issues between the proxy committee and companies or their agents, or with fellow shareholders shall be for the sole purpose of expressing and discussing AIM's concerns for its advisory clients' interests and not for an attempt to influence or control management.
C. BUSINESS/DISASTER RECOVERY
If the proxy committee is unable to meet due to a temporary business interruption, such as a power outage, a sub-committee of the proxy committee may vote proxies in accordance with the policies stated herein. If the sub-committee of the proxy committee is not able to vote proxies, the sub-committee shall authorize ISS shall to vote proxies by default in accordance with ISS' proxy policies and procedures, which may vary slightly from AIM's.
D. RESTRICTIONS AFFECTING VOTING
If a country's laws allow a company in that country to block the sale of the company's shares by a shareholder in advance of a shareholder meeting, AIM will not vote in shareholder meetings held in that country, unless the company represents that it will not block the sale of its shares in connection with the meeting. Administrative or other procedures, such as securities lending, may also cause AIM to refrain from voting. Although AIM considers proxy voting to be an important shareholder right, the proxy committee will not impede a portfolio manager's ability to trade in a stock in order to vote at a shareholder meeting.
E. CONFLICTS OF INTEREST
The proxy committee reviews each proxy to assess the extent to which there may be a material conflict between AIM's interests and those of advisory clients. A potential conflict of interest situation
may include where AIM or an affiliate manages assets for, administers an employee benefit plan for, provides other financial products or services to, or otherwise has a material business relationship with, a company whose management is soliciting proxies, and failure to vote proxies in favor of management of the company may harm AIM's relationship with the company. In order to avoid even the appearance of impropriety, the proxy committee will not take AIM's relationship with the company into account, and will vote the company's proxies in the best interest of the advisory clients, in accordance with these proxy policies and procedures.
To the extent that a committee member has any conflict of interest with respect to a company or an issue presented, that committee member should inform the proxy committee of such conflict and abstain from voting on that company or issue.
The Proxy Voting Policies applicable to AIM Real Estate Fund follow:
GENERAL POLICY
INVESCO Institutional (NA), Inc. and its wholly-owned subsidiaries, and INVESCO Global Asset Management (N.A.), Inc. ("INVESCO") each has responsibility for making investment decisions that are in the best interest of its clients. As part of the investment management services it provides to clients, INVESCO may be authorized by clients to vote proxies appurtenant to the shares for which the clients are beneficial owners.
As a fiduciary, INVESCO believes that it has a duty to manage clients' assets solely in the best interest of the clients and that the ability to vote proxies is a client asset. Accordingly, INVESCO has a duty to vote proxies in a manner in which it believes will add value to the client's investment.
INVESCO is regulated by various state and federal laws, such as the Investment Advisers Act of 1940, the Investment Company Act of 1940, and the Employee Retirement Income Security Act of 1974 ("ERISA"). Because there may be different proxy voting standards for ERISA and non-ERISA clients, INVESCO's policy is to apply the proxy voting policies and procedures described herein to all of its clients. Any discussion herein which refers to an ERISA or non-ERISA situation is used for reference only.
INVESCO may amend its proxy policies and procedures from time to time without prior notice to its clients.
BACKGROUND
ERISA fiduciary standards relating to proxy voting have not been interpreted until more recent times.
Due to the large number of mergers and acquisitions in the 1980s and the growing importance of institutional investors in the equity markets, the Department of Labor ("DOL"), which enforces fiduciary standards for ERISA plan sponsors and managers, took the position that the right to vote shares of stock owned by a pension plan is, in itself, an asset of the plan. Thus, the "Wall Street Rule" of "vote with management (or abstain from voting) or sell the stock" was under scrutiny.
In 1988, the DOL stated, in the "Avon Letter", that the fiduciary act of managing plan assets that are shares of corporate stock includes the voting of proxies appurtenant to those shares of stock. Accordingly, where the authority to manage plan assets has been delegated to an investment manager pursuant to ERISA, no person other than the investment manager has authority to vote proxies appurtenant to such plan assets, except to the extent the named fiduciary has reserved to itself the right to direct a plan trustee regarding the voting of proxies.
In 1990, in the "Monks Letter", the DOL stated that an ERISA violation would occur if the investment manager is explicitly or implicitly assigned the authority to vote proxies appurtenant to certain plan-owned
stock and the named fiduciary, trustee or any person other than the investment manager makes the decision on how to vote the same proxies. Thus, according to the DOL, if the investment management contract expressly provides that the investment manager is not required to vote proxies, but does not expressly preclude the investment manager from voting the relevant proxies, the investment manager would have the exclusive fiduciary responsibility for voting the proxies. In contrast, the DOL pointed out that if either the plan document or the investment management contract expressly precludes the investment manager from voting proxies, the responsibility for voting proxies lies exclusively with the trustee.
In 1994, in its Interpretive Bulletin 94-2 ("94-2"), the DOL reiterated and supplemented the Avon and Monks Letters. In addition, 94-2 extended the principles put forth in the Avon and Monks Letters to voting of proxies on shares of foreign corporations. However, the DOL recognized that the cost of exercising a vote on a particular proxy proposal could exceed any benefit that the plan could expect to gain in voting on the proposal. Therefore, the plan fiduciary had to weigh the costs and benefits of voting on proxy proposals relating to foreign securities and make an informed decision with respect to whether voting a given proxy proposal is prudent and solely in the interest of the plan's participants and beneficiaries.
In January 2003, the Securities and Exchange Commission ("SEC") adopted
regulations regarding Proxy Voting by investment advisers (SEC Release No.
IA-2106). These regulations required investment advisers to (1) adopt written
proxy voting policies and procedures which describe how the adviser addresses
material conflicts between its interests and those of its clients with respect
to proxy voting and which also addresses how the adviser resolves those
conflicts in the bet interest of clients; (2) disclose to clients how they can
obtain information from the adviser on how the adviser voted the proxies; and
(3) describe to clients its proxy voting policies and procedure to clients and,
upon request, furnish a copy of them to clients.
PROXY VOTING POLICY
Consistent with the fiduciary standards discussed above, INVESCO will vote proxies unless either the named fiduciary (e.g., the plan sponsor) retains in writing the right to direct the plan trustee or a third party to vote proxies or INVESCO determines that any benefit the client might gain from voting a proxy would be outweighed by the costs associated therewith (i.e., foreign proxies). In voting such proxies, INVESCO will act prudently, taking into consideration those factors that may affect the value of the security and will vote such proxies in a manner in which, in its opinion, is in the best interests of clients.
PROXY COMMITTEE
The INVESCO Proxy Committee will establish guidelines and procedures for voting proxies and will periodically review records on how proxies were voted.
The Proxy Committee will consist of certain of INVESCO's equity investment professionals and non-equity investment professionals.
PROXY MANAGER
The Proxy Committee will appoint a Proxy Manager and/or hire a third-party Proxy Agent to analyze proxies, act as a liaison to the Proxy Committee and manage the proxy voting process, which process includes the voting of proxies and the maintenance of appropriate records.
The Proxy Manager will exercise discretion to vote proxies within the guidelines established by the Proxy Committee. The Proxy Manager will consult with the Proxy Committee in determining how to vote proxies for issues not specifically covered by the proxy voting guidelines adopted by the Proxy Committee or in situations where the Proxy Manager or members of the Committee determine that consultation is prudent.
CONFLICTS OF INTEREST
In effecting our policy of voting proxies in the best interests of our clients, there may be occasions where the voting of such proxies may present an actual or perceived conflict of interest between INVESCO, as the investment manager, and clients.
Some of these potential conflicts of interest situations include, but are not limited to, (1) where INVESCO (or an affiliate) manage assets, administer employee benefit plans, or provides other financial services or products to companies whose management is soliciting proxies and failure to vote proxies in favor of the management of such a company may harm our (or an affiliate's) relationship with the company; (2) where INVESCO (or an affiliate) may have a business relationship, not with the company, but with a proponent of a proxy proposal and where INVESCO (or an affiliate) may manage assets for the proponent; or (3) where INVESCO (or an affiliate) or any member of the Proxy Committee may have personal or business relationships with participants in proxy contests, corporate directors or candidates for corporate directorships, or where INVESCO (or an affiliate) or any member of the Proxy Committee may have a personal interest in the outcome of a particular matter before shareholders.
In order to avoid even the appearance of impropriety, in the event that INVESCO (or an affiliate) manages assets for a company, its pension plan, or related entity or where any member of the Proxy Committee has a personal conflict of interest, and where we have invested clients' funds in that company's shares, the Proxy Committee will not take into consideration this relationship and will vote proxies in that company solely in the best interest of all of our clients.
In addition, members of the Proxy Committee must notify INVESCO's Chief Compliance Officer, with impunity and without fear of retribution or retaliation, of any direct, indirect or perceived improper influence made by anyone within INVESCO or by an affiliated company's representatives with regard to how INVESCO should vote proxies. The Chief Compliance Officer will investigate the allegations and will report his or her findings the INVESCO Management Committee. In the event that it is determined that improper influence was made, the Management Committee will determine the appropriate action to take which may include, but is not limited to, (1) notifying the affiliated company's Chief Executive Officer, its Management Committee or Board of Directors, (2) taking remedial action, if necessary, to correct the result of any improper influence where the clients have been harmed, or (3) notifying the appropriate regulatory agencies of the improper influence and to fully cooperate with these regulatory agencies as required. In all cases, the Proxy Committee shall not take into consideration the improper influence in determining how to vote proxies and will vote proxies solely in the best interest of clients.
Furthermore, members of the Proxy Committee must advise INVESCO's Chief Compliance Officer and fellow Committee members of any actual or potential conflicts of interest he or she may have with regard to how proxies are to be voted regarding certain companies (e.g., personal security ownership in a company, or personal or business relationships with participants in proxy contests, corporate directors or candidates for corporate directorships). After reviewing such conflict, upon advice from the Chief Compliance Officer, the Committee may require such Committee member to recuse himself or herself from participating in the discussions regarding the proxy vote item and from casting a vote regarding how INVESCO should vote such proxy.
PROXY VOTING PROCEDURES
The Proxy Manager will:
- Vote proxies;
- Take reasonable steps to reconcile proxies received by INVESCO and/or a third-party Proxy Agent who administers the vote with shares held in the accounts;
- Document the vote and rationale for each proxy voted (routine matters are considered to be documented if a proxy is voted in accordance with the Proxy Voting Guidelines established by the Proxy Committee);
- If requested, provide to clients a report of the proxies voted on their behalf.
PROXY VOTING GUIDELINES
The Proxy Committee has adopted the following guidelines in voting proxies:
I. CORPORATE GOVERNANCE
INVESCO will evaluate each proposal separately. However, INVESCO will generally vote FOR a management sponsored proposal unless it believes that adoption of the proposal may have a negative impact on the economic interests of shareholders.
INVESCO will generally vote FOR
- Annual election of directors
- Appointment of auditors
- Indemnification of management or directors or both against negligent or unreasonable action
- Confidentiality of voting
- Equal access to proxy statements
- Cumulative voting
- Declassification of Boards
- Majority of Independent Directors
INVESCO will generally vote AGAINST
- Removal of directors from office only for cause or by a supermajority vote
- "Sweeteners" to attract support for proposals
- Unequal voting rights proposals
("superstock")
- Staggered or classified election of directors
- Limitation of shareholder rights to remove directors, amend by-laws, call special meetings, nominate directors, or other actions to limit or abolish shareholder rights to act independently such as acting by written consent
- Proposals to vote unmarked proxies in favor of management
- Proposals to eliminate existing pre-emptive rights
II. TAKEOVER DEFENSE AND RELATED ACTIONS
INVESCO will evaluate each proposal separately. Generally, INVESCO will vote FOR a management sponsored anti-takeover proposal which (1) enhances management's bargaining position and (2) when combined with other anti-takeover provisions, including state takeover laws, does not discourage serious offers. INVESCO believes that generally four or more anti-takeover measures, which can only be repealed by a super-majority vote, are considered sufficient to discourage serious offers and therefore should be voted AGAINST.
INVESCO will generally vote FOR
- Fair price provisions
- Certain increases in authorized shares and/or creation of new classes of common or preferred stock
- Proposals to eliminate greenmail provisions
- Proposals to eliminate poison pill provisions
- Proposals to re-evaluate or eliminate in-place "shark repellents"
INVESCO will generally vote AGAINST
- Proposals authorizing the company's board of directors to adopt, amend or repeal by-laws without shareholders' approval
- Proposals authorizing the company's management or board of directors to buy back shares at premium prices without shareholders' approval
III. COMPENSATION PLANS
INVESCO will evaluate each proposal separately. INVESCO believes that in order for companies to recruit, promote and retain competent personnel, companies must provide appropriate and competitive compensation plans. INVESCO will generally vote FOR management sponsored compensation plans, which are reasonable, industry competitive and not unduly burdensome to the company in order for the company to recruit, promote and retain competent personnel.
INVESCO will generally vote FOR
- Stock option plans and/or stock appreciation right plans
- Profit incentive plans provided the option is priced at 100% fair market value
- Extension of stock option grants to non-employee directors in lieu of their cash compensation provided the option is priced at or about the then fair market value
- Profit sharing, thrift or similar savings plans
INVESCO will generally vote AGAINST
- Stock option plans that permit issuance of loans to management or selected employees with authority to sell stock purchased by the loan without immediate repayment, or that are overly generous (below market price or with appreciation rights paying the difference
between option price and the stock, or permit pyramiding or the directors to lower the purchase price of outstanding options without a simultaneous and proportionate reduction in the number of shares available)
- Incentive plans which become effective in
the event of hostile takeovers or mergers
(golden and tin parachutes)
- Proposals creating an unusually favorable compensation structure in advance of a sale of the company
- Proposals that fail to link executive compensation to management performance
- Acceleration of stock options/awards if the majority of the board of directors changes within a two year period
- Grant of stock options to non-employee directors in lieu of their cash compensation at a price below 100% fair market value
- Adoption of a stock purchase plan at less than 85% of fair market value
IV. CAPITAL STRUCTURE, CLASSES OF STOCK AND RECAPITALIZATION
INVESCO will evaluate each proposal separately. INVESCO recognizes that from time to time companies must reorganize their capital structure in order to avail themselves of access to the capital markets and in order to restructure their financial position in order to raise capital and to be better capitalized. Generally, INVESCO will vote FOR such management sponsored reorganization proposals if such proposals will help the company gain better access to the capital markets and to attain a better financial position. INVESCO will generally vote AGAINST such proposals that appear to entrench management and do not provide shareholders with economic value.
INVESCO will generally vote FOR
- Proposals to reincorporate or reorganize into a holding company
- Authorization of additional common or preferred shares to accommodate a stock split or other business purposes not related to anti-takeover measures as long as the increase is not excessive and a valid need has been proven
INVESCO will generally vote AGAINST
- Proposals designed to discourage mergers and acquisitions in advance
- Proposals to change state of incorporation to a state less favorable to shareholders' interests
- Reincorporating in another state to implement anti-takeover measures
V. SOCIAL RESPONSIBILITY
INVESCO will evaluate each proposal separately. INVESCO believes that a corporation, if it is in a solid financial position and can afford to do so, has an obligation to return certain largesse to the communities in which it operates. INVESCO believes that the primary mission of a company is to be profitable. However, where a company has proven that it is able to sustain a level of profitability and the market price of the
company's shares reflect an appropriate economic value for such shares, INVESCO will generally vote FOR certain social responsibility initiatives. INVESCO will generally vote AGAINST proposed social responsibility initiatives if it believes that the company already has adequate policies and procedures in place and it should focus its efforts on enhancing shareholder value where the assets and resources involved could be put to better use in obtaining profits.
INVESCO will generally vote FOR
- International Labor Organization Principles
- Resolutions seeking Basic Labor Protections and Equal Employment Opportunity
- Expanding EEO/Social Responsibility Reporting
RECORD KEEPING
THE PROXY MANAGER WILL TAKE NECESSARY STEPS TO RETAIN PROXY VOTING
RECORDS FOR THE PERIOD OF TIME AS REQUIRED BY REGULATIONS.
APPENDIX E
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the record and beneficial holders of 5% or more of the outstanding shares of each class of the Trust's equity securities and the percentage of the outstanding shares held by such holders are set forth below. Unless otherwise indicated below, the Trust has no knowledge as to whether all or any portion of the shares owned of record are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding securities of a Fund is presumed to "control" that Fund as defined in the 1940 Act. Such control may affect the voting rights of other shareholders.
All information listed below is as of April 12, 2004.
AIM HIGH YIELD FUND
CLASS A CLASS B CLASS C INVESTOR CLASS INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
-------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD OWNED OF RECORD RECORD
---------------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc.
Special Custody FBO Customers (SIM) -- -- -- 33.65% --
ATTN: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Citigroup Global Markets House Acct. -- 7.01% -- -- --
Attn: Cindy Tempesta, 7th Floor
333 West 34th St.
New York, NY 10001-2402
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration -- 7.76% 7.67% -- --
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
National Financial Services Corp
The Exclusive Benefit of Cust
One World Financial Center -- -- -- 5.01% --
200 Liberty Street, 5th Floor
ATTN: Kate Recon
New York, NY 10281-5503
|
AIM INCOME FUND
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES
---------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
--------------------------------------------------------------------------------------------------------------------
Airbrush Images Inc. 401(K) Plan -- -- -- -- 6.08%
Attn: Daniel E. Henrichs TTEE
850 N FM 3083
Conroe, TX 77303-1850
Citigroup Global Markets House 5.78% -- -- -- --
Attn: Cindy Tempesta 7th A
333 West 34th Street
New York, NY 10001-2402
Cortina Tool & Molding Co. -- -- -- -- 7.36%
Attn: Michael Giannelli
912 Tamer Ln
Glenview, IL 60025-3767
D & L Manufacturing Inc. 401K PSP
Lee Eslicker TTEE
Omnibus Account -- -- -- 6.20% --
P. O. Box 52427
Tulsa, OK 74152-0427
Charles Schwab & Co. Inc.
Special Custody FBO Customers (SIM) -- -- -- -- 14.49%
ATTN: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers -- 5.51% 7.73% -- --
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Union Bank of Calif TR
Select Benefit Omnibus -- -- -- -- 6.42%
12 b 1 Fees
P.O. Box 85484
San Diego, CA 92186-5484
Reliance Trust Company
Custodian
FBO Continental Products Inc. -- -- -- 21.20% --
401(K) Plan
P.O. Box 48529
Atlanta, GA 30362-1529
|
AIM INTERMEDIATE GOVERNMENT FUND
CLASS A CLASS B CLASS C CLASS R INVESTOR
SHARES SHARES SHARES SHARES CLASS SHARES
----------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
---------------------------------------------------------------------------------------------------------------------
Cecille Stell Pulitzer 7/19/91
Cecille Stell Pulitzer TTE U/I
Revoc Trust -- -- -- -- 7.55%
c/o St. Louis Post-Dispatch
900 N. Tucker Blvd
St. Louis, MO 63101-1069
Charles Schwab & Co. Inc.
Special Custody FBO Customers
(SIM) -- -- -- -- 10.44%
ATTN: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
AMVESCAP Nat'l. Trust Company TTEE
FBO Big Horn Basin
Orthopedic Clinic PC -- -- -- 14.12% --
401K Profit Sharing Plan
P. O. Box 105779
Atlanta, GA 30348-5779
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers 13.52% 11.24% 20.55% 8.98% --
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
|
AIM LIMITED MATURITY TREASURY FUND
CLASS A CLASS A3 INSTITUTIONAL CLASS
SHARES SHARES SHARES
----------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
--------------------------------------------------------------------------------------------------------------------
ESOR & Co.
Attn: Trust Operations - Lynn Knight -- -- 15.07%
P.O. Box 19006
Green Bay, WI 54307-9006
|
CLASS A CLASS A3 INSTITUTIONAL CLASS
SHARES SHARES SHARES
----------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
--------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers 9.33% -- --
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
MUIR & Co. -- -- 76.69%
c/o Frost
P.O. Box 2479
San Antonio, TX 78298-2479
Wachovia Securities, LLC FBO
U.S. Dept. of Education/TGSLC 5.19% -- --
Attn: Mark Zarsky
301 Sundance Dr.
Round Rock, TX 78664
|
AIM MONEY MARKET FUND
CASH INVESTOR INSTITUTIONAL
RESERVE CLASS B CLASS C CLASS R CLASS CLASS
SHARES SHARES SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD
------------------------------------------------------------------------------------------------------------------------------------
A I M Distributors, Inc. 9.08% -- -- -- -- --
ATTN: David Hessel
11 E. Greenway Plaza, Ste 100
Houston, TX 77046-1113
AMVESCAP National Trust Co.
FBO Equator Technologies, Inc. -- -- -- 31.52% -- --
401 (K) Retirement Plan
P. O. Box 105779
Atlanta, GA 30348-5779
Citigroup Global Markets House Acct. -- 5.35% -- -- -- --
Attn: Cindy Tempesta
333 West 34th St., 7th Floor
New York, NY 10001-2402
|
AIM MUNICIPAL BOND FUND
CLASS A CLASS B CLASS C INVESTOR CLASS
SHARES SHARES SHARES SHARES
-----------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
--------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers -- 8.89% 14.39% --
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Charles Schwab & Co. Inc.
Special Custody FBO Customer
(SIM) -- -- -- 5.85%
ATTN: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Citigroup Global Markets House Account -- 6.94% -- --
Attn: Cindy Tempesta
333 West 34th St., 7th Floor
New York, NY 10001-2402
|
AIM REAL ESTATE FUND
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS INSTITUTIONAL
SHARES SHARES SHARES SHARES SHARES CLASS SHARES
--------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD
------------------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co Inc.
Reinvestment Account 15.39% -- -- -- 11.55% --
101 Montgomery Street
San Francisco, CA 94104-4122
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers -- 5.43% 14.85% -- -- --
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246
|
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS INSTITUTIONAL
SHARES SHARES SHARES SHARES SHARES CLASS SHARES
--------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD
------------------------------------------------------------------------------------------------------------------------------------
Citigroup Global Markets House Acct -- -- 5.60% -- -- --
Attn: Cindy Tempesta, 7th Floor
333 West 34th Street
New York, NY 10001-2402
|
AIM SHORT TERM BOND FUND
CLASS A CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
-------------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
-------------------------------------------------------------------------------------------------------------------
N/A N/A N/A N/A
|
AIM TOTAL RETURN BOND FUND
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
----------------------------------------------------------------------------------------------------------------------------------
Citigroup Global Markets House Acct. -- -- 6.35% -- --
Attn: Cindy Tempesta, 7th Floor
333 West 34th St.
New York, NY 10001-2402
Leslie S. Packer PHD Def Ben Plan
Leslie S. Packer and Charles Packer TTEEs -- -- 5.38% -- --
3961 Brookline Way
Redwood City, CA 94062-3914
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers -- 5.84% -- -- --
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
|
MANAGEMENT OWNERSHIP
As of April 12, 2004, the trustees and officers as a group owned less than 1% of the outstanding shares of each class of each Fund.
APPENDIX F
MANAGEMENT FEES
For the last three fiscal years ended July 31, the management fees payable by each Fund, the amounts waived by AIM and the net fee paid by each Fund were as follows:
2003
-----------------------------------------------------------
NET
MANAGEMENT MANAGEMENT MANAGEMENT
FUND NAME FEE PAYABLE FEE WAIVERS FEE PAID
-----------------------------------------------------------
AIM High
Yield Fund $ 5,533,331 $ (8,331) $ 5,525,000
AIM Income Fund 2,412,877 (1,545) 2,411,332
AIM Intermediate
Government Fund 5,335,975 (22,714) 5,313,261
AIM Limited
Maturity
Treasury Fund 1,392,547 N/A 1,392,547
AIM Money Market
Fund 10,145,165 (2,809,789) 7,335,376
AIM Municipal
Bond Fund 2,109,878 N/A 2,109,878
AIM Real Estate
Fund 2,327,770 N/A N/A
AIM Short Term
Bond Fund(1) 598,592 (761) 597,831
AIM Total Return
Bond Fund(2) 306,590 (266,097) 40,493
2002 2001
---------------------------------------------------------------------------------------------------
NET NET
MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
FUND NAME FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID
---------------------------------------------------------------------------------------------------
AIM High
Yield Fund $ 6,811,857 $ (6,338) $ 6,805,519 $ 9,230,307 $ (835) $ 9,229,472
AIM Income Fund 2,544,570 (1,176) 2,543,394 2,549,509 (109) 2,549,400
AIM Intermediate
Government Fund 3,328,024 (28,397) 3,299,627 2,247,495 (1,187) 2,246,308
AIM Limited
Maturity
Treasury Fund 1,200,432 N/A 1,200,432 712,990 N/A 712,990
AIM Money Market
Fund 9,087,854 N/A 9,087,854 7,202,907 N/A 7,202,907
AIM Municipal
Bond Fund 2,040,421 N/A 2,040,421 1,729,991 N/A 1,729,991
AIM Real Estate
Fund 903,720 N/A N/A 538,600 N/A N/A
AIM Short Term
Bond Fund(1) N/A N/A N/A N/A N/A N/A
AIM Total Return
Bond Fund(2) 26,520 (46,520) $ -0- N/A N/A N/A
|
(1) Commenced operations on August 30, 2002.
(2) Commenced operations on December 31, 2001.
APPENDIX G
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM the following amounts for administrative services for the last three fiscal years ended July 31:
FUND NAME 2003 2002 2001
----------------------------- ------------ ------------ ------------
AIM High Yield Fund $ 245,247 $ 205,198 $ 168,568
AIM Income Fund 152,317 131,802 123,589
AIM Intermediate
Government Fund 348,927 158,838 120,488
AIM Limited Maturity
Treasury Fund 174,870 122,783 81,565
AIM Money Market Fund 406,127 251,839 150,215
AIM Municipal Bond Fund 123,845 112,021 96,500
AIM Real Estate Fund 79,487 50,000 50,000
AIM Short Term Bond Fund(1) 45,890 N/A N/A
AIM Total Return Bond Fund(2) 50,000 29,178 N/A
|
1 Commenced operations on August 30, 2002.
2 Commenced operations on December 31, 2001.
APPENDIX H
BROKERAGE COMMISSIONS
Brokerage commissions(1) paid by each of the Funds listed below during the last three fiscal years ended July 31 were as follows:
FUND 2003 2002 2001
---- ---- ---- ----
AIM High Yield Fund(2),(3) $ 38,526 $ 72,345 $ 3,642
AIM Income Fund(4) 7,300 1,549 10,514
AIM Intermediate Government Fund -0- -0- -0-
AIM Limited Maturity Treasury Fund -0- -0- -0-
AIM Money Market Fund -0- -0- -0-
AIM Municipal Bond Fund -0- -0- -0-
AIM Real Estate Fund(5) 1,059,539 441,056 177,266
AIM Short Term Bond Fund(6) -0- N/A N/A
AIM Total Return Bond Fund(7) -0- -0- N/A
|
(1) Disclosure regarding brokerage commissions paid on agency trades and designated as such on the trade confirm.
(2) The increase in brokerage commission paid by AIM High Yield Fund for the fiscal year ended July 31, 2002, as compared to the prior fiscal year ended July 31, 2001, was due to an increase in equity trading activity in the funds on which commissions were paid.
(3) The reduced amount in brokerage commissions paid by AIM High Yield Fund for the fiscal year ended July 31, 2003, as compared to the fiscal year ended July 31, 2002, was due to reduced activity in equity trades.
(4) The increase in brokerage commission paid by AIM Income Fund for the fiscal year ended July 31, 2003, as compared to the fiscal year ended July 31, 2002, was due to an increase in equity trading activity in the funds on which commissions were paid.
(5) The increase in brokerage commissions paid by AIM Real Estate Fund for the fiscal years ended July 31, 2002 and 2003, as compared to the prior fiscal year, was due to increased asset levels. The investment of additional cash generated more commissions.
6 Commenced operations on August 30, 2002.
7 Commenced operations on December 31, 2001.
APPENDIX I
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASE
OF SECURITIES OF REGULAR BROKERS OR DEALERS
During the last fiscal year ended July 31, 2003, none of the Funds, except AIM Real Estate Fund paid directed brokerage commissions. AIM Real Estate Fund allocated the following amount of transactions to broker-dealers that provided AIM with certain research statistics and other information:
Related
Fund Transactions Brokerage Commissions
-------------------- ------------ ---------------------
AIM Real Estate Fund $102,849,945 $209,995
|
During the last fiscal year ended July 31, 2003, none of AIM High Yield Fund, AIM Intermediate Government Fund, AIM Limited Maturity Treasury Fund, AIM Municipal Bond Fund or AIM Real Estate Fund purchased securities of their "regular" brokers or dealers.
During the last fiscal year ended July 31, 2003, the Funds purchased securities issued by the following companies, which are "regular" brokers or dealers of one or more of the Funds identified below:
Market Value
Fund Security (as of July 31, 2003)
------------------------------------------------------------------------------------------------------------------------
AIM Income Fund
Bear Stearns & Cos. Inc. (The) Senior Unsecured Global Notes $ 1,410,360
Goldman Sachs Group, L.P. Unsecured Notes 438,640
Lehman Brother Inc. Senior Subordinated Debentures 920,760
Morgan Stanley Unsecured Notes 1,988,201
AIM Money Market Fund
Goldman Sachs Group, Inc. (The) Promissory Notes $ 100,000,000
Merrill Lynch Mortgage Capital, Inc. Master Notes 70,000,000
Morgan Stanley Master Notes 95,000,000
AIM Short Term Bond Fund
Bear Stearns & Cos. Inc. (The) Senior Unsecured Global Notes $ 1,914,060
Goldman Sachs Group, Inc. (The) Global Bonds 83,021
Goldman Sachs Group, L.P. Unsecured Notes 1,973,880
Lehman Brothers Holdings Inc. Senior Notes 192,661
Lehman Brothers Inc. Senior Subordinated Debentures 143,869
Lehman Brothers Inc. Senior Unsecured Subordinated Notes 790,580
Merrill Lynch & Co., Inc. Series B. Medium Term Notes 1,016,539
Merrill Lynch & Co., Inc. Series E. Floating Rate Medium Term 400,635
Euro Notes
Morgan Stanley Senior Global Notes 1,157,247
Morgan Stanley Unsecured Notes 324,516
AIM Total Return Bond
Bear Stearns & Cos. Inc. (The) Senior Unsecured Global Notes $ 20,148
Goldman Sachs Group, Inc. (The) Global Bonds 166,043
Goldman Sachs Group, L.P. Unsecured Notes 164,490
Lehman Brothers Holdings Inc. Senior Notes 275,230
|
Lehman Brothers Inc. Senior Subordinated Debentures 287,737 Lehman Brothers Inc. Senior Unsecured Subordinated Notes 169,410 Merrill Lynch & Co., Inc. Series B. Medium Term Notes 259,595 Morgan Stanley Senior Global Notes 413,303 Morgan Stanley Unsecured Notes 216,344 |
APPENDIX J
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS
A list of amounts paid by each class of shares to AIM Distributors pursuant to the Plans for the fiscal year ended July 31, 2003 were as follows:
CLASS A(1) CLASS A(3) CLASS B CLASS C CLASS R
FUND SHARES SHARES SHARES SHARES SHARES
------------------------------------- ------------ ------------ ------------ ------------ ------------
AIM High Yield Fund $ 1,269,061 N/A $ 4,663,992 $ 556,053 N/A
AIM Income Fund 753,747 N/A 2,214,039 375,518 $ 1,837
AIM Intermediate Government Fund 1,489,062 N/A 7,152,387 1,499,525 5,879
AIM Limited Maturity Treasury Fund(2) 1,021,729 $ 140,276 N/A N/A N/A
AIM Money Market Fund 2,854,476 N/A 5,497,582 943,558 17,527
AIM Municipal Bond Fund 858,948 N/A 1,067,329 271,571 N/A
AIM Real Estate Fund 414,390 N/A 919,868 482,573 N/A
AIM Short Term Bond Fund(3) N/A N/A N/A 897,887 N/A
AIM Total Return Bond Fund(4) 52,374 N/A 335,706 67,977 N/A
|
(1) For AIM Cash Reserve Shares of AIM Money Market Fund.
(2) Information on Class A3 shares in the table is for the period October 31, 2002 (the date Class A3 shares commenced operations) to July 31, 2003.
(3) Commenced operations on August 30, 2002.
(4) Commenced operations on December 31, 2001.
APPENDIX K
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS
An estimate by category of the allocation of actual fees paid by Class A Shares (for AIM Money Market Fund, AIM Cash Reserve Shares) of the Funds during the fiscal year ended July 31, 2003 follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ---------- ---------- ------------ ------------
AIM High Yield Fund $ -0- $ -0- $ -0- $ -0- $1,269,062
AIM Income Fund -0- -0- -0- -0- 753,747
AIM Intermediate Government Fund -0- -0- -0- -0- 1,489,062
AIM Limited Maturity Treasury Fund -0- -0- -0- -0- 1,021,729
AIM Money Market Fund -0- -0- -0- -0- 2,854,476
AIM Municipal Bond Fund -0- -0- -0- -0- 858,949
AIM Real Estate Fund 43,193 4,573 15,244 -0- 351,380
AIM Total Return Bond Fund -0- -0- -0- -0- 52,374
|
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, 2003 follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ---------- ---------- ------------ ------------
AIM High Yield Fund $ 37,064 $ 3,932 $ 12,769 $3,497,994 $1,112,233
AIM Income Fund 15,052 1,554 5,314 1,660,529 531,590
AIM Intermediate Government Fund 96,159 10,407 32,877 5,364,290 1,648,654
AIM Limited Maturity Treasury Fund N/A N/A N/A N/A N/A
AIM Money Market Fund 65,034 6,770 21,883 5,002,385 1,573,774
AIM Municipal Bond Fund 11,386 1,240 3,443 800,496 250,764
AIM Real Estate Fund 33,267 3,529 11,461 689,901 181,710
AIM Total Return Bond Fund 18,155 3,985 -0- 251,779 61,787
|
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, 2003 follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ---------- ---------- ------------ ------------
AIM High Yield Fund $ 10,367 $ 1,079 $ 3,815 $ 76,852 $ 463,940
AIM Income Fund 4,310 463 1,469 34,154 335,122
AIM Intermediate Government Fund 47,709 5,121 16,256 357,624 1,072,815
AIM Limited Maturity Treasury Fund N/A N/A N/A N/A N/A
AIM Money Market Fund 32,256 3,448 11,321 245,571 874,930
AIM Municipal Bond Fund 5,084 503 1,596 38,308 226,080
AIM Real Estate Fund 20,395 2,017 6,404 153,685 300,072
AIM Short Term Bond Fund 25,822 2,554 8,108 90,805 770,598
AIM Total Return Bond Fund 7,128 1,565 -0- 26,077 33,207
|
An estimate by category of the allocation of actual fees paid by Class R shares of the Funds during the fiscal year ended July 31, 2003 follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ---------- ---------- ------------ ------------
AIM Income Fund $ 351 $ 37 $ 124 $ -0- $ 1,326
AIM Intermediate Government Fund 1,130 122 409 -0- 4,218
AIM Money Market Fund 1,632 173 538 -0- 15,184
|
Class A3 shares of AIM Limited Maturity Treasury Fund commenced operations on October 31, 2002. The fees paid by Class A3 shares of the Fund for the above noted categories during the fiscal year ended July 31, 2003 was $140,276.
APPENDIX L
TOTAL SALES CHARGES
The following chart reflects the total sales charges paid in connection with the sale of Class A shares (for AIM Money Market Fund, AIM Cash Reserve Shares) of each Fund and the amount retained by AIM Distributors for the last three fiscal years ended July 31:
2003 2002 2001
------------------------- ------------------------- -------------------------
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
---------- ---------- ---------- ---------- ---------- ---------
AIM High Yield Fund $ 756,717 $ 129,415 $ 900,144 $ 163,249 $2,210,223 $ 388,238
AIM Income Fund 420,419 75,260 719,480 130,523 1,331,391 241,096
AIM Intermediate Government Fund 2,025,052 362,569 1,659,371 300,212 1,265,501 215,039
AIM Limited Maturity Treasury Fund 320,512 93,147 1,032,517 262,205 417,964 100,352
AIM Money Market Fund N/A N/A N/A N/A N/A N/A
AIM Municipal Bond Fund 344,744 60,271 370,282 67,279 524,615 94,615
AIM Real Estate Fund 953,351 162,429 574,475 94,833 101,685 17,940
AIM Short Term Bond Fund(1) N/A N/A N/A N/A N/A N/A
AIM Total Return Bond Fund(2) 307,195 56,983 76,644 13,297 N/A N/A
|
(1) Commenced operations on April 30, 2004.
(2) Commenced operations on December 31, 2001.
The following chart reflects the contingent deferred sales charges paid by Class A (for AIM Money Market Fund, AIM Cash Reserve Shares), Class B, Class C and Class R shareholders and retained by AIM Distributors for the last three fiscal years ended July 31:
2003 2002 2001
---------- ---------- ----------
AIM High Yield Fund $ 45,207 $ 287,974 $ 105,346
AIM Income Fund(1) 20,109 73,150 52,982
AIM Intermediate Government Fund(1) 466,622 283,571 209,395
AIM Limited Maturity Treasury Fund 26,131 82,921 N/A
AIM Money Market Fund(1) 2,634,165 5,957,473 2,800,220
AIM Municipal Bond Fund 90,868 97,058 25,351
AIM Real Estate Fund 28,827 4,318 5,332
AIM Short Term Bond Fund(2) 5,546 N/A N/A
AIM Total Return Bond Fund(3) 2,679 14 N/A
|
(1) Information on Class R shares in the table above is for the period June 3, 2002 (the date Class R shares commenced operations) to July 31, 2002.
(2) Commenced operations on August 30, 2002.
(3) Commenced operations on December 31, 2001.
APPENDIX M
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURNS
The average annual total returns (including sales loads) for each Fund, with respect to its Class A shares for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM High Yield Fund 23.59 -3.33 1.63 N/A 07/11/78
AIM Income Fund 5.57 1.26 4.32 N/A 05/03/68
AIM Intermediate Government Fund -2.67 3.86 5.01 N/A 04/28/87
AIM Limited Maturity Treasury Fund 0.46 4.39 4.85 N/A 12/15/87
AIM Municipal Bond Fund 1.16 3.50 4.24 N/A 03/28/77
AIM Real Estate Fund 40.21 16.38 N/A 9.63 12/31/96
AIM Short Term Bond Fund N/A N/A N/A N/A 04/30/04
AIM Total Return Bond Fund 0.93 N/A N/A 4.59 12/31/01
|
The average annual total return for AIM Cash Reserve Shares of AIM Money Market Fund for the one year period ended January 31, 2004, was 0.55%; for the five year period ended January 31, 2004, was 2.79%; and for the ten year period ended January 31, 2004 was 3.62%.
The average annual total returns (including maximum applicable contingent deferred sales charge) for each Fund, with respect to its Class B shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM High Yield Fund 24.11 -3.30 1.50 N/A 09/01/93
AIM Income Fund 4.85 1.15 4.15 N/A 09/07/93
AIM Intermediate Government Fund -3.45 3.81 4.88 N/A 09/07/93
AIM Money Market Fund -4.95 1.72 3.00 N/A 10/16/93
AIM Municipal Bond Fund 0.49 3.42 4.10 N/A 09/01/93
AIM Real Estate Fund 41.20 16.51 N/A 8.79 03/03/98
AIM Total Return Bond Fund 0.19 N/A N/A 4.92 12/31/01
|
The average annual total returns (including maximum applicable contingent deferred sales charge) for each Fund, with respect to its Class C shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM High Yield Fund 27.92 -3.11 N/A -2.48 08/04/97
AIM Income Fund 8.71 1.45 N/A 2.75 08/04/97
AIM Intermediate Government Fund 0.46 4.13 N/A 4.93 08/04/97
AIM Money Market Fund -0.80 2.12 N/A 2.50 08/04/97
AIM Municipal Bond Fund 4.38 3.74 N/A 4.09 08/04/97
AIM Real Estate Fund 45.23 16.71 N/A 12.72 05/01/95
AIM Short Term Bond Fund 3.17 N/A N/A 3.27 08/30/02
AIM Total Return Bond Fund 4.19 N/A N/A 6.27 12/31/01
|
The average annual total returns (not including the 0.75% contingent deferred sales charge that may be imposed on a total redemption of retirement plan assets within the first year) for each Fund, with respect to its Class R shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE***
-------------- ------ ------- -------- --------- ----
AIM Income Fund* 10.39 1.96 4.55 N/A 05/03/68
AIM Intermediate Government Fund* 2.03 4.66 5.27 N/A 04/28/87
AIM Money Market Fund* 0.30 2.53 3.36 N/A 10/16/93
|
* The returns shown for the one year period are the historical returns of the Fund's Class R shares. The returns shown for the five and ten year periods and since inception for the Fund are the blended returns of the historical performance of the Fund's Class R shares since June 3, 2002 and the restated historical performance of the Fund's Class A shares (AIM Cash Reserve shares for AIM Money Market Fund) (for periods prior to June 3, 2002) at the net asset value, adjusted to reflect the higher Rule 12b-1 fees applicable to Class R shares.
** The returns shown for these periods are the restated historical performance of the Fund's Class A shares (Class C shares for AIM Short Term Bond Fund) (for the periods prior to April 30, 2004) at net asset value and reflect the higher Rule 12b-1 fees applicable to Class C shares for AIM Short Term Bond Fund and are adjusted to reflect the higher Rule 12b-1 fees applicable to the Class R shares for AIM Real Estate Fund and AIM Total Return Bond Fund.
*** The inception dates shown in the table are those of AIM Income Fund's, AIM Intermediate Government Fund's, AIM Real Estate Fund's and AIM Total Return Bond Fund's Class A shares, AIM Short Term Bond Fund's Class C shares and AIM Money Market Fund's AIM Cash Reserve Shares. The inception date of AIM Income Fund's, AIM Intermediate Government Fund's and AIM Money Market Fund's Class R shares is June 3, 2002. The inception date of AIM Real Estate Fund's, AIM Short Term Bond Fund's and AIM Total Return Bond Fund's Class R shares is April 30, 2004.
The average annual total returns for AIM Limited Maturity Treasury Fund, with respect to its Class A3 shares, for the one, five and ten year period ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004*
----------------
SINCE INCEPTION
CLASS A3 SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
--------------- ------ ------- -------- --------- ----
AIM Limited Maturity Treasury Fund 1.32 4.39 4.74 N/A 12/15/87
|
* The returns shown for the one year period are the historical returns of the Fund's Class A3 shares. The returns shown for the five and ten year periods and since inception are the blended returns of the historical performance of the Fund's Class A3 shares since October 31, 2002 and the restated historical performance of the Fund's Class A shares (for periods prior to October 31, 2002) at the net asset value, adjusted to reflect the higher Rule 12b-1 fees applicable to Class A3 shares.
** The inception date shown in the table is that of the Fund's Class A shares. The inception date of the Fund's Class A3 shares is October 31, 2002.
The average annual total returns for each Fund, with respect to its Investor Class shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004*
----------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
--------------------- ------ ------- -------- --------- ----
AIM High Yield Fund 29.83 -2.39 2.12 N/A 07/11/78
AIM Income Fund 10.98 2.28 4.84 N/A 05/03/68
AIM Intermediate Government Fund 2.17 4.90 5.52 N/A 04/28/87
AIM Money Market Fund 0.64 2.81 3.63 N/A 10/16/93
AIM Municipal Bond Fund 6.15 4.52 4.74 N/A 03/28/77
AIM Real Estate Fund 47.18 17.51 N/A 10.38 12/31/96
|
* The returns shown for these periods are the blended returns of the Fund's Investor Class shares since September 30, 2003 and restated historical performance of the Fund's Class A shares (AIM Cash Reserve Shares of AIM Money Market Fund) (for periods prior to September 30, 2003) at the net asset value, and reflect the higher Rule 12b-1 fees applicable to Class A shares.
** The inception date shown is that of the Fund's Class A shares (AIM Cash Reserve Share of AIM Money Market Fund). The inception date of the Fund's Investor Class shares is September 30, 2003.
CUMULATIVE TOTAL RETURNS
The cumulative total returns (including sales load) for each Fund with respect to its Class A shares for the one, five and ten year periods (or since inception, if less than ten years), ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ----
AIM High Yield Fund 23.59 -15.59 17.51 N/A 07/11/78
AIM Income Fund 5.57 6.47 52.61 N/A 05/03/68
AIM Intermediate Government Fund -2.67 20.96 63.05 N/A 04/28/87
AIM Limited Maturity Treasury Fund 0.46 23.97 60.55 N/A 12/15/87
AIM Municipal Bond Fund 1.16 18.79 51.44 N/A 03/28/77
AIM Real Estate Fund 40.31 113.51 N/A 91.83 12/31/96
AIM Short Term Bond Fund* 0.93 N/A N/A 9.80 08/30/02**
AIM Total Return Bond Fund 0.55 14.76 42.76 N/A 12/31/01
|
* The returns shown for these periods are the restated historical performance of the Fund's Class C shares (for the periods prior to April 30, 2004) at net asset value and reflect the higher Rule 12b-1 fees applicable to the Class C shares.
** The inception date shown in the table is that of AIM Short Term Bond Fund's Class C shares. The inception date of AIM Short Term Bond Fund's Class A shares is April 30, 2004.
The cumulative total returns for AIM Cash Reserves Shares of AIM Money Market Fund for the one-year period ended January 31, 2004 was [0.64%;] and for the five-year period ended January 31, 2004 was [16.92%;] and since inception was [43.32%.]
The cumulative total returns (including maximum applicable contingent deferred sales charge) for each of the named Funds' Class B shares for the one, five and ten year periods (or since inception, if less than ten years), ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ----
AIM High Yield Fund 24.11 -15.46 16.06 N/A 09/01/93
AIM Income Fund 4.85 5.88 50.20 N/A 09/07/93
AIM Intermediate Government Fund -3.45 20.54 60.96 N/A 09/07/93
AIM Money Market Fund -4.95 8.89 34.34 N/A 10/16/93
AIM Municipal Bond Fund 0.49 18.31 49.47 N/A 09/01/93
AIM Real Estate Fund 41.20 114.67 N/A 64.60 03/03/98
AIM Total Return Bond Fund 0.19 N/A N/A 10.53 12/31/01
|
The cumulative total returns (including maximum applicable contingent deferred sales charge) for each of the named Funds' Class C shares for the one, five and ten year periods (or since inception, if less than ten years), ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ----
AIM High Yield Fund 27.92 -14.61 N/A -15.02 08/04/97
AIM Income Fund 8.71 7.47 N/A 19.24 08/04/97
AIM Intermediate Government Fund 0.46 22.42 N/A 36.67 08/04/97
AIM Money Market Fund -0.80 11.06 N/A 17.41 08/04/97
AIM Municipal Bond Fund 4.38 20.16 N/A 29.74 08/04/97
AIM Real Estate Fund 45.23 116.50 N/A 185.20 05/01/95
AIM Short Term Bond Fund 3.17 N/A N/A 4.68 08/30/02
AIM Total Return Bond Fund 4.19 N/A N/A 13.53 12/31/01
|
The cumulative total returns (not including the 0.75% contingent deferred sales charge that may be imposed on a total redemption of retirement plan assets within the first year) for each Fund, with respect to its Class R shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE***
--------------- ------ ------- -------- --------- ----
AIM Income Fund* 10.39 10.19 56.05 N/A 05/03/68
AIM Intermediate Government Fund* 2.03 25.59 67.10 N/A 04/28/87
AIM Money Market Fund* 0.30 13.32 39.23 N/A 10/16/93
|
* The returns shown for the one year period are the historical returns of the Fund's Class R shares The returns shown for the five and ten year periods and since inception for the Fund are the blended returns of the historical performance of the Fund's Class R shares since June 3, 2002 and the restated historical performance of the Funds' Class A shares (AIM Cash Reserve shares for AIM Money Market Fund) (for periods prior to June 3, 2002) at the net asset value, adjusted to reflect the higher Rule 12b-1 fees applicable to Class R shares.
** The returns shown for these periods are the restated historical performance of the Fund's Class A shares (Class C shares for AIM Short Term Bond Fund) (for the periods prior to April 30, 2004) at net asset value and reflect the higher Rule 12b-1 fees applicable to Class C shares for AIM Short Term Bond Fund and are adjusted to reflect the higher Rule 12b-1 fees applicable to the Class R shares for AIM Real Estate Fund and AIM Total Return Bond Fund.
*** The inception date shown in the table is that of the AIM Income Fund's and AIM Intermediate Government Fund's, AIM Real Estate Fund's and AIM Total Return Bond Fund's Class A shares, AIM Short Term Bond Fund's Class C shares and AIM Money Market Fund is AIM Cash Reserve Shares. The inception date of AIM Income Fund's, AIM Intermediate Government Fund's and AIM Money Market Fund's Class R shares is June 3, 2002. The inception date of AIM Real Estate Fund's, AIM Short Term Bond Fund's and AIM Total Return Bond Fund's Class R shares is April 30, 2004.
The cumulative annual total returns for AIM Limited Maturity Treasury Fund, with respect to its Class A3 shares, for the one, five and ten year periods ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004*
----------------
SINCE INCEPTION
CLASS A3 SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
---------------- ------ ------- -------- --------- ----
AIM Limited Maturity Treasury Fund 1.32 23.95 58.94 N/A 12/15/87
|
* The returns shown for the one year period are the historical returns of the Fund's Class A3 shares. The returns shown for the five and ten year periods and since inception are the blended returns of the historical performance of the Fund's class A3 shares since October 31, 2002 and the restated historical performance of the Fund's Class A shares (for periods prior to October 31, 2002) at the net asset value, adjusted to reflect the higher Rule 12b-1 fees applicable to Class A3 shares.
** The inception date shown in the table is that of the Fund's Class A shares. The inception date of the Fund's Class A3 shares is October 31, 2002.
The cumulative annual total returns for each Fund, with respect to its Investor Class shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004*
----------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
--------------------- ------ ------- -------- --------- ----
AIM High Yield Fund 29.83 -11.37 23.34 N/A 07/11/78
AIM Income Fund 10.98 11.91 60.46 N/A 05/03/68
AIM Intermediate Government Fund 2.17 27.02 71.12 N/A 04/28/87
AIM Money Market Fund 0.64 14.86 42.88 N/A 10/16/93
AIM Municipal Bond Fund 6.15 24.72 58.95 N/A 03/28/77
AIM Real Estate Fund 47.18 124.06 N/A 101.35 12/31/96
|
* The returns shown for these periods are the blended returns of the Fund's Investor Class shares since September 30, 2003 and the restated historical performance of the Fund's Class A shares(AIM Cash Reserve Shares of AIM Money Market Fund) (for periods prior to September 30, 2003) at the net asset value, and reflect the higher Rule 12b-1 fees applicable to Class A shares.
** The inception date shown is that of the Fund's Class A shares(AIM Cash Reserve Shares of AIM Money Market Fund). The Inception date of the Funds' Investor Class shares is September 30, 2003.
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTION)
The average annual total returns (after taxes on distributions and including sales load) for each Fund, with respect to its Class A shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ----
AIM High Yield Fund 20.03 -7.28 -2.36 N/A 07/11/78
AIM Income Fund 3.38 -1.24 1.57 N/A 05/03/68
AIM Intermediate Government Fund -4.26 1.70 2.55 N/A 04/28/87
AIM Limited Maturity Treasury Fund -0.56 2.74 2.96 N/A 12/15/87
AIM Municipal Bond Fund 1.15 3.50 4.22 N/A 03/28/77
AIM Real Estate Fund 38.84 14.73 N/A 7.81 12/31/96
AIM Short Term Bond Fund* N/A N/A N/A N/A 08/30/02
AIM Total Return Bond Fund -0.66 N/A N/A 2.97 12/31/01
|
* The returns shown for these periods are the restated historical performance of the Fund's Class C shares (for the periods prior to April 30, 2004) at net asset value and reflect the higher Rule 12b-1 fees applicable to the Class C shares.
** The inception date shown in the table is that of AIM Short Term Bond Fund's Class C shares. The inception date of AIM Short Term Bond Fund's Class A shares is April 30, 2004.
The average annual total returns (after taxes on distributions and including maximum applicable contingent deferred sales charge) for each Fund, with respect to its Class B shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ----
AIM High Yield Fund 20.72 -7.01 -2.23 N/A 09/01/93
AIM Income Fund 2.83 -1.08 1.68 N/A 09/07/93
AIM Intermediate Government Fund -4.85 1.90 2.69 N/A 09/07/93
AIM Municipal Bond Fund 0.49 3.41 4.08 N/A 09/01/93
AIM Real Estate Fund 40.13 15.16 N/A 7.39 03/03/98
AIM Total Return Bond Fund -1.21 N/A N/A 3.54 12/31/01
|
The average annual total returns (after taxes on distributions and including maximum applicable contingent deferred sales charge) for each Fund, with respect to its Class C shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ----
AIM High Yield Fund 24.52 -6.78 N/A -6.08 08/04/97
AIM Income Fund 6.69 -0.76 N/A 0.46 08/04/97
AIM Intermediate Government Fund -0.95 2.24 N/A 2.92 08/04/97
AIM Municipal Bond Fund 4.38 3.73 N/A 4.08 08/04/97
AIM Real Estate Fund 44.15 15.36 N/A 11.21 05/01/95
AIM Short Term Bond Fund 2.24 N/A N/A 2.30 08/30/02
AIM Total Return Bond Fund 2.79 N/A N/A 4.92 12/31/01
|
The average annual total returns (after taxes on distributions) for AIM Limited Maturity Treasury Fund, with respect to its Class A3 shares, for the one, five and ten year periods ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004*
----------------
SINCE INCEPTION
CLASS A3 SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
--------------- ------ ------- -------- --------- ----
AIM Limited Maturity Treasury Fund 0.35 2.75 2.86 N/A 12/15/87
|
* The returns shown for the one year period are the historical returns of the Fund's Class A3 shares. The returns shown for the five and ten year periods and since inception are the blended returns of the historical performance of the Fund's Class A3 shares since October 31, 2002 and the restated historical performance of the Fund's Class A shares (for periods prior to October 31, 2002) at the net asset value, adjusted to reflect the higher Rule 12b-1 fees applicable to Class A3 shares.
** The inception date shown in the table is that of the Fund's Class A shares. The inception date of the Fund's Class A3 shares is October 31, 2002.
The average annual total returns (after taxes on distributions) for each Fund, with respect to its Investor Class shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004*
----------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
--------------------- ------ ------- -------- --------- ----
AIM High Yield Fund 26.09 -6.37 -1.88 N/A 07/11/78
AIM Income Fund 8.67 -0.25 2.08 N/A 05/03/68
AIM Intermediate Government Fund 0.50 2.70 3.05 N/A 04/28/87
AIM Municipal Bond Fund 6.15 4.51 4.73 N/A 03/28/77
AIM Real Estate Fund 43.73 15.84 N/A 8.55 12/31/96
|
* The returns shown for these periods are the blended returns of the Fund's Investor Class shares since September 30, 2003 and restated historical performance of the Fund's Class A shares (AIM Cash Reserve Shares of AIM Money Market Fund) (for periods prior to September 30, 2003) at the net asset value, and reflect the higher Rule 12b-1 fees applicable to Class A shares.
** The inception date shown is that of the Fund's Class A shares (AIM Cash Reserve Share of AIM Money Market Fund). The inception date of the Fund's Investor Class shares is September 30, 2003.
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION)
The average annual total returns (after taxes on distributions and redemption and including sales loads) for each Fund, with respect to its Class A shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ----
AIM High Yield Fund 15.08 -5.14 -0.99 N/A 07/11/78
AIM Income Fund 3.57 -0.51 1.92 N/A 05/03/68
AIM Intermediate Government Fund -1.75 1.92 2.68 N/A 04/28/87
AIM Limited Maturity Treasury Fund 0.30 2.71 2.94 N/A 12/15/87
AIM Municipal Bond Fund 2.30 3.66 4.30 N/A 03/28/77
AIM Real Estate Fund 25.98 13.21 N/A 7.12 12/31/96
AIM Total Return Bond Fund 0.58 N/A N/A 2.93 12/31/01
|
The average annual total returns (after taxes on distributions and redemption and including maximum applicable contingent deferred sales charge) for each Fund, with respect to its Class B shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ----
AIM High Yield Fund 15.44 -4.97 -0.93 N/A 09/01/93
AIM Income Fund 3.11 -0.42 1.97 N/A 09/07/93
AIM Intermediate Government Fund -2.25 2.04 2.76 N/A 09/07/93
AIM Municipal Bond Fund 1.67 3.51 4.12 N/A 09/01/93
AIM Real Estate Fund 26.66 13.55 N/A 6.64 03/03/98
AIM Total Return Bond Fund 0.10 N/A N/A 3.36 12/31/01
|
The average annual total returns (after taxes on distributions and redemption and including maximum applicable contingent deferred sales charge) for each Fund, with respect to its Class C shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004
----------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ----
AIM High Yield Fund 17.91 -4.79 N/A -4.14 08/04/97
AIM Income Fund 5.61 -0.15 N/A 0.91 08/04/97
AIM Intermediate Government Fund 0.29 2.33 N/A 2.94 08/04/97
AIM Municipal Bond Fund 4.20 3.78 N/A 4.09 08/04/97
AIM Real Estate Fund 29.28 13.74 N/A 10.24 05/01/95
AIM Short Term Bond Fund 2.05 N/A N/A 2.21 08/30/02
AIM Total Return Bond Fund 2.70 N/A N/A 4.53 12/31/01
|
The average annual total returns (after taxes on distributions and redemption) for AIM Limited Maturity Treasury Fund, with respect to its Class A3 shares, for the one, five and ten year periods ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004*
----------------
SINCE INCEPTION
CLASS A3 SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
--------------- ------ ------- -------- --------- ----
AIM Limited Maturity Treasury Fund 0.85 2.72 2.86 N/A 12/15/87
|
* The returns shown for the one year period are the historical returns of the Fund's Class A3 shares. The returns shown for the five and ten year periods and since inception are the blended returns of the historical performance of the Fund's Class A3 shares since October 31, 2002 and the restated historical performance of the Fund's Class A shares (for periods prior to October 31, 2002) at the net asset value, adjusted to reflect the higher Rule 12b-1 fees applicable to Class A3 shares.
** The inception date shown in the table is that of the Fund's Class A shares. The inception date of the Fund's Class A3 shares is October 31, 2002.
The average annual total returns (after taxes on distributions and redemption) for each Fund, with respect to its Investor Class shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
-------------
JANUARY 31, 2004*
----------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
--------------------- ------ ------- -------- --------- ----
AIM High Yield Fund 19.12 -4.39 -0.58 N/A 07/11/78
AIM Income Fund 7.08 0.34 2.37 N/A 05/03/68
AIM Intermediate Government Fund 1.40 2.79 3.13 N/A 04/28/87
AIM Municipal Bond Fund 5.62 4.55 4.76 N/A 03/28/77
AIM Real Estate Fund 30.51 14.22 N/A 7.79 12/31/96
|
* The returns shown for these periods are the blended returns of the Fund's Investor Class shares since September 30, 2003 and restated historical performance of the Fund's Class A shares (AIM Cash Reserve Shares of AIM Money Market Fund) (for periods prior to September 30, 2003) at the net asset value, and reflect the higher Rule 12b-1 fees applicable to Class A shares.
** The inception date shown is that of the Fund's Class A shares (AIM Cash Reserve Share of AIM Money Market Fund). The inception date of the Fund's Investor Class shares is September 30, 2003.
YIELDS
The 30-day SEC yields for each of the named Funds are as follows:
30 DAYS ENDED
----------------
JANUARY 31, 2004
----------------
INVESTOR
CLASS A(1) CLASS B CLASS C CLASS R CLASS(2)
---------- ------- ------- ------- --------
AIM High Yield Fund 6.32% 5.84% 5.84% N/A N/A
AIM Income Fund 3.85 3.30 3.30 3.80% N/A
AIM Intermediate Government Fund 3.06 2.45 2.45 2.96 N/A
AIM Limited Maturity Treasury Fund 0.77 N/A N/A N/A N/A
AIM Municipal Bond Fund 3.15 2.55 2.55 N/A 3.31
AIM Real Estate Fund 1.58 1.04 1.04 N/A 1.77
AIM Short Term Bond Fund N/A N/A 2.50 N/A N/A
AIM Total Return Bond Fund 3.14 2.55 2.55 N/A N/A
|
(1) For Class A3 shares of AIM Limited Maturity Treasury Fund.
(2) Commenced operations on October 1, 2003.
The tax SEC equivalent yield, assuming a tax rate of 35% for Class A shares, Class B shares, Class C shares and Investor Class shares of AIM Municipal Bond Fund are as follows:
TAX-EQUIVALENT YIELD
--------------------
JANUARY 31, 2004
--------------------
CLASS A CLASS B CLASS C INVESTOR CLASS(1)
------- ------- ------- -----------------
AIM Municipal Bond Fund 4.85% 3.92% 3.92% 5.09%
|
(1) Commenced operations on October 1, 2003.
The 7-day annualized yield for AIM Cash Reserve Shares, Class B shares, Class C shares, Class R shares and Investor Class shares of AIM Money Market Fund are as follows:
7 DAYS ENDED
----------------
JANUARY 31, 2004
----------------
INVESTOR
CASH RESERVE CLASS B CLASS C CLASS R CLASS(1)
------------ ------- ------- ------- ---------
AIM Money Market Fund 0.55% 0.05% 0.30% 0.30% N/A
|
(1) Commenced operations on October 1, 2003.
DISTRIBUTION RATES
The distribution rates at offering price for each of the named Funds are as follows:
30 DAYS ENDED
----------------
JANUARY 31, 2004
----------------
INVESTOR
30-DAY: CLASS A(1) CLASS B CLASS C CLASS R CLASS(2)
------- ---------- ------- ------- ------- --------
AIM High Yield Fund 7.64% 7.29% 7.22% N/A N/A
AIM Income Fund 6.29 5.89 5.91 6.35% N/A
AIM Intermediate Government Fund 4.83 4.32 4.34 4.82 N/A
AIM Limited Maturity Treasury Fund N/A N/A N/A N/A N/A
AIM Municipal Bond Fund 4.17 3.64 3.65 N/A 4.38
AIM Short Term Bond Fund N/A N/A 2.56 N/A N/A
AIM Total Return Bond Fund 3.25 2.67 2.67 N/A N/A
|
(1) For Class A3 shares of AIM Limited Maturity Treasury Fund.
(2) Commenced operations on October 1, 2003.
90 DAYS ENDED
----------------
JANUARY 31, 2004
----------------
INVESTOR
90-DAY: CLASS A CLASS B CLASS C CLASS
------- ------- ------- ------- --------
AIM Real Estate Fund 2.49% 2.01% 2.01% 2.71%
|
12 MONTHS ENDED
----------------
JANUARY 31, 2004
----------------
12-MONTH: CLASS A(1) CLASS B CLASS C CLASS R
--------- ---------- ------- ------- -------
AIM High Yield Fund 7.40% 7.07% 7.10% N/A
AIM Income Fund 5.67 5.25 5.26 5.72%
AIM Intermediate Government Fund 4.55 4.03 4.04 4.52
AIM Limited Maturity Treasury Fund 1.13 N/A N/A N/A
AIM Municipal Bond Fund 4.26 3.73 3.74 N/A
AIM Short Term Bond Fund(2) N/A N/A 2.63 N/A
AIM Total Return Bond Fund 3.49 2.92 2.92 N/A
|
(1) For Class A3 shares of AIM Limited Maturity Treasury Fund.
(2) Commenced operations on August 30, 2002.
APPENDIX N
PENDING LITIGATION
The following civil lawsuits, including purported class action and shareholder derivative suits, involving one or more AIM or INVESCO Funds, AMVESCAP PLC ("AMVESCAP"), A I M Advisors, Inc. ("AIM") or INVESCO Funds Group, Inc. ("INVESCO") and certain related parties either have been served or have had service of process waived as of March 18, 2004.
MIKE SAYEGH, ON BEHALF OF THE GENERAL PUBLIC, v. JANUS CAPITAL CORPORATION, JANUS CAPITAL MANAGEMENT LLC, JANUS INVESTMENT FUND, EDWARD J. STERN, CANARY CAPITAL PARTNERS LLC, CANARY INVESTMENT MANAGEMENT LLC, CANARY CAPITAL PARTNERS LTD., KAPLAN & CO. SECURITIES
INC., BANK ONE CORPORATION, BANC ONE INVESTMENT ADVISORS, THE ONE GROUP
MUTUAL FUNDS, BANK OF AMERICA CORPORATION, BANC OF AMERICA CAPITAL
MANAGEMENT LLC, BANC OF AMERICA ADVISORS LLC, NATIONS FUND INC., ROBERT
H. GORDON, THEODORE H. SIHPOL III, CHARLES D. BRYCELAND, SECURITY TRUST
COMPANY, STRONG CAPITAL MANAGEMENT INC., JB OXFORD & COMPANY, ALLIANCE
CAPITAL MANAGEMENT HOLDING L.P., ALLIANCE CAPITAL MANAGEMENT L.P.,
ALLIANCE CAPITAL MANAGEMENT CORPORATION, AXA FINANCIAL INC.,
ALLIANCEBERNSTEIN REGISTRANTS, GERALD MALONE, CHARLES SCHAFFRAN, MARSH
& MCLENNAN COMPANIES, INC., PUTNAM INVESTMENTS TRUST, PUTNAM INVESTMENT
MANAGEMENT LLC, PUTNAM INVESTMENT FUNDS, AND DOES 1-500, in the
Superior Court of the State of California, County of Los Angeles (Case
No. BC304655), filed on October 22, 2003 and amended on December 17,
2003 to substitute INVESCO Funds Group, Inc. and Raymond R. Cunningham
for unnamed Doe defendants. This claim alleges unfair business
practices and violations of Sections 17200 and 17203 of the California
Business and Professions Code. The plaintiff in this case is seeking:
injunctive relief; restitution, including pre-judgment interest; an
accounting to determine the amount to be returned by the defendants and
the amount to be refunded to the public; the creation of an
administrative process whereby injured customers of the defendants
receive their losses; and counsel fees.
RAJ SANYAL, DERIVATIVELY ON BEHALF OF NATIONS INTERNATIONAL EQUITY FUND, v. WILLIAM P. CARMICHAEL, WILLIAM H. GRIGG, THOMAS F. KELLER, CARL E. MUNDY, JR., CORNELIUS J. PINGS, A. MAX WALKER, CHARLES B. WALKER, EDMUND L. BENSON, III, ROBERT H. GORDON, JAMES B. SOMMERS, THOMAS S. WORD, JR., EDWARD D. BEDARD, GERALD MURPHY, ROBERT B.
CARROLL, INVESCO GLOBAL ASSET MANAGEMENT, PUTNAM INVESTMENT MANAGEMENT,
BANK OF AMERICA CORPORATION, MARSICO CAPITAL MANAGEMENT, LLC, BANC OF
AMERICA ADVISORS, LLC, BANC OF AMERICA CAPITAL MANAGEMENT, LLC, AND
NATIONS FUNDS TRUST, in the Superior Court Division, State of North
Carolina (Civil Action No. 03-CVS-19622), filed on November 14, 2003.
This claim alleges common law breach of fiduciary duty; abuse of
control; gross mismanagement; waste of fund assets; and unjust
enrichment. The plaintiff in this case is seeking: injunctive relief,
including imposition of a constructive trust; damages; restitution and
disgorgement; and costs and expenses, including counsel fees and expert
fees.
L. SCOTT KARLIN, DERIVATIVELY ON BEHALF OF INVESCO FUNDS GROUP, INC. v.
AMVESCAP, PLC, INVESCO, INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, AND CANARY CAPITAL PARTNERS, LTD., in the
United States District Court, District of Colorado (Civil Action No.
03-MK-2406), filed
on November 28, 2003. This claim alleges violations of Section 36(b) of the Investment Company Act of 1940, as amended ("Investment Company Act"), and common law breach of fiduciary duty. The plaintiff in this case is seeking damages and costs and expenses, including counsel fees and expert fees.
RICHARD RAVER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC, AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC.,
AMVESCAP PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND,
INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 03-F-2441), filed on December 2,
2003. This claim alleges violations of: Sections 11 and 15 of the
Securities Act; Sections 10(b) and 20(a) of the Securities Exchange
Act; Rule 10b-5 under the Exchange Act; and Sections 34(b), 36(a) and
36(b) of the Investment Company Act. The claim also alleges common law
breach of fiduciary duty. The plaintiffs in this case are seeking:
damages; pre-judgment and post-judgment interest; counsel fees and
expert fees; and other relief.
JERRY FATTAH, CUSTODIAN FOR BASIM FATTAH, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, v. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S MONEY MARKET RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE FUND, AIM INVESCO U.S. GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO, INVESCO LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD STERN, AMERICAN SKANDIA INC.,
BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN
DOES 1-100, in the United States District Court, District of Colorado
(Civil Action No. 03-F-2456), filed on December 4, 2003. This claim
alleges violations of: Sections 11 and 15 of Securities Act of 1933, as
amended (the "Securities Act"); Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); Rule
10b-5 under the Exchange Act; and Section 206 of the Investment
Advisers Act of 1940, as amended (the "Advisers Act"). The plaintiffs
in this case are seeking: compensatory damages; rescission; return of
fees paid; accounting for wrongfully gotten gains, profits and
compensation; restitution and disgorgement; and other costs and
expenses, including counsel fees and expert fees.
EDWARD LOWINGER AND SHARON LOWINGER, INDIVIDUALLY AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED, v. INVESCO ADVANTAGE HEALTH SCIENCES FUND,
INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND
(FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE
FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM
MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO
TREASURER'S MONEY MARKET RESERVE FUND, AIM INVESCO TREASURER'S
TAX-EXEMPT RESERVE FUND, AIM INVESCO U.S. GOVERNMENT MONEY FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND,
INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO
U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO; INVESCO
LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"),
AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM
BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY
MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS
THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP,
INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J.
STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL
PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL
PARTNERS, LTD., AND JOHN DOES 1-100, in the United States District
Court, Southern District of New York (Civil Action No. 03-CV-9634),
filed on December 4, 2003. This claim alleges violations of: Sections
11 and 15 of the Securities Act; Sections 10(b) and 20(a) of the
Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206 of the
Advisers Act. The plaintiffs in this case are seeking: compensatory
damages; rescission; return of fees paid; accounting for wrongfully
gotten gains, profits and compensation; restitution and disgorgement;
and other costs and expenses, including counsel fees and expert fees.
JOEL GOODMAN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO FUNDS GROUP, INC. AND RAYMOND R. CUNNINGHAM, in
the District Court, City and County of Denver, Colorado (Case Number
03CV9268), filed on December 5, 2003. This claim alleges breach of
fiduciary duty and aiding and abetting breach of fiduciary duty. The
plaintiffs in this case are seeking: injunctive relief; accounting for
all damages and for all profits and any special benefits obtained;
disgorgement; restitution and damages; costs and disbursements,
including counsel fees and expert fees; and equitable relief.
STEVEN B. EHRLICH, CUSTODIAN FOR ALEXA P. EHRLICH, UGTMA/FLORIDA, AND
DENNY P. JACOBSON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY
KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND,
INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P
500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY
MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURERS
MONEY MARKET RESERVE FUND, AIM INVESCO TREASURERS TAX-EXEMPT RESERVE
FUND, AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND,
INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND,
INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL
ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE
BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN GROWTH FUND
(COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM
COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS
REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC., TIMOTHY MILLER,
RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA
INC., BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN
DOES 1-100, in the United States District Court, District of Colorado
(Civil Action No. 03-N-2559), filed on December 17, 2003. This claim
alleges violations of: Sections 11 and 15 of the Securities Act;
Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5 under the
Exchange Act; and Section 206 of the Advisers Act. The plaintiffs in
this case are seeking: compensatory damages; rescission; return of fees
paid; accounting for wrongfully gotten gains, profits and compensation;
restitution and disgorgement; and other costs and expenses, including
counsel fees and expert fees.
JOSEPH R. RUSSO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, v. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURERS MONEY MARKET RESERVE FUND, AIM INVESCO TREASURERS TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM
BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY
MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS
THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP,
INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J.
STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL
PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL
PARTNERS, LTD., AND JOHN DOES 1-100, in the United States District
Court, Southern District of New York (Civil Action No. 03-CV-10045),
filed on December 18, 2003. This claim alleges violations of: Sections
11 and 15 of the Securities Act; Sections 10(b) and 20(a) of the
Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206 of the
Advisers Act. The plaintiffs in this case are seeking: compensatory
damages; rescission; return of fees paid; accounting for wrongfully
gotten gains, profits and compensation; restitution and disgorgement;
and other costs and expenses, including counsel fees and expert fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. AMVESCAP PLC, AVZ, INC., AMVESCAP RETIREMENT, INC.,
AMVESCAP NATIONAL TRUST COMPANY, ROBERT F. MCCULLOUGH, GORDON NEBEKER,
JEFFREY G. CALLAHAN, INVESCO FUNDS GROUP, INC., RAYMOND R. CUNNINGHAM,
AND DOES 1-100, in the United States District Court, District of
Colorado (Civil Action No. 03-M-2604), filed on December 24, 2003. This
claim alleges violations of: Sections 404, 405 and 406B of the Employee
Retirement Income Security Act ("ERISA"). The plaintiffs in this case
are seeking: declarations that the defendants breached their ERISA
fiduciary duties and that they are not entitled to the protection of
Section 404(c)(1)(B) of ERISA; an order compelling the defendants to
make good all losses to a particular retirement plan described in this
case (the "Retirement Plan") resulting from the defendants' breaches of
their fiduciary duties, including losses to the Retirement Plan
resulting from imprudent investment of the Retirement Plan's assets,
and to restore to the Retirement Plan all profits the defendants made
through use of the Retirement Plan's assets, and to restore to the
Retirement Plan all profits which the participants would have made if
the defendants had fulfilled their fiduciary obligations; damages on
behalf of the Retirement Plan; imposition of a constructive trust,
injunctive relief, damages suffered by the Retirement Plan, to be
allocated proportionately to the participants in the Retirement Plan;
restitution and other costs and expenses, including counsel fees and
expert fees.
PAT B. GORSUCH AND GEORGE L. GORSUCH v. INVESCO FUNDS GROUP, INC. AND
AIM ADVISER, INC., in the United States District Court, District of
Colorado (Civil Action No. 03-MK-2612), filed on December 24, 2003.
This claim alleges violations of: Sections 15(a), 20(a) and 36(b) of
the Investment Company Act. The plaintiffs in this case are seeking:
rescission and/or voiding of the investment advisory agreements; return
of fees paid; damages; and other costs and expenses, including counsel
fees and expert fees.
LORI WEINRIB, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO FUNDS GROUP, INC., AIM STOCK FUNDS, AIM COUNSELOR
SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC., AMVESCAP PLC, TIMOTHY MILLER, RAYMOND
CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA INC., BREAN
MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in
the United States District Court, Southern District of New York (Civil
Action No. 04-CV-00492), filed on January 21, 2004. This claim alleges
violations of: Sections 11 and 15 of the 1933 Act; Sections 10(b) and
20(a) of the Exchange Act; Rule 10b-5 under the Exchange Act; and
Section 206 of the Advisers Act. The plaintiffs
in this case are seeking: compensatory damages; rescission; return of fees paid; accounting for wrongfully gotten gains, profits and compensation; restitution and disgorgement; and other costs and expenses, including counsel fees and expert fees.
ROBERT S. BALLAGH, JR., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED, v. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS,
INC., AIM MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS,
INC., AMVESCAP PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO
CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND,
INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0152), filed on January
28, 2004. This claim alleges violations of: Sections 11 and 15 of the
Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule
10b-5 under the Exchange Act; and Sections 34(b), 36(a) and 36(b) of
the Investment Company Act. The claim also alleges common law breach of
fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees;
and other relief.
JONATHAN GALLO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC.,
AMVESCAP PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND,
INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0151), filed on January
28, 2004. This claim alleges violations of: Sections 11 and 15 of the
Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule
10b-5 under the Exchange Act; and Sections 34(b), 36(a) and 36(b) of
the Investment Company Act. The claim also alleges common law breach of
fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees;
and other relief.
EILEEN CLANCY, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY
KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND,
INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P
500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY
MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S
MONEY MARKET RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE
FUND, AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND,
INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND,
INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL
ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE
BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, INVESCO, INVESCO LATIN AMERICAN
GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK
FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND
FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET
FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE
"INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC.,
TIMOTHY MILLER, RAYMOND CUNNINGHAM AND THOMAS KOLBE, in the United
States District Court, Southern District of New York (Civil Action No.
04-CV-0713), filed on January 30, 2004. This claim alleges violations
of: Sections 11 and 15 of the Securities Act. The plaintiffs in this
case are seeking: compensatory damages, rescission; return of fees
paid; and other costs and expenses, including counsel fees and expert
fees.
CARL E. VONDER HAAR AND MARILYN P. MARTIN, ON BEHALF OF THEMSELVES AND
ALL OTHERS SIMILARLY SITUATED, v. INVESCO FUNDS GROUP, INC., INVESCO
STOCK FUNDS, INC. AND DOE DEFENDANTS 1-100, in the United States
District Court, District of Colorado (Civil Action No. 04-CV-812),
filed on February 5, 2004. The claim alleges common law breach of
fiduciary duty; breach of contract; and tortious interference with
contract. The plaintiffs in this case are seeking: injunctive relief;
damages; disgorgement; and costs and expenses, including counsel fees
and expert fees.
HENRY KRAMER, DERIVATIVELY ON BEHALF OF INVESCO ENERGY FUND, INVESCO
STOCK FUNDS, INC., AND INVESCO MUTUAL FUNDS v. AMVESCAP, PLC, INVESCO
FUNDS GROUP, INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, AND CANARY CAPITAL PARTNERS, LTD., DEFENDANTS, AND
INVESCO ENERGY FUND, INVESCO STOCK FUNDS, INC., AND INVESCO MUTUAL
FUNDS, NOMINAL DEFENDANTS, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0397), filed on March 4,
2004. This claim alleges violations of Section 36(b) of the Investment
Company Act and common law breach of fiduciary duty. The plaintiff in
this case is seeking damages and costs and expenses, including counsel
fees and expert fees.
Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be served or filed against the funds, INVESCO, AIM, AMVESCAP and related entities and individuals in the future. This statement of additional information will be supplemented periodically if any such lawsuits do arise.
FINANCIAL STATEMENTS
Pursuant to Rule 3-03(d) of Regulation S-X unaudited financial statements for the period ended January 31, 2004, for Registrant's portfolios have been included in addition to the portfolios' audited financial statements for the period ended July 31, 2003. Such financial statements reflect all adjustments which are of a normal recurring nature and which are, in the opinion of management, necessary to a fair statement of the results for the periods presented.
FS
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM High Yield Fund and the 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, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM High Yield Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP September 10, 2003
FS-1
FINANCIALS
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
BONDS & NOTES-97.26%
AEROSPACE & DEFENSE-0.94%
Hexcel Corp.,
Sr. Sec. Notes, 9.88%, 10/01/08
(Acquired 03/07/03; Cost $816,354)(a) $ 825,000 $ 895,125
---------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 9.75%, 01/15/09 6,870,000 6,870,000
---------------------------------------------------------------------------
Orbital Sciences Corp., Sr. Notes, 9.00%,
07/15/11 (Acquired 07/02/03; Cost
$2,945,000)(a) 2,945,000 2,989,175
===========================================================================
10,754,300
===========================================================================
AIRLINES-1.66%
Delta Air Lines, Inc.,
Series C, Medium Term Notes, 6.65%,
03/15/04 4,415,000 4,216,325
---------------------------------------------------------------------------
Unsec. Notes, 7.90%, 12/15/09 9,225,000 7,057,125
---------------------------------------------------------------------------
Northwest Airlines Inc.,
Sr. Unsec. Gtd. Notes, 8.88%, 06/01/06 3,840,000 2,860,800
---------------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes, 8.52%, 04/07/04 5,300,000 4,955,500
===========================================================================
19,089,750
===========================================================================
ALTERNATIVE CARRIERS-0.31%
LCI International, Inc., Sr. Notes, 7.25%,
06/15/07 4,825,000 3,546,375
===========================================================================
APPAREL RETAIL-0.41%
Mothers Work, Inc., Sr. Unsec. Gtd. Notes,
11.25%, 08/01/10 4,330,000 4,741,350
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.44%
Perry Ellis International Inc.-Series B, Sr.
Sec. Notes, 9.50%, 03/15/09 1,890,000 1,975,050
---------------------------------------------------------------------------
Phillips-Van Heusen Corp., Sr. Notes, 8.13%,
05/01/13 (Acquired 04/30/03; Cost
$1,855,000)(a) 1,855,000 1,892,100
---------------------------------------------------------------------------
Russell Corp., Sr. Unsec. Gtd. Global Notes,
9.25%, 05/01/10 4,735,000 5,090,125
---------------------------------------------------------------------------
Warnaco Inc., Sr. Notes, 8.88%, 06/15/13
(Acquired 06/05/03-07/07/03; Cost
$2,913,400)(a) 2,875,000 2,982,812
---------------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr. Unsec.
Gtd. Sub. Global Notes, 10.88%, 08/15/11 4,115,000 4,629,375
===========================================================================
16,569,462
===========================================================================
AUTO PARTS & EQUIPMENT-0.90%
Dura Operating Corp.-Series B, Sr. Unsec.
Gtd. Global Notes, 8.63%, 04/15/12 460,000 476,100
---------------------------------------------------------------------------
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%,
03/15/07(b)(c)(d) 26,310,000 3
---------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT-(CONTINUED)
Tenneco Automotive Inc.,
Series B, Sr. Unsec. Gtd. Sub. Notes,
11.63%, 10/15/09 $ 3,690,000 $ 3,247,200
---------------------------------------------------------------------------
Sr. Sec. Second Lien Notes, 10.25%,
07/15/13 (Acquired 06/10/03; Cost
$2,920,000)(a) 2,920,000 2,934,600
---------------------------------------------------------------------------
TRW Automotive Inc., Sr. Notes, 9.38%,
02/15/13 (Acquired 02/06/03; Cost
$3,380,000)(a) 3,380,000 3,734,900
===========================================================================
10,392,803
===========================================================================
AUTOMOBILE MANUFACTURERS-0.05%
General Motors Corp., Sr. Unsec. Global
Notes, 7.13%, 07/15/13 610,000 587,467
===========================================================================
BROADCASTING & CABLE TV-13.68%
Adelphia Communications Corp.,
Series B, Sr. Unsec. Notes, 9.88%,
03/01/07(b)(d) 4,220,000 2,795,750
---------------------------------------------------------------------------
Sr. Unsec. Notes, 10.88%, 10/01/10(b)(d) 15,970,000 10,580,125
---------------------------------------------------------------------------
Allbritton Communications Co., Sr. Unsec.
Sub. Global Notes, 7.75%, 12/15/12 1,675,000 1,666,625
---------------------------------------------------------------------------
Avalon Cable LLC, Sr. Disc. Notes, 11.88%,
12/01/08(e) 2,715,000 2,674,275
---------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp.,
Sr. Unsec. Sub. Disc. Notes,
9.92%, 04/01/11(e) 16,215,000 11,512,650
---------------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 11.13%,
01/15/11 9,655,000 7,917,100
---------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr.
Unsec. Yankee Deb.,
11.20%, 11/15/07(e) 8,135,000 8,053,650
---------------------------------------------------------------------------
DirecTV Holdings LLC, Sr. Notes, 8.38%,
03/15/13 (Acquired 02/25/03; Cost
$5,795,000)(a) 5,795,000 6,417,962
---------------------------------------------------------------------------
Granite Broadcasting Corp., Sr. Sub. Notes,
10.38%, 05/15/05 3,923,000 3,903,385
---------------------------------------------------------------------------
Insight Midwest, L.P./Insight Capital Inc.,
Sr. Unsec. Global Notes, 10.50%, 11/01/10 6,865,000 7,414,200
---------------------------------------------------------------------------
Knology, Inc., Sr. Unsec. PIK Notes, 12.00%,
11/30/09 (Acquired 01/06/98-05/15/03; Cost
$18,357,943)(a) 11,048,225 9,501,473
---------------------------------------------------------------------------
LBI Media Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.13%, 07/15/12 5,810,000 6,361,950
---------------------------------------------------------------------------
Mediacomm LLC/Mediacomm Capital Corp., Sr.
Unsec. Notes, 9.50%, 01/15/13 8,820,000 8,775,900
---------------------------------------------------------------------------
Nextmedia Operating Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.75%, 07/01/11 4,865,000 5,375,825
---------------------------------------------------------------------------
|
FS-2
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Pegasus Communications Corp.-Series B,
Sr. Notes, 9.63%, 10/15/05 $10,010,000 $ 9,209,200
---------------------------------------------------------------------------
Sr. Unsec. Notes, 12.50%, 08/01/07 11,960,000 11,063,000
---------------------------------------------------------------------------
Pegasus Media & Communications Inc.- Series
B, Sr. Sub. Notes, 12.50%, 07/01/05 8,745,000 8,788,725
---------------------------------------------------------------------------
Salem Communications Holding Corp.-Series B,
Sr. Unsec. Gtd. Sub. Global Notes, 9.00%,
07/01/11 5,495,000 5,852,175
---------------------------------------------------------------------------
Spanish Broadcasting System, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 9.63%, 11/01/09 6,669,000 7,169,175
---------------------------------------------------------------------------
United Pan-Europe Communications N.V.
(Netherlands)-Series B, Sr. Unsec. Yankee Notes,
11.25%, 02/01/10(b)(d) 13,665,000 4,321,556
---------------------------------------------------------------------------
11.50%, 02/01/10(b)(d) 8,850,000 2,820,937
---------------------------------------------------------------------------
XM Satellite Radio Inc., Sr. Sec. Notes,
12.00%, 06/15/10 (Acquired 06/12/03-
07/22/03; Cost $11,252,700)(a) 11,260,000 11,203,700
---------------------------------------------------------------------------
Young Broadcasting Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes,
8.75%, 06/15/07 2,870,000 2,898,700
---------------------------------------------------------------------------
9.00%, 01/15/06 970,000 979,700
===========================================================================
157,257,738
===========================================================================
BUILDING PRODUCTS-1.15%
Associated Materials Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 9.75%, 04/15/12 1,930,000 2,007,200
---------------------------------------------------------------------------
Building Materials Corp., Sr. Unsec. Gtd.
Notes, 8.00%, 12/01/08 5,800,000 5,466,500
---------------------------------------------------------------------------
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 8,085,000 5,699,925
===========================================================================
13,173,625
===========================================================================
CASINOS & GAMING-0.97%
Herbst Gaming, Inc.-Series B, Sr. Sec. Global
Notes, 10.75%, 09/01/08 4,745,000 5,255,087
---------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Global Notes, 8.00%, 04/01/12 1,470,000 1,572,900
---------------------------------------------------------------------------
Venetian Casino Resort, LLC, Sec. Gtd.
Mortgage Global Notes, 11.00%, 06/15/10 3,905,000 4,344,312
===========================================================================
11,172,299
===========================================================================
COMMODITY CHEMICALS-1.25%
Equistar Chemicals L.P./Equistar Funding Corp.,
Sr. Unsec. Gtd. Global Notes, 10.13%, 09/01/08 7,275,000 7,311,375
---------------------------------------------------------------------------
ISP Chemco Inc.-Series B, Sr. Unsec. Gtd.
Sub. Global Notes, 10.25%, 07/01/11 3,840,000 4,320,000
---------------------------------------------------------------------------
Methanex Corp. (Canada), Sr. Unsec. Notes,
8.75%, 08/15/12 2,420,000 2,698,300
===========================================================================
14,329,675
===========================================================================
COMMUNICATIONS EQUIPMENT-0.47%
Nortel Network Ltd. (Canada), Sr. Global
Notes, 6.13%, 02/15/06 2,255,000 2,159,162
---------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Nortel Networks Corp. (Canada), Sr. Unsec.
Gtd. Conv. Global Notes, 4.25%, 09/01/08 $ 3,860,000 $ 3,247,225
===========================================================================
5,406,387
===========================================================================
COMPUTER STORAGE & PERIPHERALS-0.05%
Seagate Technology Hdd Holdings, Sr. Unsec.
Gtd. Global Notes, 8.00%, 05/15/09 480,000 520,800
===========================================================================
CONSTRUCTION & ENGINEERING-0.47%
Schuff Steel Co., Sr. Unsec. Gtd. Notes,
10.50%, 06/01/08 7,185,000 5,424,675
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.89%
Case New Holland Inc., Sr. Notes, 9.25%,
08/01/11 (Acquired 07/29/03; Cost
$2,899,457)(a) 2,940,000 2,883,199
---------------------------------------------------------------------------
Terex Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 07/15/11 6,835,000 7,313,450
===========================================================================
10,196,649
===========================================================================
DEPARTMENT STORES-1.03%
JC Penney Co. Inc.,
Sr. Unsec. Notes, 8.00%, 03/01/10 4,825,000 4,921,500
---------------------------------------------------------------------------
Unsec. Notes, 7.60%, 04/01/07 6,755,000 6,923,875
===========================================================================
11,845,375
===========================================================================
DISTILLERS & VINTNERS-0.11%
Constellation Brands, Inc.-Series B, Sr. Gtd.
Sub. Notes, 8.13%, 01/15/12 1,220,000 1,287,100
===========================================================================
DIVERSIFIED CHEMICALS-0.98%
FMC Corp., Sr. Sec. Global Notes, 10.25%,
11/01/09 2,250,000 2,508,750
---------------------------------------------------------------------------
Huntsman International LLC,
Sr. Notes, 9.88%, 03/01/09
(Acquired 04/03/03; Cost $1,020,925)(a) 970,000 979,700
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 9.88%,
03/01/09 7,690,000 7,766,900
===========================================================================
11,255,350
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.99%
United Rentals North America Inc.,
Series B, Sr. Unsec. Gtd. Global Notes,
10.75%, 04/15/08 5,455,000 5,891,400
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 10.75%, 04/15/08
(Acquired 12/17/02; Cost $2,838,566)(a) 2,925,000 3,159,000
---------------------------------------------------------------------------
Wackenhut Corrections Corp., Sr. Notes,
8.25%, 07/15/13 (Acquired 07/01/03; Cost
$2,230,000)(a) 2,230,000 2,330,350
===========================================================================
11,380,750
===========================================================================
|
FS-3
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
DIVERSIFIED METALS & MINING-0.30%
Wolverine Tube, Inc., Sr. Notes, 7.38%,
08/01/08 (Acquired 03/18/03-06/04/03; Cost
$3,516,269)(a) $ 3,650,000 $ 3,449,250
===========================================================================
DRUG RETAIL-1.08%
Rite Aid Corp.,
Sr. Notes, 9.25%, 06/01/13
(Acquired 05/13/03-06/10/03;
Cost $9,555,682)(a) 9,720,000 9,598,500
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 7.13%, 01/15/07 2,895,000 2,829,862
===========================================================================
12,428,362
===========================================================================
ELECTRIC UTILITIES-2.60%
CMS Energy Corp.,
Sr. Notes, 7.75%, 08/01/10
(Acquired 07/09/03; Cost $1,090,281)(a) 1,105,000 1,055,275
---------------------------------------------------------------------------
Sr. Unsec. Notes, 7.63%, 11/15/04 1,935,000 1,944,675
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08 4,140,000 4,181,400
---------------------------------------------------------------------------
Dynegy Holdings Inc., Sr. Unsec. Unsub.
Notes,
8.13%, 03/15/05 9,605,000 9,749,075
---------------------------------------------------------------------------
8.75%, 02/15/12 1,935,000 1,625,400
---------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08 12,050,000 6,205,750
---------------------------------------------------------------------------
Orion Power Holdings, Inc., Sr. Unsec. Global
Notes, 12.00%, 05/01/10 2,905,000 3,355,275
---------------------------------------------------------------------------
PG&E Corp., Sr. Sec. Notes, 6.88%, 07/15/08
(Acquired 06/27/03; Cost $1,735,000)(a) 1,735,000 1,768,538
===========================================================================
29,885,388
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.88%
Midwest Generation LLC-Series B., Global
Asset-Backed Pass Through Ctfs., 8.56%,
01/02/16 7,660,000 7,238,700
---------------------------------------------------------------------------
Thomas & Betts Corp., Sr. Unsec. Notes,
7.25%, 06/01/13 2,885,000 2,892,212
===========================================================================
10,130,912
===========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.85%
Flextronics International Ltd. (Singapore),
Sr. Unsec. Sub. Yankee Notes, 9.88%,
07/01/10 3,930,000 4,264,050
---------------------------------------------------------------------------
Sanmina-SCI Corp., Sr. Gtd. Sec. Global
Notes, 10.38%, 01/15/10 4,830,000 5,518,275
===========================================================================
9,782,325
===========================================================================
ENVIRONMENTAL SERVICES-0.82%
Allied Waste North America Inc.,
Sr. Sec. Gtd. Global Notes, 9.25%, 09/01/12 4,000,000 4,390,000
---------------------------------------------------------------------------
Sr. Sec. Gtd. Sub. Global Notes, 8.50%,
12/01/08 4,750,000 5,035,000
===========================================================================
9,425,000
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS-0.49%
IMC Global Inc., Sr. Notes, 10.88%, 08/01/13
(Acquired 07/18/03; Cost $5,440,982)(a) $ 5,540,000 $ 5,623,100
===========================================================================
FOOD RETAIL-0.70%
Ahold Finance USA Inc., Sr. Unsec. Gtd.
Unsub. Notes, 8.25%, 07/15/10 2,900,000 2,885,500
---------------------------------------------------------------------------
Ahold Lease USA, Inc.-Series 2001, Class A-1,
Gtd. Disc. Asset-Backed Pass Through Ctfs.,
7.82%, 01/02/20 5,612,905 5,191,937
===========================================================================
8,077,437
===========================================================================
FOREST PRODUCTS-1.51%
Georgia-Pacific Corp.,
Sr. Notes, 7.38%, 07/15/08
(Acquired 05/21/03; Cost $3,850,000)(a) 3,850,000 3,830,750
---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.88%, 02/01/10 (Acquired
01/23/03; Cost $5,285,952)(a) 5,320,000 5,559,400
---------------------------------------------------------------------------
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Yankee Notes, 9.88%, 05/15/08 7,680,000 7,987,200
===========================================================================
17,377,350
===========================================================================
GAS UTILITIES-0.34%
SEMCO Energy, Inc., Sr. Notes,
7.13%, 05/15/08 (Acquired 05/14/03; Cost
$2,885,000)(a) 2,885,000 2,928,275
---------------------------------------------------------------------------
7.75%, 05/15/13 (Acquired 05/14/03; Cost
$960,000)(a) 960,000 974,400
===========================================================================
3,902,675
===========================================================================
GENERAL MERCHANDISE STORES-0.91%
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 10/15/07 10,100,000 10,453,500
===========================================================================
HEALTH CARE DISTRIBUTORS-0.27%
AmerisourceBergen Corp., Sr. Unsec. Gtd.
Global Notes, 7.25%, 11/15/12 2,900,000 3,052,250
===========================================================================
HEALTH CARE EQUIPMENT-0.87%
Medex, Inc., Sr. Sub. Notes, 8.88%, 05/15/13
(Acquired 05/14/03-07/09/03; Cost
$2,793,400)(a) 2,725,000 2,861,250
---------------------------------------------------------------------------
Medquest Inc.-Series B, Sr. Unsec. Sub.
Global Notes, 11.88%, 08/15/12 2,880,000 3,024,000
---------------------------------------------------------------------------
Vicar Operating, Inc., Sr. Unsec. Gtd. Notes,
9.88%, 12/01/09 3,800,000 4,161,000
===========================================================================
10,046,250
===========================================================================
HEALTH CARE FACILITIES-1.37%
Hanger Orthopedic Group, Inc.,
Sr. Gtd. Sub. Notes, 11.25%, 06/15/09 5,175,000 5,640,750
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.38%,
02/15/09 920,000 1,007,400
---------------------------------------------------------------------------
Province Healthcare Co., Sr. Sub. Notes,
7.50%, 06/01/13 960,000 945,600
---------------------------------------------------------------------------
|
FS-4
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
HEALTH CARE FACILITIES-(CONTINUED)
Triad Hospitals, Inc.-Series B, Sr. Unsec.
Gtd. Global Notes, 8.75%, 05/01/09 $ 2,855,000 $ 3,054,850
---------------------------------------------------------------------------
United Surgical Partners International, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes, 10.00%,
12/15/11 4,740,000 5,131,050
===========================================================================
15,779,650
===========================================================================
HEALTH CARE SUPPLIES-1.16%
DJ Orthopedics LLC/DJ Orthopedics Capital
Corp., Sr. Unsec. Gtd. Sub. Notes, 12.63%,
06/15/09 5,765,000 6,197,375
---------------------------------------------------------------------------
Fisher Scientific International Inc.,
Sr. Sub. Global Notes, 8.13%, 05/01/12
(Acquired 01/09/03; Cost $4,061,200)(a) 3,905,000 4,178,350
---------------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 8.13%,
05/01/12 2,810,000 3,006,700
===========================================================================
13,382,425
===========================================================================
HOME FURNISHINGS-0.76%
Sealy Mattress Co.-Series B, Sr. Gtd. Sub.
Notes, 9.88%, 12/15/07 8,960,000 8,736,000
===========================================================================
HOMEBUILDING-1.68%
Beazer Homes USA, Inc., Sr. Unsec. Gtd.
Global Notes, 8.38%, 04/15/12 3,775,000 4,039,250
---------------------------------------------------------------------------
D.R. Horton, Inc., Sr. Unsec. Gtd. Notes,
5.88%, 07/01/13 4,110,000 3,781,200
---------------------------------------------------------------------------
Technical Olympic USA, Inc., Sr. Unsec. Gtd.
Global Notes, 9.00%, 07/01/10 3,910,000 4,125,050
---------------------------------------------------------------------------
WCI Communities Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 02/15/11 6,770,000 7,413,150
===========================================================================
19,358,650
===========================================================================
HOTELS, RESORTS & CRUISE LINES-4.44%
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%,
12/01/12 4,140,000 4,419,450
---------------------------------------------------------------------------
Intrawest Corp. (Canada), Sr. Unsec. Gtd.
Global Notes, 10.50%, 02/01/10 7,740,000 8,455,950
---------------------------------------------------------------------------
John Q. Hammons Hotels, Inc., Sr. First
Mortgage Global Notes, 8.88%, 05/15/12 1,880,000 1,978,700
---------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr.
Unsec. Gtd. Sub. Global Notes, 8.88%,
08/15/11 4,690,000 5,041,750
---------------------------------------------------------------------------
La Quinta Properties, Sr. Notes, 8.88%,
03/15/11 (Acquired 03/14/03; Cost
$4,830,000)(a) 4,830,000 5,095,650
---------------------------------------------------------------------------
MeriStar Hospitality Corp., Sr. Unsec. Gtd.
Global Notes, 9.13%, 01/15/11 8,690,000 8,559,650
---------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia),
Sr. Unsec. Notes, 8.00%, 05/15/10 2,845,000 2,944,575
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 8.75%,
02/02/11 7,470,000 7,955,550
---------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-(CONTINUED)
Starwood Hotels Resorts, Sr. Gtd. Global
Notes, 7.88%, 05/01/12 $ 6,235,000 $ 6,640,275
===========================================================================
51,091,550
===========================================================================
INDUSTRIAL CONGLOMERATES-0.59%
TD Funding Corp., Sr. Sub. Notes, 8.38%,
07/15/11 (Acquired 07/15/03; Cost
$1,475,000)(a) 1,475,000 1,504,500
---------------------------------------------------------------------------
Tyco International Group S.A. (Luxembourg),
Sr. Gtd. Conv. Putable Notes,
2.75%, 01/15/08 (Acquired 01/07/03;
Cost $2,334,000)(a) 2,334,000 2,436,112
---------------------------------------------------------------------------
3.13%, 01/15/15 (Acquired 01/07/03; Cost
$2,674,000)(a) 2,674,000 2,824,413
===========================================================================
6,765,025
===========================================================================
INDUSTRIAL MACHINERY-1.22%
Cabot Safety Corp., Sr. Sub. Notes, 12.50%,
07/15/05 8,630,000 8,802,600
---------------------------------------------------------------------------
Dresser, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.38%, 04/15/11 960,000 984,000
---------------------------------------------------------------------------
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd.
Sub. Global Notes, 10.50%, 08/01/12 3,870,000 4,198,950
===========================================================================
13,985,550
===========================================================================
INTEGRATED OIL & GAS-1.95%
El Paso CGP Co.,
Sr. Unsec. Notes, 6.20%, 05/15/04 4,840,000 4,755,300
---------------------------------------------------------------------------
Unsec. Deb., 9.75%, 08/01/03 1,935,000 1,935,000
---------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/10 4,925,000 4,013,875
---------------------------------------------------------------------------
PDVSA Finance Ltd. (Cayman Islands), Global
Notes, 8.50%, 11/16/12 5,235,000 4,724,588
---------------------------------------------------------------------------
Petrobras International Finance Co., Global
Notes, 9.13%, 07/02/13 6,725,000 6,943,563
===========================================================================
22,372,326
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.82%
Madison River Capital LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10 7,810,000 7,536,650
---------------------------------------------------------------------------
PTC International Finance II S.A.
(Luxembourg), Sr. Unsec. Gtd. Sub. Yankee
Notes, 11.25%, 12/01/09 1,065,000 1,176,825
---------------------------------------------------------------------------
Qwest Capital Funding, Inc., Unsec. Gtd.
Global Notes,
5.88%, 08/03/04 6,535,000 6,175,575
---------------------------------------------------------------------------
7.00%, 08/03/09 8,580,000 6,563,700
---------------------------------------------------------------------------
7.25%, 02/15/11 14,385,000 11,004,525
===========================================================================
32,457,275
===========================================================================
|
FS-5
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
LEISURE FACILITIES-1.25%
Six Flags, Inc.,
Sr. Unsec. Global Notes, 8.88%, 02/01/10 $ 5,000,000 $ 4,550,000
---------------------------------------------------------------------------
Sr. Unsec. Notes, 9.75%, 06/15/07 4,210,000 3,999,500
---------------------------------------------------------------------------
Town Sports International, Inc., Sr. Unsec.
Gtd. Global Notes, 9.63%, 04/15/11 2,415,000 2,559,900
---------------------------------------------------------------------------
Universal City Development, Sr. Notes,
11.75%, 04/01/10 (Acquired 03/21/03; Cost
$2,866,186)(a) 2,900,000 3,219,000
===========================================================================
14,328,400
===========================================================================
LIFE & HEALTH INSURANCE-0.16%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $1,877,504)(a) 1,900,000 1,829,491
===========================================================================
MARINE-1.07%
General Maritime Corp. (Republic of Marshall
Islands), Sr. Notes, 10.00%, 03/15/13
(Acquired 03/17/03-03/21/03; Cost
$5,113,302)(a) 5,130,000 5,668,650
---------------------------------------------------------------------------
Overseas Shipholding Group, Inc., Sr. Unsec.
Notes, 8.25%, 03/15/13 (Acquired 03/04/03-
06/10/03; Cost $4,893,482)(a) 4,840,000 5,057,800
---------------------------------------------------------------------------
Stena A.B. (Sweden), Sr. Unsec. Global Notes,
9.63%, 12/01/12 1,415,000 1,552,963
===========================================================================
12,279,413
===========================================================================
MARINE PORTS & SERVICES-0.23%
Seabulk International, Inc., Sr. Notes,
9.50%, 08/15/13 (Acquired 07/29/03; Cost
$2,675,000)(a) 2,675,000 2,661,625
===========================================================================
METAL & GLASS CONTAINERS-3.86%
AEP Industries Inc., Sr. Unsec. Sub. Notes,
9.88%, 11/15/07 2,045,000 1,912,075
---------------------------------------------------------------------------
Anchor Glass Container Corp., Sr. Sec. Global
Notes, 11.00%, 02/15/13 4,825,000 5,211,000
---------------------------------------------------------------------------
Crown European Holdings S.A (France), Sr.
Sec. Second Lien Notes, 9.50%, 03/01/11
(Acquired 02/11/03; Cost $4,825,000)(a) 4,825,000 5,018,000
---------------------------------------------------------------------------
Greif Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/01/12 6,775,000 7,283,125
---------------------------------------------------------------------------
Jarden Corp., Sr. Sec. Gtd. Sub. Notes,
9.75%, 05/01/12 960,000 1,032,000
---------------------------------------------------------------------------
Owens-Brockway,
Sr. Sec. Gtd. Global Notes, 8.75%, 11/15/12 3,900,000 4,114,500
---------------------------------------------------------------------------
Sr. Sec. Notes, 7.75%, 05/15/11 (Acquired
04/29/03; Cost $1,885,000)(a) 1,885,000 1,913,275
---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.25%, 05/15/13 (Acquired
04/29/03; Cost $2,900,000)(a) 2,900,000 2,943,500
---------------------------------------------------------------------------
Owens-Illinois, Inc., Sr. Unsec. Deb., 7.50%,
05/15/10 4,600,000 4,439,000
---------------------------------------------------------------------------
Plastipak Holdings Inc., Sr. Unsec. Gtd.
Global Notes, 10.75%, 09/01/11 4,870,000 5,259,600
---------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
METAL & GLASS CONTAINERS-(CONTINUED)
Pliant Corp., Sr. Sec. Second Lien Notes,
11.13%, 09/01/09 (Acquired 05/22/03; Cost
$3,775,000)(a) $ 3,775,000 $ 4,001,500
---------------------------------------------------------------------------
Stone Container Corp., Sr. Unsec. Global
Notes, 8.38%, 07/01/12 165,000 169,125
---------------------------------------------------------------------------
U.S. Can Corp., Sr. Sec. Notes, 10.88%,
07/15/10 (Acquired 07/15/03; Cost
$1,105,000)(a) 1,105,000 1,121,575
===========================================================================
44,418,275
===========================================================================
MOVIES & ENTERTAINMENT-1.69%
AMC Entertainment Inc., Sr. Unsec. Sub.
Notes, 9.50%, 02/01/11 9,210,000 9,624,450
---------------------------------------------------------------------------
Imax Corp. (Canada), Sr. Unsec. Yankee Notes,
7.88%, 12/01/05 9,925,000 9,776,125
===========================================================================
19,400,575
===========================================================================
MULTI-UTILITIES & UNREGULATED POWER-7.24%
AES Corp. (The),
Sr. Sec. Notes, 8.75%, 05/15/13
(Acquired 05/01/03; Cost $2,410,000)(a) 2,410,000 2,361,800
---------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 8.50%, 11/01/07 7,005,000 6,392,063
---------------------------------------------------------------------------
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19 5,713,207 5,913,169
---------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08 6,295,000 4,689,775
---------------------------------------------------------------------------
Calpine Corp.,
Sr. Sec. Notes, 8.75%, 07/15/13
(Acquired 07/10/03; Cost $2,468,144)(a) 2,470,000 2,229,175
---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.25%, 08/15/05 6,985,000 6,321,425
---------------------------------------------------------------------------
Gemstone Investors Ltd., Sr. Unsec. Gtd.
Notes, 7.71%, 10/31/04 (Acquired
02/27/03-05/15/03; Cost $8,954,650)(a) 9,595,000 9,307,150
---------------------------------------------------------------------------
Mirant Americas Generation, LLC, Sr. Unsec.
Notes, 7.63%, 05/01/06(d)(f) 12,580,000 9,623,700
---------------------------------------------------------------------------
Reliant Resources, Inc., Sr. Sec. Notes,
9.25%, 07/15/10 (Acquired 06/26/03; Cost
$4,805,000)(a) 4,805,000 4,684,875
---------------------------------------------------------------------------
9.50%, 07/15/13 (Acquired 06/26/03; Cost
$4,805,000)(a) 4,805,000 4,684,875
---------------------------------------------------------------------------
Sierra Pacific Resources, Sr. Unsec. Unsub.
Notes, 8.75%, 05/15/05 4,830,000 4,902,450
---------------------------------------------------------------------------
Southern Natural Gas Co., Sr. Unsec. Global
Notes, 8.88%, 03/15/10 1,450,000 1,511,625
---------------------------------------------------------------------------
Transcontinental Gas Pipe Line, Notes, 6.13%,
01/15/05 3,320,000 3,311,700
---------------------------------------------------------------------------
Williams Cos., Inc. (The),
Notes, 7.13%, 09/01/11 9,580,000 8,957,300
---------------------------------------------------------------------------
Sr. Notes, 8.63%, 06/01/10 3,835,000 3,844,588
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 9.25%,
03/15/04 4,365,000 4,452,300
===========================================================================
83,187,970
===========================================================================
|
FS-6
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
OFFICE ELECTRONICS-0.82%
IOS Capital, Inc., Sr. Unsec. Notes, 7.25%,
06/30/08 $ 2,920,000 $ 2,726,550
---------------------------------------------------------------------------
Xerox Corp., Sr. Notes,
7.13%, 06/15/10 3,650,000 3,522,250
---------------------------------------------------------------------------
7.63%, 06/15/13 3,250,000 3,136,250
===========================================================================
9,385,050
===========================================================================
OFFICE SERVICES & SUPPLIES-0.17%
Falcon Products, Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 11.38%, 06/15/09 2,515,000 1,898,825
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.83%
Grant Prideco Escrow Corp., Sr. Unsec. Gtd.
Global Notes, 9.00%, 12/15/09 1,950,000 2,096,250
---------------------------------------------------------------------------
SESI, LLC, Sr. Unsec. Gtd. Global Notes,
8.88%, 05/15/11 6,815,000 7,394,275
===========================================================================
9,490,525
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.85%
Chesapeake Energy Corp., Sr. Unsec. Gtd.
Notes, 8.38%, 11/01/08 2,910,000 3,099,150
---------------------------------------------------------------------------
Comstock Resources, Inc., Sr. Unsec. Gtd.
Notes, 11.25%, 05/01/07 3,285,000 3,531,375
---------------------------------------------------------------------------
Westport Resources Corp., Sr. Unsec. Gtd.
Sub. Global Notes, 8.25%, 11/01/11 2,880,000 3,096,000
===========================================================================
9,726,525
===========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-4.56%
Citgo Petroleum Corp., Sr. Notes, 11.38%,
02/01/11 (Acquired 02/20/03; Cost
$7,667,167)(a) 7,715,000 8,525,075
---------------------------------------------------------------------------
Clark Refining & Marketing, Inc., Sr. Unsec.
Notes, 8.63%, 08/15/08 3,150,000 3,244,500
---------------------------------------------------------------------------
El Paso Energy Partners, L.P.-Series B, Sr.
Unsec. Gtd. Sub. Global Notes, 8.50%,
06/01/11 11,835,000 12,485,925
---------------------------------------------------------------------------
El Paso Natural Gas Co., Unsec. Unsub. Notes,
6.75%, 11/15/03 2,850,000 2,864,250
---------------------------------------------------------------------------
El Paso Production Holding Co., Sr. Unsec.
Gtd. Notes, 7.75%, 06/01/13 (Acquired
05/20/03; Cost $8,720,000)(a) 8,720,000 8,109,600
---------------------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec. Sub. Notes,
11.75%, 11/15/09 8,805,000 9,729,525
---------------------------------------------------------------------------
GulfTerra Energy Partners, L.P., Sr. Unsec.
Notes, 6.25%, 06/01/10 (Acquired 06/26/03;
Cost $4,805,000)(a) 4,805,000 4,672,863
---------------------------------------------------------------------------
Premcor Refining Group Inc. (The), Sr. Unsec.
Global Notes, 9.25%, 02/01/10 905,000 963,825
---------------------------------------------------------------------------
Western Gas Resources, Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 06/15/09 1,615,000 1,784,575
===========================================================================
52,380,138
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-0.17%
Huntsman Advanced Materials LLC, Sr. Sec.
Second Lien Notes, 11.00%, 07/15/10
(Acquired 06/23/03; Cost $1,900,000)(a) $ 1,900,000 $ 2,004,500
===========================================================================
PACKAGED FOODS & MEATS-0.69%
Dole Food Co., Inc., Sr. Notes, 8.88%,
03/15/11 (Acquired 03/17/03-07/09/03; Cost
$7,724,844)(a) 7,495,000 7,869,750
===========================================================================
PAPER PACKAGING-1.42%
Constar International Inc., Sr. Sub. Notes,
11.00%, 12/01/12 8,640,000 8,683,200
---------------------------------------------------------------------------
Graphic Packaging Corp., Unsec. Gtd. Sub.
Global Notes, 8.63%, 02/15/12 3,805,000 3,919,150
---------------------------------------------------------------------------
Jefferson Smurfit Corp., Sr. Notes, 7.50%,
06/01/13 (Acquired 05/16/03; Cost
$3,775,000)(a) 3,775,000 3,737,250
===========================================================================
16,339,600
===========================================================================
PAPER PRODUCTS-0.78%
Bowater Inc., Sr. Notes, 6.50%, 06/15/13
(Acquired 06/16/03; Cost $5,737,536)(a) 5,760,000 5,178,413
---------------------------------------------------------------------------
Cascades Inc. (Canada), Sr. Notes, 7.25%,
02/15/13 (Acquired 01/31/03; Cost
$3,860,000)(a) 3,860,000 3,821,400
===========================================================================
8,999,813
===========================================================================
PERSONAL PRODUCTS-1.14%
Elizabeth Arden, Inc., Sr. Sec. Global Notes,
11.75%, 02/01/11 6,835,000 7,689,375
---------------------------------------------------------------------------
Herbalife International Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 11.75%, 07/15/10 4,845,000 5,450,625
===========================================================================
13,140,000
===========================================================================
PHARMACEUTICALS-1.60%
aaiPharma Inc., Sr. Sub. Unsec. Gtd. Global
Notes, 11.00%, 04/01/10 12,865,000 14,408,800
---------------------------------------------------------------------------
Biovail Corp. (Canada), Sr. Sub. Yankee
Notes, 7.88%, 04/01/10 3,865,000 4,019,600
===========================================================================
18,428,400
===========================================================================
PUBLISHING-0.55%
PRIMEDIA Inc., Sr. Notes, 8.00%, 05/15/13
(Acquired 05/08/03; Cost $6,253,181)(a) 6,265,000 6,296,325
===========================================================================
RAILROADS-2.05%
Kansas City Southern Railway, Sr. Unsec. Gtd.
Global Notes, 9.50%, 10/01/08 8,784,000 9,838,080
---------------------------------------------------------------------------
RailAmerica Transportation Corp., Sr. Unsec.
Gtd. Sub. Notes, 12.88%, 08/15/10 3,605,000 4,019,575
---------------------------------------------------------------------------
TFM S.A. de C.V. (Mexico), Sr. Unsec. Gtd.
Yankee Deb., 11.75%, 06/15/09 8,223,000 8,428,575
---------------------------------------------------------------------------
|
FS-7
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
RAILROADS-(CONTINUED)
Wabtec Corp., Sr. Notes, 6.88%, 07/31/13
(Acquired 07/23/03; Cost $1,225,000)(a) $ 1,225,000 $ 1,228,063
===========================================================================
23,514,293
===========================================================================
REAL ESTATE-1.17%
Host Marriott Corp., Sr. Sec. Gtd. Notes,
7.88%, 08/01/08 5,720,000 5,734,300
---------------------------------------------------------------------------
Host Marriott L.P.,
Series E, Sr. Sec. Gtd. Notes, 8.38%,
02/15/06 300,000 307,500
---------------------------------------------------------------------------
Series G, Sr. Gtd. Global Notes, 9.25%,
10/01/07 5,400,000 5,751,000
---------------------------------------------------------------------------
iStar Financial Inc.,
Sr. Notes, 7.00%, 03/15/08 985,000 1,002,238
---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.75%, 08/15/08 615,000 661,125
===========================================================================
13,456,163
===========================================================================
REGIONAL BANKS-0.70%
Western Financial Bank, Unsec. Sub. Deb.,
8.88%, 08/01/07 95,000 97,850
---------------------------------------------------------------------------
9.63%, 05/15/12 7,225,000 7,983,625
===========================================================================
8,081,475
===========================================================================
RESTAURANTS-0.18%
Friendly Ice Cream Corp., Sr. Unsec. Gtd.
Notes, 10.50%, 12/01/07 2,000,000 2,020,000
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.24%
Amkor Technology Inc., Sr. Notes, 7.75%,
05/15/13 (Acquired 05/01/03; Cost
$2,899,825)(a) 2,895,000 2,793,675
===========================================================================
SPECIALTY CHEMICALS-1.04%
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11 4,785,000 4,713,225
---------------------------------------------------------------------------
Rhodia S.A. (France), Sr. Notes, 7.63%,
06/01/10 (Acquired 05/20/03; Cost
$2,885,000)(a) 2,885,000 2,827,300
---------------------------------------------------------------------------
Westlake Chemical Corp., Sr. Notes, 8.75%,
07/15/11 (Acquired 07/21/03; Cost
$4,435,000)(a) 4,435,000 4,435,000
===========================================================================
11,975,525
===========================================================================
SPECIALTY STORES-0.99%
CSK Auto, Inc., Sr. Unsec. Gtd. Global Notes,
12.00%, 06/15/06 3,310,000 3,690,650
---------------------------------------------------------------------------
Petco Animal Supplies Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 10.75%, 11/01/11 4,740,000 5,308,800
---------------------------------------------------------------------------
Petro Stopping Centers L.P., Sr. Unsec.
Notes, 10.50%, 02/01/07 2,400,000 2,388,000
===========================================================================
11,387,450
===========================================================================
STEEL-0.48%
IPSCO, Inc (Canada), Sr. Notes, 8.75%,
06/01/13 (Acquired 06/13/03-06/20/03; Cost
$5,667,000)(a) 5,520,000 5,547,600
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
TRUCKING-0.55%
North American Van Lines, Sr. Unsec. Gtd.
Sub. Global Notes, 13.38%, 12/01/09 $ 5,830,000 $ 6,369,275
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-5.42%
AirGate PCS, Inc., Sr. Sub. Disc. Notes,
13.50%, 10/01/09(e)(g) 8,080,000 4,444,000
---------------------------------------------------------------------------
Alamosa Holdings, Inc., Sr. Unsec. Gtd. Disc.
Notes, 12.88%, 02/15/10(e) 5,830,000 3,935,250
---------------------------------------------------------------------------
American Tower Corp., Sr. Global Notes,
9.38%, 02/01/09 8,905,000 9,083,100
---------------------------------------------------------------------------
American Tower Escrow Corp., Unsec. Disc.
Global Notes, 12.25%, 08/01/08(h) 4,350,000 2,871,000
---------------------------------------------------------------------------
Centennial Cellular Operating Co./Centennial
Communications Corp., Sr. Notes, 10.13%,
06/15/13 (Acquired 06/16/03-07/09/03; Cost
$6,794,700)(a) 6,780,000 6,644,400
---------------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc.
Global Notes, 14.00%, 10/01/10(d)(f) 5,150,000 849,750
---------------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%,
07/15/10(d)(f) 6,335,000 411,775
---------------------------------------------------------------------------
IWO Holdings, Inc., Sr. Unsec. Gtd. Global
Notes, 14.00%, 01/15/11 10,740,000 1,664,700
---------------------------------------------------------------------------
Nextel Communications, Inc.,
Class A, Sr. Notes, 7.38%, 08/01/15 2,220,000 2,195,025
---------------------------------------------------------------------------
Sr. Global Notes, 12.00%, 11/01/08 9,705,000 10,469,269
---------------------------------------------------------------------------
Nextel Partners, Inc., Sr. Unsec. Notes,
8.13%, 07/01/11 (Acquired 06/16/03; Cost
$2,880,000)(a) 2,880,000 2,671,200
---------------------------------------------------------------------------
Rural Cellular Corp.-Class A, Sr. Notes,
9.88%, 02/01/10 (Acquired 07/23/03; Cost
$3,710,000)(a) 3,710,000 3,543,050
---------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Global
Notes, 10.25%, 02/01/09 4,070,000 3,805,450
---------------------------------------------------------------------------
Triton PCS, Inc., Sr. Notes, 8.50%, 06/01/13
(Acquired 05/30/03; Cost $2,885,000)(a)(d) 2,885,000 3,000,400
---------------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Unsec. Gtd.
Disc. Notes, 14.00%, 05/15/10 (Acquired
02/21/03; Cost $430,400)(a)(e) 2,152,000 1,237,400
---------------------------------------------------------------------------
US Unwired Inc.-Series B, Sr. Unsec. Gtd.
Sub. Disc. Notes, 13.38%, 11/01/09(e) 4,910,000 2,553,200
---------------------------------------------------------------------------
Western Wireless Corp., Sr. Sec. Notes,
9.25%, 07/15/13 (Acquired 07/11/03; Cost
$2,990,000)(a) 2,990,000 2,855,450
===========================================================================
62,234,419
===========================================================================
Total Bonds & Notes (Cost $1,155,648,715) 1,117,939,255
===========================================================================
|
FS-8
MARKET
SHARES VALUE
---------------------------------------------------------------------------
WARRANTS & OTHER EQUITY INTERESTS-5.56%
ALTERNATIVE CARRIERS-0.00%
KMC Telecom Holdings, Inc.-Wts., expiring
4/15/08(i) 35 9
===========================================================================
BROADCASTING & CABLE TV-2.11%
Cablevision Systems New York Group,
Series H, 11.75% Pfd. 136,375 14,251,187
---------------------------------------------------------------------------
Series M, 11.13% PIK Pfd. 86,800 9,027,200
---------------------------------------------------------------------------
Knology Inc.,
Series D, Conv. Pfd. (Acquired 01/06/98-
01/12/00; Cost $0)(a)(d)(j) 649,310 973,965
---------------------------------------------------------------------------
Wts., expiring 10/22/07 (Acquired 03/12/98-
02/01/00; Cost $270)(a)(c)(d)(i) 47,295 0
===========================================================================
24,252,352
===========================================================================
COMMUNICATIONS EQUIPMENT-0.00%
Loral Space & Communications, Ltd.-Wts.,
expiring 12/26/06(i) 74,000 740
===========================================================================
CONSTRUCTION MATERIALS-0.00%
Dayton Superior-Wts., expiring 06/15/09
(Acquired 08/07/00-01/30/01; Cost
$10,000)(a)(d)(i) 10,780 2,695
===========================================================================
GENERAL MERCHANDISE STORES-0.01%
Travelcenters of America Inc.,
Wts., expiring 05/01/09(i) 4,900 13,475
---------------------------------------------------------------------------
Wts., expiring 05/01/09 (Acquired 01/29/01;
Cost $0)(a)(d)(i) 14,700 150,675
===========================================================================
164,150
===========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.,
Series B, Pfd. Wts., expiring 11/15/09
(Acquired 06/13/00; Cost $0)(a)(d)(i) 21,155 212
---------------------------------------------------------------------------
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(a)(d)(i) 21,155 212
===========================================================================
424
===========================================================================
|
---------------------------------------------------------------------------
MARKET
SHARES VALUE
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(a)(d)(i) 16,535 $ 165
===========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.65%
AES Trust VII -- $3.00 Conv. Pfd. 191,495 7,492,242
===========================================================================
PUBLISHING-0.57%
PRIMEDIA Inc.,
Series D, 10.00% Pfd. 31,900 3,030,500
---------------------------------------------------------------------------
Series F, 9.20% Pfd. 37,800 3,534,300
===========================================================================
6,564,800
===========================================================================
RAILROADS-0.03%
RailAmerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(a)(d)(i) 15,525 283,331
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.19%
American Tower Corp.-Wts., expiring 08/01/08
(Acquired 01/22/03; Cost $231,642)(a)(d)(i) 4,350 479,588
---------------------------------------------------------------------------
Dobson Communications Corp, 12.25% PIK Pfd. 17,358 17,010,840
---------------------------------------------------------------------------
Horizon PCS, Inc.-Wts., expiring 10/01/10
(Acquired 05/02/01; Cost $0)(a)(d)(i) 29,480 29
---------------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 07/15/10 (Acquired
01/29/01; Cost $0)(a)(d)(i) 6,880 69
---------------------------------------------------------------------------
IWO Holdings Inc.-Wts., expiring 01/15/11
(Acquired 08/24/01; Cost $0)(a)(d)(i) 14,340 143
---------------------------------------------------------------------------
SpectraSite, Inc.(j) 131,359 7,684,502
---------------------------------------------------------------------------
UbiquiTel Inc.-Wts., expiring 04/15/10
(Acquired 08/10/00; Cost $0)(a)(d)(i) 27,680 277
===========================================================================
25,175,448
===========================================================================
Total Warrants & Other Equity Interests
(Cost $60,942,796) 63,936,356
===========================================================================
TOTAL INVESTMENTS-102.82% (Cost
$1,216,591,511) 1,181,875,611
===========================================================================
OTHER ASSETS LESS LIABILITIES-(2.82%) (32,457,694)
===========================================================================
NET ASSETS-100.00% $1,149,417,917
___________________________________________________________________________
===========================================================================
|
FS-9
Investment Abbreviations:
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) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 07/31/03 was $251,184,225,
which represented 21.85% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(b) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(c) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(d) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 07/31/03 was $36,295,357, which
represented 3.16% of the Fund's net assets.
(e) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(f) Defaulted security. Issuer has filed for protection under Chapter 11 of the
U.S. Bankruptcy Code.
(g) 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.
(h) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(i) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(j) Non-income producing security.
See Notes to Financial Statements.
FS-10
July 31, 2003
ASSETS:
Investments, at market value (cost
$1,216,591,511) $ 1,181,875,611
------------------------------------------------------------
Receivables for:
Investments sold 37,502,515
------------------------------------------------------------
Fund shares sold 652,314
------------------------------------------------------------
Dividends and interest 24,905,375
------------------------------------------------------------
Investment matured (Note 7) 31,800
------------------------------------------------------------
Investment for deferred compensation plan 109,014
------------------------------------------------------------
Other assets 74,816
============================================================
Total assets 1,245,151,445
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 24,077,856
------------------------------------------------------------
Fund shares reacquired 39,193,414
------------------------------------------------------------
Amount due custodian bank 27,369,123
------------------------------------------------------------
Dividends 3,377,990
------------------------------------------------------------
Deferred compensation plan 109,014
------------------------------------------------------------
Accrued distribution fees 647,351
------------------------------------------------------------
Accrued trustees' fees 1,237
------------------------------------------------------------
Accrued transfer agent fees 588,874
------------------------------------------------------------
Accrued operating expenses 368,669
============================================================
Total liabilities 95,733,528
============================================================
Net assets applicable to shares outstanding $ 1,149,417,917
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 3,112,636,351
------------------------------------------------------------
Undistributed net investment income 689,140
------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (1,929,191,674)
------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (34,715,900)
============================================================
$ 1,149,417,917
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 547,092,013
____________________________________________________________
============================================================
Class B $ 530,239,480
____________________________________________________________
============================================================
Class C $ 72,086,424
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 133,278,778
____________________________________________________________
============================================================
Class B 128,772,009
____________________________________________________________
============================================================
Class C 17,568,964
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 4.10
------------------------------------------------------------
Offering price per share:
(Net asset value of $4.10 divided
by 95.25%) $ 4.30
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 4.12
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 4.10
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-11
For the year ended July 31, 2003
INVESTMENT INCOME:
Interest $ 107,890,624
---------------------------------------------------------------------------
Dividends 2,609,425
---------------------------------------------------------------------------
Dividends from affiliated money market funds 614,168
===========================================================================
Total investment income 111,114,217
===========================================================================
EXPENSES:
Advisory fees 5,533,331
---------------------------------------------------------------------------
Administrative services fees 245,247
---------------------------------------------------------------------------
Custodian fees 122,865
---------------------------------------------------------------------------
Distribution fees -- Class A 1,269,061
---------------------------------------------------------------------------
Distribution fees -- Class B 4,663,992
---------------------------------------------------------------------------
Distribution fees -- Class C 556,053
---------------------------------------------------------------------------
Transfer agent fees 2,991,806
---------------------------------------------------------------------------
Trustees' fees 14,681
---------------------------------------------------------------------------
Other 438,011
===========================================================================
Total expenses 15,835,047
===========================================================================
Less: Fees waived and expenses paid indirectly (62,958)
===========================================================================
Net expenses 15,772,089
===========================================================================
Net investment income 95,342,128
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (164,599,730)
---------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 278,571,487
===========================================================================
Net gain from investment securities 113,971,757
===========================================================================
Net increase in net assets resulting from operations $ 209,313,885
___________________________________________________________________________
===========================================================================
|
See Notes to Financial Statements.
FS-12
For the years ended July 31, 2003 and 2002
2003 2002
----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 95,342,128 $ 141,056,268
----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (164,599,730) (486,124,409)
----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 278,571,487 148,209,888
==============================================================================================
Net increase (decrease) in net assets resulting from
operations 209,313,885 (196,858,253)
==============================================================================================
Distributions to shareholders from net investment income:
Class A (48,175,551) (69,550,001)
----------------------------------------------------------------------------------------------
Class B (41,662,189) (71,741,714)
----------------------------------------------------------------------------------------------
Class C (4,898,704) (7,514,536)
==============================================================================================
Decrease in net assets resulting from distributions (94,736,444) (148,806,251)
==============================================================================================
Share transactions-net:
Class A 68,038,018 (111,693,259)
----------------------------------------------------------------------------------------------
Class B 13,140,786 (114,155,181)
----------------------------------------------------------------------------------------------
Class C 16,219,386 (13,464,843)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 97,398,190 (239,313,283)
==============================================================================================
Net increase (decrease) in net assets 211,975,631 (584,977,787)
==============================================================================================
NET ASSETS:
Beginning of year 937,442,286 1,522,420,073
==============================================================================================
End of year $1,149,417,917 $ 937,442,286
______________________________________________________________________________________________
==============================================================================================
|
NOTES TO FINANCIAL STATEMENTS
July 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case
FS-13
of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% on the first $200 million of the Fund's average daily net assets, plus 0.55% on the next $300 million of the Fund's average daily net assets, plus 0.50% on the next $500 million of the Fund's average daily net assets, plus 0.45% on the Fund's average daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended July 31, 2003, AIM waived fees of $8,331.
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, 2003, AIM was paid $245,247 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, 2003, AFS retained $1,489,770 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C and Investor Class shares of the Fund. Investor Class shares have not commenced operations. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B, Class C or Investor Class shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges, that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the Class A, Class B and Class C shares paid $1,269,061, $4,663,992 and $556,053, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to
FS-14
remittance to the shareholder. During the year ended July 31, 2003, AIM Distributors retained $129,415 in front-end sales commissions from the sale of Class A shares and $27,969, $5,042 and $12,196 from Class A, Class B and Class C, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $19,341 and reductions in custodian fees of $35,286 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $54,627.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid legal fees of $4,620 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 was as follows:
2003 2002
--------------------------------------------------------------
Distributions paid from:
Ordinary income $94,736,444 $148,806,251
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 2,903,666 ------------------------------------------------------------ Unrealized appreciation (depreciation) -- investments (40,148,326) ------------------------------------------------------------ Temporary book/tax differences (243,800) ------------------------------------------------------------ Capital loss carryforward (1,835,099,716) ------------------------------------------------------------ Post-October capital loss deferral (90,630,258) ------------------------------------------------------------ Shares of beneficial interest 3,112,636,351 ============================================================ Total net assets $ 1,149,417,917 ____________________________________________________________ ============================================================ |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales and the treatment of defaulted bonds and bond premium amortization.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation, retirement plan expenses and treatment of interest on defaulted bonds.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
------------------------------------------------------------
July 31, 2006 $ 115,531,161
------------------------------------------------------------
July 31, 2007 297,433,797
------------------------------------------------------------
July 31, 2008 303,063,104
------------------------------------------------------------
July 31, 2009 150,303,692
------------------------------------------------------------
July 31, 2010 473,407,401
------------------------------------------------------------
July 31, 2011 495,360,561
============================================================
Total capital loss carryforward $1,835,099,716
____________________________________________________________
============================================================
|
FS-15
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $1,042,880,730 and $982,528,271, respectively.
Receivable for investment matured represents the estimated proceeds to the fund by Candescent Technologies Corp. which is in default with respect to the principal payments on $600,000 par value, Senior Unsecured Guaranteed Subordinated Debentures, 8.00%, which was due May 1, 2003. This estimate was determined in accordance with the fair valuation procedures authorized by the Board of Trustees.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
----------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 58,328,227
----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (98,476,553)
============================================================================
Net unrealized appreciation (depreciation) of investment
securities $(40,148,326)
____________________________________________________________________________
============================================================================
Cost of investments for tax purposes is $1,222,023,937.
|
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of defaulted bond adjustments and capital loss carryforwards of merger transactions on July 31, 2003, undistributed net investment income was increased by $12,508,902, undistributed net realized gains (losses) decreased by $38,165,906 and shares of beneficial interest increased by $25,657,004. This reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
The Fund currently consists of four different classes of shares: Class A shares, Class B shares, Class C shares and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Investor Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase. Investor Class shares have not commenced operations.
CHANGES IN SHARES OUTSTANDING
---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------
2003 2002
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 163,631,121 $ 631,077,903 61,671,459 $ 274,866,210
---------------------------------------------------------------------------------------------------------------------------
Class B 30,851,723 117,940,158 28,855,909 131,251,628
---------------------------------------------------------------------------------------------------------------------------
Class C 12,379,160 47,768,358 7,361,669 32,891,393
===========================================================================================================================
Issued as reinvestment of dividends:
Class A 7,455,053 28,454,055 9,782,026 43,420,316
---------------------------------------------------------------------------------------------------------------------------
Class B 5,176,658 19,722,338 7,389,848 32,867,780
---------------------------------------------------------------------------------------------------------------------------
Class C 768,448 2,934,254 918,849 4,077,812
===========================================================================================================================
Issued in connection with acquisitions:*
Class A 8,999,611 37,602,120 -- --
---------------------------------------------------------------------------------------------------------------------------
Class B 10,480,525 43,922,476 -- --
---------------------------------------------------------------------------------------------------------------------------
Class C 1,949,995 8,144,636 -- --
===========================================================================================================================
Automatic conversion of Class B shares to Class A shares:**
Class A 7,570,103 29,132,839 -- --
---------------------------------------------------------------------------------------------------------------------------
Class B (7,535,951) (29,132,839) -- --
===========================================================================================================================
Reacquired:
Class A (167,318,004) (658,228,899) (97,447,190) (429,979,785)
---------------------------------------------------------------------------------------------------------------------------
Class B (36,609,427) (139,311,347) (63,245,842) (278,274,589)
---------------------------------------------------------------------------------------------------------------------------
Class C (11,045,541) (42,627,862) (11,408,493) (50,434,048)
===========================================================================================================================
26,753,474 $ 97,398,190 (56,121,765) $(239,313,283)
___________________________________________________________________________________________________________________________
===========================================================================================================================
|
* As of the opening of business on June 23, 2003, the Fund acquired all of the net assets of AIM High Yield Fund II pursuant to a plan of reorganization approved by AIM High Yield Fund II shareholders on June 4, 2003. The acquisition was accomplished by a tax-free exchange of 21,430,131 shares of the Fund for 14,799,134 shares of AIM High Yield Fund II outstanding as of the close of business June 20, 2003. AIM High Yield Fund II net assets at that date of $89,669,232 including $(611,924) of unrealized (depreciation), were combined with those of the Fund. The aggregate net assets of the Fund immediately before the acquisition were $1,256,561,728. Included in net assets of the acquiring fund is undistributed net investment income (loss) of $(338,019) and undistributed net realized gain (loss) of $(73,445,461). ** Prior to the year ended July 31, 2002, conversion of Class B shares to Class A shares were included in Class A shares sold and Class B shares reacquired.
FS-16
NOTE 10--SIGNIFICANT EVENT
The Board of Trustees of AIM Investment Securities Funds ("Buyer") unanimously approved, on June 11, 2003, an Agreement and Plan of Reorganization ("Plan") pursuant to which AIM High Yield Fund ("Buying Fund"), a series of Buyer would acquire all of the assets of INVESCO High Yield Fund ("Selling Fund"), a series of INVESCO Bond Funds, Inc. ("the Reorganization"). As a result of the Reorganization, shareholders of Selling Fund would receive shares of Buying Fund in exchange for their shares of Selling Fund, and Selling Fund would cease operations.
The Plan requires approval of Selling Fund shareholders and will be submitted to the shareholders for their consideration at a meeting to be held on or around October 21, 2003. If the Plan is approved by shareholders of Selling Fund and certain conditions required by the Plan are satisfied, the transaction is expected to become effective shortly thereafter.
NOTE 11--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 JULY 31, ENDED YEAR ENDED
------------------------------------ JULY 31, DECEMBER 31,
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.70 $ 4.92 $ 7.00 $ 8.07 $ 8.77
-------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.37(a) 0.49(b) 0.68 0.47 0.85
-------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.40 (1.19) (2.03) (1.03) (0.66)
===============================================================================================================================
Total from investment operations 0.77 (0.70) (1.35) (0.56) 0.19
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.37) (0.52) (0.69) (0.49) (0.87)
-------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.03) (0.02) (0.02)
-------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- -- (0.01) -- --
===============================================================================================================================
Total distributions (0.37) (0.52) (0.73) (0.51) (0.89)
===============================================================================================================================
Net asset value, end of period $ 4.10 $ 3.70 $ 4.92 $ 7.00 $ 8.07
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 22.10% (15.36)% (19.98)% (7.12)% 2.21%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $547,092 $417,974 $683,845 $1,056,453 $1,364,502
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.16%(d) 1.07% 0.99% 0.93%(e) 0.92%
===============================================================================================================================
Ratio of net investment income to average net assets 9.64%(d) 11.15%(b) 11.98% 10.79%(e) 10.06%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 101% 59% 55% 23% 79%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have remained the same and the ratio of net investment
income to average net assets would have been 11.22%. In accordance with
the AICPA Audit and Accounting Guide for Investment Companies, per share
and ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $507,624,606.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-17
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
---------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED
------------------------------------- JULY 31, DECEMBER 31,
2003 2002 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.71 $ 4.93 $ 7.01 $ 8.07 $ 8.76
--------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.34(a) 0.45(b) 0.64 0.44 0.79
--------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.41 (1.18) (2.03) (1.03) (0.66)
================================================================================================================================
Total from investment operations 0.75 (0.73) (1.39) (0.59) 0.13
================================================================================================================================
Less distributions:
Dividends from net investment income (0.34) (0.49) (0.65) (0.45) (0.80)
--------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.03) (0.02) (0.02)
--------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- -- (0.01) -- --
================================================================================================================================
Total distributions (0.34) (0.49) (0.69) (0.47) (0.82)
================================================================================================================================
Net asset value, end of period $ 4.12 $ 3.71 $ 4.93 $ 7.01 $ 8.07
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 21.44% (15.99)% (20.60)% (7.49)% 1.46%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $530,239 $469,408 $756,704 $1,206,737 $1,559,864
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 1.91%(d) 1.82% 1.75% 1.69%(e) 1.68%
================================================================================================================================
Ratio of net investment income to average net assets 8.89%(d) 10.40%(b) 11.22% 10.03%(e) 9.30%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(f) 101% 59% 55% 23% 79%
________________________________________________________________________________________________________________________________
================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.46 and the ratio of net investment income to
average net assets would have been 10.47%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $466,399,161.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-18
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED
---------------------------------- JULY 31, DECEMBER 31,
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.70 $ 4.92 $ 6.99 $ 8.05 $ 8.74
-------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.34(a) 0.45(b) 0.65 0.44 0.78
-------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.40 (1.18) (2.03) (1.03) (0.65)
===============================================================================================================================
Total from investment operations 0.74 (0.73) (1.38) (0.59) 0.13
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.34) (0.49) (0.65) (0.45) (0.80)
-------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.03) (0.02) (0.02)
-------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- -- (0.01) -- --
===============================================================================================================================
Total distributions (0.34) (0.49) (0.69) (0.47) (0.82)
===============================================================================================================================
Net asset value, end of period $ 4.10 $ 3.70 $ 4.92 $ 6.99 $ 8.05
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 21.22% (16.02)% (20.52)% (7.51)% 1.46%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $72,086 $50,060 $81,871 $110,297 $129,675
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.91%(d) 1.82% 1.75% 1.69%(e) 1.68%
===============================================================================================================================
Ratio of net investment income to average net assets 8.89%(d) 10.40%(b) 11.22% 10.03%(e) 9.30%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 101% 59% 55% 23% 79%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.46 and the ratio of net investment income to
average net assets would have been 10.47%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $55,605,334.
(e) Annualized
(f) Not annualized for periods less than one year.
FS-19
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Income Fund
and the 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, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Income Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas /s/ ERNST & YOUNG LLP September 10, 2003 |
FS-20
FINANCIALS
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BONDS & NOTES-81.52%
AEROSPACE & DEFENSE-1.31%
Lockheed Martin Corp., Series A, Medium Term
Notes, 8.66%, 11/30/06 $2,200,000 $ 2,531,760
------------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes, 7.25%, 05/15/06 2,700,000 3,024,324
------------------------------------------------------------------------
Raytheon Co., Notes, 6.75%, 08/15/07 2,185,000 2,426,333
------------------------------------------------------------------------
Sr. Unsec. Notes, 6.30%, 03/15/05 1,700,000 1,806,131
========================================================================
9,788,548
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.03%
Russell Corp., Sr. Unsec. Gtd. Global Notes,
9.25%, 05/01/10 90,000 96,750
------------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr. Unsec.
Gtd. Sub. Global Notes, 10.88%, 08/15/11 95,000 106,875
========================================================================
203,625
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.84%
Bank of New York Co., Inc. (The), Sub. Medium
Term Notes, 7.17%, 03/24/28(a) 19,600,000 3,018,400
------------------------------------------------------------------------
Bank of New York Institutional Capital Trust-
Series A, Bonds, 7.78%, 12/01/26 (Acquired
06/12/03; Cost $3,786,854)(b)(c) 3,175,000 3,258,852
========================================================================
6,277,252
========================================================================
AUTO PARTS & EQUIPMENT-0.00%
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%,
03/15/07(c)(d)(e) 1,325,000 0
========================================================================
AUTOMOBILE MANUFACTURERS-0.26%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 1,950,000 1,976,695
========================================================================
BROADCASTING & CABLE TV-10.40%
Adelphia Communications Corp., Series B, Sr.
Unsec. Notes, 9.88%, 03/01/07(c)(d) 140,000 92,750
------------------------------------------------------------------------
Sr. Unsec. Notes, 10.88%, 10/01/10(c)(d) 3,600,000 2,385,000
------------------------------------------------------------------------
British Sky Broadcasting Group PLC (United
Kingdom), Gtd. Yankee Notes, 6.88%,
02/23/09 4,425,000 4,793,779
------------------------------------------------------------------------
Unsec. Gtd. Yankee Notes, 7.30%, 10/15/06 4,450,000 4,810,361
------------------------------------------------------------------------
Clear Channel Communications, Inc.,
Sr. Unsec. Gtd. Notes, 8.00%, 11/01/08 6,635,000 7,472,669
------------------------------------------------------------------------
Sr. Unsec. Notes, 7.88%, 06/15/05 1,115,000 1,223,512
------------------------------------------------------------------------
Comcast Cable Communications, Inc., Unsec.
Unsub. Notes, 8.88%, 05/01/17 2,770,000 3,392,336
------------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Notes, 8.88%, 04/01/07 170,000 179,756
------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06 4,015,000 4,777,850
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Comcast UK Cable Partners Ltd. (Bermuda), Sr.
Unsec. Yankee Deb., 11.20%, 11/15/07 $ 750,000 $ 742,500
------------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 3,800,000 4,403,478
------------------------------------------------------------------------
Cox Communications, Inc.,
Sr. Unsec. Putable Deb., 6.53%, 02/01/08 4,235,000 4,580,915
------------------------------------------------------------------------
Unsec. Notes, 4.63%, 06/01/13 2,535,000 2,369,464
------------------------------------------------------------------------
CSC Holdings Inc.,
Sr. Unsec. Deb., 7.88%, 02/15/18 3,250,000 3,103,750
------------------------------------------------------------------------
Sr. Unsec. Notes,
7.25%, 07/15/08 7,555,000 7,441,675
------------------------------------------------------------------------
7.88%, 12/15/07 6,480,000 6,512,400
------------------------------------------------------------------------
Knology, Inc., Sr. Unsec. PIK Notes, 12.00%,
11/30/09 (Acquired 01/06/98-05/15/03; Cost
$1,281,575)(b) 771,151 663,190
------------------------------------------------------------------------
Pegasus Communications Corp.-Series B, Sr.
Notes, 9.63%, 10/15/05 500,000 460,000
------------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 5,075,000 5,810,114
------------------------------------------------------------------------
TCI Communications, Inc., Medium Term Notes,
8.35%, 02/15/05 2,175,000 2,332,992
------------------------------------------------------------------------
Time Warner Inc., Unsec. Deb., 9.15%,
02/01/23 7,200,000 8,567,640
------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 1,300,000 1,421,290
========================================================================
77,537,421
========================================================================
CASINOS & GAMING-0.56%
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Global Notes, 8.00%, 04/01/12 2,140,000 2,289,800
------------------------------------------------------------------------
Park Place Entertainment Corp., Sr. Unsec.
Global Notes, 7.00%, 04/15/13 1,775,000 1,859,312
========================================================================
4,149,112
========================================================================
COMMODITY CHEMICALS-0.15%
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08 1,040,000 1,045,200
------------------------------------------------------------------------
ISP Chemco Inc.-Series B, Sr. Unsec. Gtd.
Sub. Global Notes, 10.25%, 07/01/11 70,000 78,750
========================================================================
1,123,950
========================================================================
CONSUMER FINANCE-4.20%
Capital One Bank, Notes, 4.88%, 05/15/08 2,750,000 2,718,237
------------------------------------------------------------------------
Series 4, Sr. Global Notes, 6.50%, 07/30/04 675,000 701,156
------------------------------------------------------------------------
Capital One Financial Corp., Sr. Unsec.
Notes,
7.25%, 05/01/06 6,985,000 7,412,831
------------------------------------------------------------------------
8.75%, 02/01/07 1,756,000 1,909,387
------------------------------------------------------------------------
|
FS-21
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
Ford Motor Credit Co., Notes, 7.50%, 06/15/04 $ 725,000 $ 754,747
------------------------------------------------------------------------
Unsec. Global Notes,
6.70%, 07/16/04 875,000 907,909
------------------------------------------------------------------------
6.88%, 02/01/06 2,950,000 3,112,279
------------------------------------------------------------------------
Household Finance Corp., Global Notes, 6.38%,
11/27/12 3,000,000 3,168,300
------------------------------------------------------------------------
Medium Term Notes, 3.38%, 02/21/06 475,000 479,949
------------------------------------------------------------------------
Sr. Unsec. Global Notes,
6.50%, 01/24/06 1,450,000 1,572,554
------------------------------------------------------------------------
8.00%, 05/09/05 3,585,000 3,944,038
------------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$418,532)(b)(c) 400,000 416,548
------------------------------------------------------------------------
Providian Financial Corp., Sr. Unsec. Conv.
Notes, 3.25%, 08/15/05 4,550,000 4,203,062
========================================================================
31,300,997
========================================================================
DISTILLERS & VINTNERS-0.50%
Constellation Brands, Inc.-Series B, Sr. Gtd.
Sub. Notes, 8.13%, 01/15/12 980,000 1,033,900
------------------------------------------------------------------------
Diageo PLC (United Kingdom), Sr. Unsec. Gtd.
Putable Notes, 7.45%, 04/15/05 2,300,000 2,724,396
========================================================================
3,758,296
========================================================================
DIVERSIFIED BANKS-9.94%
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $1,597,032)(b)(c) 1,440,000 1,541,664
------------------------------------------------------------------------
Bank of America Corp.-Series B, Putable Sub.
Medium Term Notes, 8.57%, 11/15/04 2,360,000 2,951,935
------------------------------------------------------------------------
Bank One Corp., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/01/05 2,350,000 2,597,549
------------------------------------------------------------------------
BankAmerica Capital II-Series 2, Jr. Unsec.
Gtd. Sub. Notes, 8.00%, 12/15/26 590,000 616,048
------------------------------------------------------------------------
BankAmerica Institutional Capital-Series B,
Gtd. Bonds, 7.70%, 12/31/26 (Acquired
06/18/03; Cost $3,954,874)(b)(c) 3,355,000 3,468,030
------------------------------------------------------------------------
Barclays O/S Investment Co. B.V.
(Netherlands), Unsec. Gtd. Unsub. Floating
Rate Euro Notes, 1.50%, 11/29/49(f) 5,400,000 4,517,046
------------------------------------------------------------------------
Barnett Capital I, Gtd. Notes, 8.06%,
12/01/26 3,010,000 3,248,783
------------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 3,175,000 3,388,201
------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$6,036,101)(b)(c) 4,770,000 5,148,833
------------------------------------------------------------------------
Citicorp, Jr. Unsec. Sub. Notes, 6.38%,
01/15/06 2,175,000 2,319,529
------------------------------------------------------------------------
Comerica Inc., Sub. Notes, 4.80%, 05/01/15 3,030,000 2,851,260
------------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Global Notes, 5.20%, 05/21/13 2,905,000 2,754,811
------------------------------------------------------------------------
Unsec. Global Notes, 6.88%, 03/15/12 3,105,000 3,315,519
------------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Yankee Notes,
6.38%, 06/15/08 (Acquired 08/30/02; Cost
$912,441)(b)(c) 850,000 905,862
------------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27 2,790,000 2,989,987
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 $1,910,000 $ 2,242,073
------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
1.25%, 06/29/49(f) 2,250,000 1,787,722
------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 3,710,000 4,434,823
------------------------------------------------------------------------
Royal Bank of Scotland Group PLC (United
Kingdom), Sub. Yankee Notes, 4.70%,
07/03/18 4,500,000 4,069,575
------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 1,250,000 1,382,350
------------------------------------------------------------------------
Scotland International Finance No. 2 B.V.
(Netherlands), Sub. Notes, 4.25%, 05/23/13
(Acquired 05/20/03; Cost $4,788,000)(b)(c) 4,800,000 4,459,776
------------------------------------------------------------------------
U.S. Bancorp-Series N, Sr. Medium Term Notes,
2.75%, 03/30/06 785,000 788,438
------------------------------------------------------------------------
U.S. Bank, N.A., Sub. Global Notes, 4.80%,
04/15/15 3,900,000 3,687,372
------------------------------------------------------------------------
Wachovia Corp., Unsec. Putable Sub. Deb.,
7.50%, 04/15/05 4,700,000 5,445,749
------------------------------------------------------------------------
Washington Mutual, Inc., Jr. Unsec. Sub.
Notes, 8.25%, 04/01/10 1,725,000 2,060,944
------------------------------------------------------------------------
Wells Fargo Financial, Inc., Global Notes,
6.13%, 02/15/06 1,025,000 1,118,234
========================================================================
74,092,113
========================================================================
DIVERSIFIED CAPITAL MARKETS-0.49%
Chase Manhattan Corp., Sub. Deb., 7.88%,
07/15/06 250,000 283,255
------------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%, 10/29/49 2,790,000 3,359,746
========================================================================
3,643,001
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.26%
United Rentals North America Inc., Sr. Unsec.
Gtd. Notes, 10.75%, 04/15/08 (Acquired
12/17/02; Cost $1,722,549)(b) 1,775,000 1,917,000
========================================================================
ELECTRIC UTILITIES-5.25%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 975,000 1,069,945
------------------------------------------------------------------------
American Electric Power Co., Inc., Sr. Unsec.
Unsub. Notes, 5.25%, 06/01/15 2,890,000 2,700,821
------------------------------------------------------------------------
CenterPoint Energy, Inc., Bonds, 6.85%,
06/01/15 (Acquired 05/21/03; Cost
$4,670,515)(b) 4,600,000 4,341,066
------------------------------------------------------------------------
Notes, 5.88%, 06/01/08 (Acquired 05/21/03;
Cost $2,566,683)(b) 2,545,000 2,494,329
------------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 1,850,000 1,932,436
------------------------------------------------------------------------
Cleveland Electric Illuminating Co. (The),
First Mortgage Bonds, 6.86%, 10/01/08 2,600,000 2,811,198
------------------------------------------------------------------------
|
FS-22
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
CMS Energy Corp., Sr. Unsec. Unsub. Notes,
8.90%, 07/15/08 $ 180,000 $ 181,800
------------------------------------------------------------------------
Duke Energy Corp., Bonds, 6.45%, 10/15/32 1,570,000 1,514,249
------------------------------------------------------------------------
First Mortgage Bonds, 3.75%, 03/05/08
(Acquired 02/20/03; Cost $1,246,363)(b)(c) 1,250,000 1,247,150
------------------------------------------------------------------------
Hydro-Quebec (Canada)-Series GL, Gtd.
Floating Rate Euro Notes, 1.31%,
09/29/49(f) 3,770,000 3,299,949
------------------------------------------------------------------------
MidAmerican Energy Holdings Co., Sr. Unsec.
Global Notes, 3.50%, 05/15/08 1,325,000 1,284,654
------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08 1,775,000 914,125
------------------------------------------------------------------------
Public Service Co. of Colorado, First
Mortgage Bonds, 4.88%, 03/01/13 (Acquired
03/07/03; Cost $1,897,226)(b)(c) 1,900,000 1,847,769
------------------------------------------------------------------------
Public Service Co. of New Mexico-Series A,
Sr. Unsec. Notes, 7.10%, 08/01/05 2,820,000 3,084,967
------------------------------------------------------------------------
South Carolina Electric & Gas Co., First
Mortgage Bonds, 5.30%, 05/15/33 2,000,000 1,769,280
------------------------------------------------------------------------
Southern Power Co., Bonds, 4.88%, 07/15/15
(Acquired 07/01/03; Cost $4,662,752)(b)(c) 4,675,000 4,305,254
------------------------------------------------------------------------
TXU Corp.-Series B, Sr. Unsec. Notes, 6.38%,
10/01/04(g) 1,400,000 1,472,548
------------------------------------------------------------------------
Wisconsin Public Service Corp., Sr. Sec.
Notes, 4.88%, 12/01/12 1,500,000 1,484,880
------------------------------------------------------------------------
Xcel Energy, Inc., Sr. Notes, 3.40%, 07/01/08
(Acquired 06/19/03; Cost $1,467,163)(b)(c) 1,470,000 1,401,998
========================================================================
39,158,418
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.17%
ASM Lithography Holding N.V. (Netherlands),
Conv. Bonds, 4.25%, 11/30/04 (Acquired
04/05/00; Cost $1,507,813)(b)(c) 1,250,000 1,250,000
========================================================================
ENVIRONMENTAL SERVICES-0.53%
Waste Management, Inc., Unsec. Putable Notes,
7.10%, 08/01/03 3,850,000 3,971,044
========================================================================
GAS UTILITIES-1.74%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 3,750,000 3,906,712
------------------------------------------------------------------------
Kinder Morgan, Inc., Sr. Unsec. Notes, 6.80%,
03/01/08 4,175,000 4,605,651
------------------------------------------------------------------------
MCN Corp., First Mortgage Bonds, 5.70%,
03/15/33 3,070,000 2,847,425
------------------------------------------------------------------------
Tennessee Gas Pipeline Co., Unsec. Deb.,
7.63%, 04/01/37 1,650,000 1,579,875
========================================================================
12,939,663
========================================================================
HEALTH CARE FACILITIES-0.65%
Hanger Orthopedic Group, Inc., Sr. Unsec.
Gtd. Global Notes, 10.38%, 02/15/09 2,670,000 2,923,650
------------------------------------------------------------------------
HCA Inc., Notes, 6.25%, 02/15/13 2,000,000 1,891,600
========================================================================
4,815,250
========================================================================
HOMEBUILDING-1.88%
Beazer Homes USA, Inc., Sr. Unsec. Gtd.
Global Notes, 8.38%, 04/15/12 115,000 123,050
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
HOMEBUILDING-(CONTINUED)
D.R. Horton, Inc., Sr. Unsec. Gtd. Notes,
5.88%, 07/01/13 $2,400,000 $ 2,208,000
------------------------------------------------------------------------
8.00%, 02/01/09 1,855,000 1,984,850
------------------------------------------------------------------------
M.D.C. Holdings, Inc., Sr. Unsec. Gtd. Notes,
5.50%, 05/15/13 4,025,000 3,794,488
------------------------------------------------------------------------
Pulte Homes, Inc., Sr. Unsec. Notes, 6.38%,
05/15/33 4,475,000 4,036,450
------------------------------------------------------------------------
WCI Communities, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 9.13%, 05/01/12 1,785,000 1,892,100
========================================================================
14,038,938
========================================================================
HOTELS, RESORTS & CRUISE LINES-0.12%
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%,
12/01/12 630,000 672,525
------------------------------------------------------------------------
John Q. Hammons Hotels, Inc., Sr. First
Mortgage Global Notes, 8.88%, 05/15/12 60,000 63,150
------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr.
Unsec. Gtd. Sub. Global Notes, 8.88%,
08/15/11 150,000 161,250
========================================================================
896,925
========================================================================
HOUSEWARES & SPECIALTIES-0.80%
American Greetings Corp., Unsec. Putable
Notes, 6.10%, 08/01/08 5,775,000 5,941,031
========================================================================
HYPERMARKETS & SUPER CENTERS-0.22%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 1,450,000 1,611,443
========================================================================
INTEGRATED OIL & GAS-2.89%
Husky Oil Ltd. (Canada),
Sr. Unsec. Yankee Notes, 7.13%, 11/15/06 3,600,000 3,914,424
------------------------------------------------------------------------
Yankee Bonds, 8.90%, 08/15/28 5,240,000 5,898,249
------------------------------------------------------------------------
Occidental Petroleum Corp., Sr. Unsec. Notes,
6.50%, 04/01/05 650,000 693,413
------------------------------------------------------------------------
7.38%, 11/15/08 2,550,000 2,891,980
------------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 1,950,000 2,138,233
------------------------------------------------------------------------
TGT Pipeline LLC, Bonds, 5.20%, 06/01/18
(Acquired 05/22/03; Cost $6,572,998)(b)(c) 6,590,000 6,024,183
========================================================================
21,560,482
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-4.88%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 405,000 453,811
------------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 8.25%, 06/15/05 1,575,000 1,737,414
------------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 10.00%, 03/01/31 3,380,000 4,245,990
------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 1,040,000 1,146,746
------------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 2,580,000 2,916,355
------------------------------------------------------------------------
|
FS-23
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
SBC Communications Capital Corp.-Series D,
Medium Term Notes, 7.11%, 08/14/06 $ 620,000 $ 703,508
------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes, 6.00%,
01/15/07 7,430,000 7,859,305
------------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes, 6.13%,
11/15/08 1,190,000 1,250,619
------------------------------------------------------------------------
Unsec. Gtd. Global Notes,
7.90%, 03/15/05 2,960,000 3,194,876
------------------------------------------------------------------------
8.75%, 03/15/32 1,500,000 1,656,750
------------------------------------------------------------------------
Sprint Corp., Deb., 9.00%, 10/15/19 2,700,000 3,181,734
------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07 1,985,000 2,205,831
------------------------------------------------------------------------
Verizon Global Funding Corp., Sr. Unsec.
Unsub. Global Notes, 7.75%, 12/01/30 2,500,000 2,795,975
------------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 2,950,000 3,066,377
========================================================================
36,415,291
========================================================================
INVESTMENT BANKING & BROKERAGE-0.64%
Bear Stearns Cos. Inc. (The), Sr. Unsec.
Global Notes, 3.00%, 03/30/06 1,400,000 1,410,360
------------------------------------------------------------------------
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03; Cost
$446,236)(b)(c) 400,000 438,640
------------------------------------------------------------------------
Lehman Brothers Inc., Sr. Sub. Deb., 11.63%,
05/15/05 800,000 920,760
------------------------------------------------------------------------
Morgan Stanley, Unsec. Notes, 6.30%, 01/15/06 1,838,000 1,988,201
========================================================================
4,757,961
========================================================================
LIFE & HEALTH INSURANCE-1.52%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $4,545,536)(b) 4,600,000 4,429,294
------------------------------------------------------------------------
John Hancock Global Funding II, Notes, 5.00%,
07/27/07 (Acquired 06/12/02; Cost
$1,998,900)(b)(c) 2,000,000 2,093,660
------------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 1,310,000 1,441,851
------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 1,650,000 1,866,381
------------------------------------------------------------------------
Torchmark Corp., Notes, 7.88%, 05/15/23 1,325,000 1,481,933
========================================================================
11,313,119
========================================================================
METAL & GLASS CONTAINERS-0.45%
Anchor Glass Container Corp., Sr. Sec. Notes,
11.00%, 02/15/13 (Acquired 07/29/03; Cost
$1,429,750)(b)(c) 1,330,000 1,429,750
------------------------------------------------------------------------
Owens-Illinois, Inc., Sr. Unsec. Deb., 7.50%,
05/15/10 2,020,000 1,949,300
========================================================================
3,379,050
========================================================================
MOVIES & ENTERTAINMENT-0.32%
AOL Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06 585,000 629,507
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-(CONTINUED)
Viacom Inc., Sr. Unsec. Gtd. Global Bonds,
5.50%, 05/15/33 $2,000,000 $ 1,771,700
========================================================================
2,401,207
========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.67%
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08 2,370,000 1,765,650
------------------------------------------------------------------------
Westar Energy, Inc., Sec. First Mortgage
Global Bonds, 7.88%, 05/01/07 2,925,000 3,224,813
========================================================================
4,990,463
========================================================================
MUNICIPALITIES-0.41%
Illinois (State of); Unlimited Tax Pension
Series 2003 GO, 5.10%, 06/01/33(h) 3,600,000 3,047,220
========================================================================
OIL & GAS DRILLING-0.78%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05 1,700,000 1,818,133
------------------------------------------------------------------------
Transocean Inc. (Cayman Islands), Unsec.
Global Notes, 6.95%, 04/15/08 3,555,000 3,980,960
========================================================================
5,799,093
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.59%
Burlington Resources Finance Co. (Canada),
Sr. Unsec. Gtd. Bonds, 7.20%, 08/15/31 2,470,000 2,732,067
------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Canada),
Unsec. Yankee Notes, 6.70%, 07/15/11 275,000 302,662
------------------------------------------------------------------------
Chesapeake Energy Corp., Sr. Unsec. Gtd.
Notes, 8.38%, 11/01/08 1,800,000 1,917,000
------------------------------------------------------------------------
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired
04/28/03-05/20/03; Cost $2,511,632)(b)(c) 2,489,821 2,411,342
------------------------------------------------------------------------
Kerr-McGee Corp., Jr. Unsec. Conv. Sub. Deb.,
5.25%, 02/15/10 1,000,000 1,048,750
------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Unsec.
Notes, 6.88%, 12/01/07 3,200,000 3,581,248
------------------------------------------------------------------------
Newfield Exploration Co., Sr. Unsec. Unsub.
Notes, 7.63%, 03/01/11 6,845,000 7,324,150
========================================================================
19,317,219
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.17%
Frontier Oil Corp., Sr. Unsec. Sub. Notes,
11.75%, 11/15/09 390,000 430,950
------------------------------------------------------------------------
GulfTerra Energy Partners, L.P., Series B,
Sr. Unsec. Gtd. Sub. Global Notes, 8.50%,
06/01/11 110,000 116,050
------------------------------------------------------------------------
Sr. Sub. Notes, 8.50%, 06/01/10 (Acquired
03/19/03; Cost $1,775,000)(b)(c) 1,775,000 1,854,875
------------------------------------------------------------------------
Petroleos Mexicanos (Mexico),
Sr. Unsec. Gtd. Yankee Bonds, 9.38%,
12/02/08 3,200,000 3,764,000
------------------------------------------------------------------------
Unsec. Unsub. Gtd. Global Notes, 6.50%,
02/01/05 2,450,000 2,587,813
========================================================================
8,753,688
========================================================================
|
FS-24
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-10.43%
American General Finance Corp.-Series H,
Medium Term Notes, 2.75%, 06/15/08 $2,955,000 $ 2,788,929
------------------------------------------------------------------------
ASIF Global Financing XIX, Sec. Notes, 4.90%,
01/17/13 (Acquired 01/08/03; Cost
$2,043,584)(b)(c) 2,050,000 1,991,862
------------------------------------------------------------------------
ASIF Global Financing XX, Sec. Notes, 2.65%,
01/17/06 (Acquired 01/08/03; Cost
$1,547,551)(b)(c) 1,550,000 1,560,959
------------------------------------------------------------------------
Auburn Hills Trust, Unsec. Gtd. Deb., 12.38%,
05/01/20 4,450,000 6,110,384
------------------------------------------------------------------------
CIT Group Inc.,
Sr. Floating Rate Medium Term Global Notes,
2.35%, 11/25/03(i) 1,400,000 1,402,408
------------------------------------------------------------------------
Sr. Global Notes, 7.13%, 10/15/04 750,000 796,650
------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 1,100,000 1,208,537
------------------------------------------------------------------------
Citigroup Capital II, Jr. Gtd. Sub. Bonds,
7.75%, 12/01/36 5,300,000 5,599,768
------------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$2,782,269)(b)(c) 2,335,000 2,528,315
------------------------------------------------------------------------
FMR Corp., Bonds, 7.57%, 06/15/29 (Acquired
04/10/01-07/25/02; Cost $5,094,923)(b)(c) 4,835,000 5,595,594
------------------------------------------------------------------------
General Electric Capital Corp.-Series A,
Medium Term Global Notes,
5.00%, 06/15/07 1,200,000 1,269,300
------------------------------------------------------------------------
6.00%, 06/15/12 2,390,000 2,510,504
------------------------------------------------------------------------
6.80%, 11/01/05 450,000 493,344
------------------------------------------------------------------------
General Motors Acceptance Corp., Global
Bonds, 8.00%, 11/01/31 2,345,000 2,289,893
------------------------------------------------------------------------
Global Notes,
4.50%, 07/15/06 2,400,000 2,407,152
------------------------------------------------------------------------
5.13%, 05/09/08 4,945,000 4,792,743
------------------------------------------------------------------------
Medium Term Notes,
4.15%, 02/07/05 8,850,000 8,949,563
------------------------------------------------------------------------
6.38%, 01/30/04 2,900,000 2,963,974
------------------------------------------------------------------------
Heller Financial, Inc.-Class A., Unsec.
Global Notes, 7.38%, 11/01/09 1,500,000 1,722,420
------------------------------------------------------------------------
International Lease Finance Corp., Global
Notes, 2.95%, 05/23/06 1,450,000 1,449,638
------------------------------------------------------------------------
Notes, 5.13%, 08/01/04 950,000 983,165
------------------------------------------------------------------------
Lehman Brothers Holdings Inc., Sr. Notes,
8.75%, 03/15/05 700,000 770,644
------------------------------------------------------------------------
NiSource Finance Corp., Bonds, 5.40%,
07/15/14 1,550,000 1,500,757
------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands), Series
1999-2, Class A1, Global Bonds, 9.69%,
08/15/09 2,800,000 3,284,036
------------------------------------------------------------------------
Sr. Unsec. Global Notes, 8.02%, 05/15/07 1,750,000 1,956,063
------------------------------------------------------------------------
Pemex Project Funding Master Trust, Notes,
7.38%, 12/15/14 (Acquired 05/28/03; Cost
$5,270,151)(b)(c) 4,785,000 4,968,792
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Regional Diversified Funding, Sr. Notes,
9.25%, 03/15/30 (Acquired 01/10/03; Cost
$2,231,615)(b)(c) $1,988,890 $ 2,190,723
------------------------------------------------------------------------
Swiss Bank Corp.-NY, Sub. Notes, 7.38%,
06/15/17 1,650,000 1,961,322
------------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 1,525,000 1,693,177
========================================================================
77,740,616
========================================================================
PACKAGED FOODS & MEATS-0.67%
Kraft Foods Inc., Global Notes,
5.25%, 06/01/07 540,000 567,135
------------------------------------------------------------------------
5.63%, 11/01/11 1,850,000 1,870,017
------------------------------------------------------------------------
6.25%, 06/01/12 2,450,000 2,571,594
========================================================================
5,008,746
========================================================================
PHARMACEUTICALS-0.11%
aaiPharma Inc., Sr. Sub. Unsec. Gtd. Global
Notes, 11.00%, 04/01/10 250,000 280,000
------------------------------------------------------------------------
Roche Holding A.G., Conv. Putable LYONS,
0.35%, 01/19/04 (Acquired 03/10/00; Cost
$624,813)(a)(b)(c) 650,000 515,125
========================================================================
795,125
========================================================================
PUBLISHING-0.79%
News America Holdings, Sr. Unsec. Gtd. Deb.,
7.70%, 10/30/25 3,300,000 3,601,620
------------------------------------------------------------------------
News America Inc., Bonds, 6.55%, 03/15/33
(Acquired 03/04/03; Cost $598,734)(b)(c) 600,000 603,252
------------------------------------------------------------------------
Sr. Putable Deb., 6.75%, 01/09/10 1,550,000 1,673,411
========================================================================
5,878,283
========================================================================
REAL ESTATE-3.43%
EOP Operating L.P.,
Sr. Unsec. Notes,
6.50%, 06/15/04 2,705,000 2,797,538
------------------------------------------------------------------------
7.25%, 06/15/28 1,251,000 1,283,376
------------------------------------------------------------------------
Unsec. Gtd. Notes, 6.75%, 02/15/12 750,000 808,253
------------------------------------------------------------------------
Unsec. Notes, 8.38%, 03/15/06 2,000,000 2,258,500
------------------------------------------------------------------------
Health Care REIT, Inc., Sr. Unsec. Notes,
7.50%, 08/15/07 4,300,000 4,633,250
------------------------------------------------------------------------
Host Marriott L.P., Series E, Sr. Sec. Gtd.
Notes, 8.38%, 02/15/06 1,415,000 1,450,375
------------------------------------------------------------------------
Series I, Unsec. Gtd. Global Notes, 9.50%,
01/15/07 2,325,000 2,476,125
------------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
8.75%, 08/15/08 1,155,000 1,241,625
------------------------------------------------------------------------
Simon Property Group, L.P., Notes, 5.45%,
03/15/13 (Acquired 03/13/03; Cost
$6,252,658)(b)(c) 6,265,000 6,121,469
------------------------------------------------------------------------
Spieker Properties, Inc., Unsec. Unsub. Deb.,
7.35%, 12/01/17 2,250,000 2,540,880
========================================================================
25,611,391
========================================================================
|
FS-25
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.41%
Dominion Resources, Inc. Sr. Unsec. Putable
Notes, 5.25%, 08/01/15 $3,225,000 $ 3,096,581
========================================================================
REGIONAL BANKS-1.32%
BB&T Corp., RAPS, Sub. Notes, 6.38%, 06/30/05 2,530,000 2,717,119
------------------------------------------------------------------------
Greater Bay Bancorp, Sr. Notes, 5.25%,
03/31/08 (Acquired 03/19/03; Cost
$494,580)(b)(c) 500,000 492,520
------------------------------------------------------------------------
KeyBank N.A., Sr. Notes, 4.10%, 06/30/05 2,300,000 2,380,040
------------------------------------------------------------------------
Union Planters Bank, N.A., Unsec. Sub. Notes,
6.50%, 03/15/08 3,950,000 4,291,201
========================================================================
9,880,880
========================================================================
SOVEREIGN DEBT-2.67%
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13 2,485,000 2,873,430
------------------------------------------------------------------------
United Mexican States (Mexico), Global Notes,
4.63%, 10/08/08 1,600,000 1,608,400
------------------------------------------------------------------------
6.63%, 03/03/15 4,100,000 4,105,125
------------------------------------------------------------------------
7.50%, 04/08/33 8,360,000 8,224,150
------------------------------------------------------------------------
Global Notes, 9.88%, 02/01/10 420,000 528,150
------------------------------------------------------------------------
Series A, Medium Term Global Notes, 6.38%,
01/16/13 2,550,000 2,572,950
========================================================================
19,912,205
========================================================================
SPECIALTY CHEMICALS-0.01%
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11 50,000 49,250
========================================================================
SPECIALTY STORES-0.21%
CSK Auto, Inc., Sr. Unsec. Gtd. Global Notes,
12.00%, 06/15/06 1,390,000 1,549,850
========================================================================
THRIFTS & MORTGAGE FINANCE-0.29%
Bank United-Series A, Medium Term Notes,
8.00%, 03/15/09 300,000 348,570
------------------------------------------------------------------------
Countrywide Home Loans, Inc., Series J, Gtd.
Medium Term Global Notes, 5.50%, 08/01/06 500,000 534,730
------------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 1,275,000 1,295,566
========================================================================
2,178,866
========================================================================
TOBACCO-0.95%
Altria Group, Inc., Notes,
6.80%, 12/01/03 5,000,000 5,056,250
------------------------------------------------------------------------
7.13%, 10/01/04 2,000,000 2,027,500
========================================================================
7,083,750
========================================================================
TRUCKING-0.76%
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 5,050,000 5,670,342
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.85%
AT&T Wireless Services Inc., Sr. Unsec.
Unsub. Global Notes, 8.75%, 03/01/31 2,385,000 2,767,363
------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
Cingular Wireless LLC, Sr. Unsec. Global
Notes, 5.63%, 12/15/06 $ 425,000 $ 463,050
------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Conv. Notes,
5.25%, 01/15/10 (Acquired 02/15/00; Cost
$1,055,000)(b)(c) 1,000,000 918,750
------------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 9,240,000 11,157,300
------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 4,853,000 5,908,528
========================================================================
21,214,991
========================================================================
Total U.S. Dollar Denominated Bonds & Notes
(Cost $614,037,248) 607,796,391
========================================================================
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-8.57%(J)
AUSTRALIA-0.49%
New South Wales Treasury Corp. (Sovereign
Debt), Gtd. Euro Bonds, 8.00%,
03/01/08 AUD 5,000,000 3,612,148
========================================================================
CANADA-1.15%
Canadian Government (Sovereign Debt), Bonds,
5.75%, 06/01/29 CAD 300,000 222,448
------------------------------------------------------------------------
6.00%, 06/01/08 CAD 5,520,000 4,256,916
------------------------------------------------------------------------
9.00%, 03/01/11 CAD 500,000 453,004
------------------------------------------------------------------------
Gtd. Bonds,
7.00%, 12/01/06 CAD 300,000 236,497
------------------------------------------------------------------------
7.25%, 06/01/07 CAD 900,000 719,795
------------------------------------------------------------------------
Rogers Cablesystems Ltd. (Broadcasting &
Cable TV), Sr. Sec. Second Priority Deb.,
9.65%, 01/15/14 CAD 3,600,000 2,707,330
========================================================================
8,595,990
========================================================================
GERMANY-3.77%
Bundesrepublik Deutschland (Sovereign Debt)-
Series 2002, Euro Bonds, 5.00%,
07/04/12 EUR 6,550,000 7,849,765
------------------------------------------------------------------------
Eurohypo A.G. (Thrifts & Mortgage Finance)-
Series 2212, Sec. Euro Bonds, 4.50%,
01/21/13 EUR 6,000,000 6,879,664
------------------------------------------------------------------------
Kreditanstalt fuer Wiederaufbau (Diversified
Banks), Sr. Unsec. Gtd. Unsub. Global
Notes, 3.50%, 11/15/05 EUR 5,000,000 5,720,860
------------------------------------------------------------------------
Landesbank Baden-Wuerttemberg (Diversified
Banks), Sec. Euro Bonds, 3.25%,
05/08/08 EUR 6,850,000 7,622,623
========================================================================
28,072,912
========================================================================
LUXEMBOURG-1.07%
International Bank for Reconstruction &
Development (Diversified Banks)-Series E,
Sr. Unsec. Medium Term Global Notes, 5.76%,
08/20/07(a) NZD 17,100,000 7,983,020
========================================================================
|
FS-26
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
NETHERLANDS-0.45%
Koninklijke Numico N.V. (Packaged Foods &
Meats), Conv. Sub. Euro Bonds, 1.50%,
09/22/04 EUR 2,750,000 $ 3,362,360
========================================================================
UNITED KINGDOM-1.30%
Sutton Bridge Financing Ltd. (Electric
Utilities), Gtd. Euro Bonds, 8.63%,
06/30/22 GBP 2,331,554 3,847,839
------------------------------------------------------------------------
United Kingdom (Treasury of) (Sovereign
Debt), Bonds, 7.25%, 12/07/07 GBP 3,250,000 5,876,359
========================================================================
9,724,198
========================================================================
UNITED STATES-0.34%
Federal National Mortgage Association
(Sovereign Debt), Sr. Unsub. Global Notes,
6.38%, 08/15/07 AUD 3,785,000 2,554,260
========================================================================
Total Non-U.S. Dollar Denominated Bonds &
Notes (Cost $58,019,560) 63,904,888
========================================================================
ASSET-BACKED SECURITIES-1.90%
OTHER DIVERSIFIED FINANCIAL SERVICES-1.90%
Citicorp Lease-Series 1999-1,
Class A1, Pass Through Ctfs., 7.22%,
06/15/05 (Acquired 05/08/02-10/03/02; Cost
$2,901,282)(b)(c) $2,740,362 2,956,385
------------------------------------------------------------------------
Class A2, Pass Through Ctfs., 8.04%,
12/15/19 (Acquired 06/01/00-01/25/01; Cost
$5,212,171)(b)(c) 5,200,000 5,767,164
------------------------------------------------------------------------
First Industrial Realty Trust, Inc., Putable
Pass Through Ctfs., 7.38%, 05/15/04
(Acquired 02/06/03; Cost $1,572,750)(b)(c) 1,500,000 1,554,165
------------------------------------------------------------------------
National Rural Utilities Cooperative Finance
Corp., Sr. Sec. Global Collateral Trust,
6.00%, 05/15/06 1,800,000 1,956,366
------------------------------------------------------------------------
Yorkshire Power (Cayman Islands)-Series
2000-1, Pass Through Ctfs., 8.25%, 02/15/05
(Acquired 06/19/03; Cost $1,973,425)(b)(c) 1,810,000 1,950,836
========================================================================
Total Asset-Backed Securities (Cost
$13,413,030) 14,184,916
========================================================================
SHARES
STOCKS & OTHER EQUITY INTERESTS-0.83%
BROADCASTING & CABLE TV-0.02%
Knology Inc., Series D, Conv. Pfd. (Acquired
01/06/98; Cost $0)(b)(c)(k) 80,790 121,185
------------------------------------------------------------------------
Wts., expiring 10/22/07 (Acquired 03/12/98;
Cost $0)(b)(c)(e)(l) 4,800 0
------------------------------------------------------------------------
ONO Finance PLC (United Kingdom)-Wts.,
expiring 01/05/09 (Acquired 07/30/99; Cost
$0)(b)(c)(e)(l) 300 0
========================================================================
121,185
========================================================================
|
------------------------------------------------------------------------
MARKET
SHARES VALUE
ELECTRIC UTILITIES-0.07%
CenterPoint Energy, Inc., Conv. ZENS 17,000 $ 540,753
========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.01%
Monsanto Co. 4,334 99,682
========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc., Series B, Pfd.
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(b)(c)(l) 3,845 39
------------------------------------------------------------------------
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(b)(c)(l) 3,845 38
========================================================================
77
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(b)(c)(l) 2,735 27
========================================================================
PHARMACEUTICALS-0.16%
Pfizer Inc. 35,569 1,186,582
========================================================================
RAILROADS-0.01%
RailAmerica Inc.-Wts., expiring 08/15/10
(Acquired 10/01/00-10/05/00; Cost
$0)(b)(c)(l) 2,000 36,500
========================================================================
REAL ESTATE-0.56%
First Republic Capital Corp.-Series A, Pfd.
(Acquired 05/26/99; Cost $3,900,000)(b)(c) 3,900 4,192,500
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.00%
IWO Holdings Inc.-Wts., expiring 01/15/11
(Acquired 08/24/01; Cost $0)(b)(c)(l) 400 4
========================================================================
Total Stocks & Other Equity Interests
(Cost $6,621,346) 6,177,310
========================================================================
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITIES-4.32%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-1.27%
Pass Through Ctfs.,
8.50%, 03/01/10 $ 213,445 230,965
------------------------------------------------------------------------
7.00%, 06/01/15 to 06/01/32 281,020 296,465
------------------------------------------------------------------------
6.50%, 04/01/16 to 08/01/32 3,231,726 3,330,184
------------------------------------------------------------------------
6.00%, 04/01/17 to 10/01/32 3,444,325 3,511,489
------------------------------------------------------------------------
7.50%, 09/01/29 to 06/01/30 1,974,792 2,099,700
========================================================================
9,468,803
========================================================================
|
FS-27
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-2.59%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 $1,120,072 $ 1,187,870
------------------------------------------------------------------------
7.00%, 02/01/16 to 09/01/32 3,106,828 3,264,054
------------------------------------------------------------------------
6.50%, 09/01/16 to 11/01/31 3,090,444 3,192,284
------------------------------------------------------------------------
6.00%, 07/01/17 to 03/01/33 2,290,779 2,325,000
------------------------------------------------------------------------
5.50%, 06/01/18 1,287,734 1,312,960
------------------------------------------------------------------------
8.50%, 10/01/28 299,064 325,974
------------------------------------------------------------------------
8.00%, 10/01/30 to 04/01/32 2,213,183 2,378,210
------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 08/01/18(m) 2,216,600 2,217,532
------------------------------------------------------------------------
5.50%, 08/01/33(m) 3,160,000 3,124,920
========================================================================
19,328,804
========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.46%
Pass Through Ctfs.,
7.50%, 06/15/23 to 01/15/32 921,172 982,814
------------------------------------------------------------------------
8.50%, 11/15/24 308,480 336,363
------------------------------------------------------------------------
8.00%, 09/20/26 263,584 283,795
------------------------------------------------------------------------
6.50%, 03/15/31 to 07/15/32 964,870 998,475
------------------------------------------------------------------------
7.00%, 04/15/31 to 08/15/31 213,476 224,104
------------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32 555,998 566,678
========================================================================
3,392,229
========================================================================
Total U.S. Government Agency Securities
(Cost $32,347,997) 32,189,836
========================================================================
|
------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY SECURITIES-1.88%
U.S. TREASURY NOTES-1.55%
2.13%, 10/31/04 $5,500,000 $ 5,552,415
------------------------------------------------------------------------
1.50%, 07/31/05 6,000,000 5,965,320
========================================================================
11,517,735
========================================================================
U.S. TREASURY BONDS-0.33%
5.38%, 02/15/31 2,500,000 2,488,275
========================================================================
Total U.S. Treasury Securities (Cost
$14,112,245) 14,006,010
========================================================================
SHARES
MONEY MARKET FUNDS-0.40%
STIC Liquid Assets Portfolio(n) 1,498,983 1,498,983
------------------------------------------------------------------------
STIC Prime Portfolio(n) 1,498,983 1,498,983
========================================================================
Total Money Market Funds (Cost
$2,997,966) 2,997,966
========================================================================
TOTAL INVESTMENTS-99.42% (Cost $741,549,392) 741,257,317
========================================================================
OTHER ASSETS LESS LIABILITIES-0.58% 4,332,677
========================================================================
NET ASSETS-100.00% $745,589,994
________________________________________________________________________
========================================================================
|
Investment Abbreviations:
AUD - Australian Dollar CAD - Canadian Dollar Conv. - Convertible Ctfs. - Certificates Deb. - Debentures Disc. - Discounted EUR - Euro GBP - British Pound Sterling GO - General Obligation Bonds Gtd. - Guaranteed Jr. - Junior LYONS - Liquid Yield Option Notes NZD - New Zealand Dollar Pfd. - Preferred PIK - Payment in Kind RAPS - Redeemable and Putable Securities REIT - Real Estate Investment Trust Sec. - Secured Sr. - Senior Sub. - Subordinated TBA - To Be Announced Unsec. - Unsecured Unsub. - Unsubordinated Wts. - Warrants ZENS - Zero-exchange Sub Notes |
Notes to Schedule of Investments:
(a) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 07/31/03 was $101,415,269,
which represented 13.60% of the Fund's net assets. Unless otherwise
indicated, these securities are considered to be illiquid.
(c) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 07/31/03 was $90,048,140, which
represented 12.08% of the Fund's net assets.
(d) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(e) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(f) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 07/31/03.
(g) Principal and interest are secured by bond insurance provided by MBIA
Insurance Corp.
(h) Interest on this security is taxable income to the Fund.
(i) Interest rates are redetermined monthly. Rates shown are rates in effect on
07/31/03.
(j) Foreign denominated security. Par value is denominated in currency
indicated.
(k) Non-income producing security.
(l) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(m) Security purchased on forward commitment basis. These securities are subject
to dollar roll transactions. See Note 1 Section C.
(n) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-28
ASSETS:
Investments, at market value (cost
$738,551,426) $ 738,259,351
------------------------------------------------------------
Investments in affiliated money market funds
(cost $2,997,966) 2,997,966
------------------------------------------------------------
Foreign currencies, at value (cost $338,443) 345,081
------------------------------------------------------------
Receivables for:
Investments sold 17,299,099
------------------------------------------------------------
Fund shares sold 2,441,060
------------------------------------------------------------
Dividends and interest 11,494,223
------------------------------------------------------------
Foreign currency contracts closed 1,509,280
------------------------------------------------------------
Investments matured (Note 7) 137,800
------------------------------------------------------------
Investment for deferred compensation plan 103,996
------------------------------------------------------------
Other assets 46,701
============================================================
Total assets 774,634,557
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 24,799,056
------------------------------------------------------------
Fund shares reacquired 2,579,360
------------------------------------------------------------
Dividends 804,994
------------------------------------------------------------
Deferred compensation plan 103,996
------------------------------------------------------------
Accrued distribution fees 363,113
------------------------------------------------------------
Accrued trustees' fees 1,225
------------------------------------------------------------
Accrued transfer agent fees 246,690
------------------------------------------------------------
Accrued operating expenses 146,129
============================================================
Total liabilities 29,044,563
============================================================
Net assets applicable to shares outstanding $ 745,589,994
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 940,493,070
------------------------------------------------------------
Undistributed net investment income 3,092,511
------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
foreign currency contracts and futures
contracts (197,713,235)
------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities, foreign currencies
and foreign currency contracts (282,352)
============================================================
$ 745,589,994
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 446,525,763
____________________________________________________________
============================================================
Class B $ 256,642,461
____________________________________________________________
============================================================
Class C $ 41,912,287
____________________________________________________________
============================================================
Class R $ 509,483
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 68,548,706
____________________________________________________________
============================================================
Class B 39,346,917
____________________________________________________________
============================================================
Class C 6,442,593
____________________________________________________________
============================================================
Class R 78,320
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 6.51
------------------------------------------------------------
Offering price per share:
(Net asset value of $6.51 divided by
95.25%) $ 6.83
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 6.52
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 6.51
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 6.51
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-29
INVESTMENT INCOME:
Interest $34,399,492
-------------------------------------------------------------------------
Dividends 333,640
-------------------------------------------------------------------------
Dividends from affiliated money market funds 109,564
=========================================================================
Total investment income 34,842,696
=========================================================================
EXPENSES:
Advisory fees 2,412,877
-------------------------------------------------------------------------
Administrative services fees 152,317
-------------------------------------------------------------------------
Custodian fees 99,220
-------------------------------------------------------------------------
Distribution fees -- Class A 753,747
-------------------------------------------------------------------------
Distribution fees -- Class B 2,214,039
-------------------------------------------------------------------------
Distribution fees -- Class C 375,518
-------------------------------------------------------------------------
Distribution fees -- Class R 1,837
-------------------------------------------------------------------------
Transfer agent fees 1,410,369
-------------------------------------------------------------------------
Trustees' fees 12,387
-------------------------------------------------------------------------
Other 244,628
=========================================================================
Total expenses 7,676,939
=========================================================================
Less: Fees waived and expenses paid indirectly (14,230)
=========================================================================
Net expenses 7,662,709
=========================================================================
Net investment income 27,179,987
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY CONTRACTS
AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 9,163,693
-------------------------------------------------------------------------
Foreign currencies (527,317)
-------------------------------------------------------------------------
Foreign currency contracts 1,503,330
-------------------------------------------------------------------------
Futures contracts 939,065
=========================================================================
11,078,771
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 7,903,631
-------------------------------------------------------------------------
Foreign currencies (119,814)
-------------------------------------------------------------------------
Foreign currency contracts (302,498)
=========================================================================
7,481,319
=========================================================================
Net gain from investment securities, foreign currencies,
foreign currency contracts and futures contracts 18,560,090
=========================================================================
Net increase in net assets resulting from operations $45,740,077
_________________________________________________________________________
=========================================================================
|
See Notes to Financial Statements.
FS-30
2003 2002
------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 27,179,987 $ 37,242,079
------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts and
futures contracts 11,078,771 (55,544,970)
------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and foreign
currency contracts 7,481,319 (7,100,770)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 45,740,077 (25,403,661)
==========================================================================================
Distributions to shareholders from net investment income:
Class A (17,704,359) (20,406,662)
------------------------------------------------------------------------------------------
Class B (11,405,320) (13,291,002)
------------------------------------------------------------------------------------------
Class C (1,943,514) (2,453,982)
------------------------------------------------------------------------------------------
Class R (20,018) (74)
==========================================================================================
Total distributions from net investment income (31,073,211) (36,151,720)
==========================================================================================
Return of Capital:
Class A -- (994,212)
------------------------------------------------------------------------------------------
Class B -- (736,149)
------------------------------------------------------------------------------------------
Class C -- (134,853)
------------------------------------------------------------------------------------------
Class R -- (32)
==========================================================================================
Total return of capital -- (1,865,246)
==========================================================================================
Decrease in net assets resulting from distributions (31,073,211) (38,016,966)
==========================================================================================
Share transactions-net:
Class A 159,552,030 (31,273,225)
------------------------------------------------------------------------------------------
Class B 31,760,268 4,755,275
------------------------------------------------------------------------------------------
Class C 2,667,067 (1,919,177)
------------------------------------------------------------------------------------------
Class R 489,222 10,118
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 194,468,587 (28,427,009)
==========================================================================================
Net increase (decrease) in net assets 209,135,453 (91,847,636)
==========================================================================================
NET ASSETS:
Beginning of year 536,454,541 628,302,177
==========================================================================================
End of year $745,589,994 $536,454,541
__________________________________________________________________________________________
==========================================================================================
|
See Notes to Financial Statements.
FS-31
NOTES TO FINANCIAL STATEMENTS
July 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Income Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income consistent with reasonable concern for safety of principal. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar security (same type, coupon and maturity) from the institution at a later date at an agreed upon price. The mortgage-backed securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on securities sold. Proceeds of the sale will be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield
FS-32
on the security sold. The Fund will segregate assets to cover its obligations under dollar roll transactions. The difference between the selling price and the future repurchase price is recorded as an adjustment to interest income.
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks also include to varying degrees, the risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities.
I. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $200 million of the Fund's average daily net assets, plus 0.40% on the next $300 million of the Fund's average daily net assets, plus 0.35% on the next $500 million of the Fund's average daily net assets, plus 0.30% on the Fund's average daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended July 31, 2003, AIM waived fees of $1,545.
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, 2003, AIM was paid $152,317 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, 2003, AFS retained $717,548 for such services.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C, Class R and Investor Class shares of the Fund. Investor Class shares have not commenced operations. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to
FS-33
the Fund's Class A, Class B, Class C, Class R and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, the Fund may pay a service fee up to 0.25% of the average daily net assets of the Class A, Class B, Class C, Class R or Investor Class shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the Class A, Class B, Class C and Class R shares paid $753,747, $2,214,039, $375,518 and $1,837, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")(collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During year ended July 31, 2003, AIM Distributors retained $75,260 in front-end sales commissions from the sale of Class A shares and $4,561, $6,010, $9,538 and $0 for Class A, Class B, Class C and Class R shares, respectively, from CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $10,155 and reductions in custodian fees of $2,530 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $12,685.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid legal fees of $3,778 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 was as follows:
2003 2002
--------------------------------------------------------------
Distributions paid from ordinary
income $31,073,211 $36,151,720
--------------------------------------------------------------
Return of capital -- 1,865,246
==============================================================
Total distributions $31,073,211 $38,016,966
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 5,852,766 ------------------------------------------------------------ Unrealized appreciation (depreciation) -- investments (5,464,175) ------------------------------------------------------------ Temporary book/tax differences (151,712) ------------------------------------------------------------ Capital loss carryforward (195,139,955) ------------------------------------------------------------ Shares of beneficial interest 940,493,070 ============================================================ Total net assets $ 745,589,994 ____________________________________________________________ ============================================================ |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales, the treatment of bond premium amortization and the treatment of defaulted bonds. The tax-basis unrealized appreciation (depreciation) on investments amount includes appreciation on foreign currencies of $9,723.
FS-34
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2005 $ 7,885,742
----------------------------------------------------------
July 31, 2006 16,650,825
----------------------------------------------------------
July 31, 2007 21,165,364
----------------------------------------------------------
July 31, 2008 37,943,008
----------------------------------------------------------
July 31, 2009 20,424,947
----------------------------------------------------------
July 31, 2010 50,580,143
----------------------------------------------------------
July 31, 2011 40,489,926
==========================================================
Total capital loss carryforward $195,139,955
__________________________________________________________
==========================================================
|
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $782,301,077 and $821,120,073, respectively.
Receivable for investments matured represents the estimated proceeds to the fund by Candescent Technologies Corp. which is in default with respect to the principal payments on $2,600,000 par value, Senior Unsecured Guaranteed Subordinated Debentures, 8.00%, which was due May 1, 2003. This estimate was determined in accordance with the fair valuation procedures authorized by the Board of Trustees.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $ 17,405,339
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (22,879,237)
===========================================================
Net unrealized appreciation (depreciation) of
investment securities $ (5,473,898)
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $746,731,215.
|
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency transactions, bond premium amortization, paydown gains (losses) and capital loss carryforwards of merger transactions, on July 31, 2003, undistributed net investment income was increased by $8,520,322, undistributed net realized gains decreased by $71,251,674 and shares of beneficial interest increased by $62,731,352. This reclassification had no effect on the net assets of the Fund.
FS-35
NOTE 9--SHARE INFORMATION
The Fund currently consists of five different classes of shares: Class A shares, Class B shares, Class C shares, Class R and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares and Class R shares are subject to CDSC. Class R shares and Investor Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase. Investor Class shares have not commenced operations.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 34,974,482 $ 227,557,387 19,535,050 $ 129,985,397
--------------------------------------------------------------------------------------------------------------------------
Class B 6,568,344 42,470,135 10,824,126 72,286,011
--------------------------------------------------------------------------------------------------------------------------
Class C 2,457,437 15,917,589 2,329,978 15,549,708
--------------------------------------------------------------------------------------------------------------------------
Class R* 221,537 1,433,022 1,531 10,012
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 2,135,445 13,818,002 2,547,835 16,937,345
--------------------------------------------------------------------------------------------------------------------------
Class B 1,263,215 8,179,269 1,516,843 10,088,147
--------------------------------------------------------------------------------------------------------------------------
Class C 228,277 1,474,885 294,792 1,957,101
--------------------------------------------------------------------------------------------------------------------------
Class R* 3,045 19,965 17 106
==========================================================================================================================
Issued in connection with acquisitions:**
Class A 27,342,473 187,057,737 -- --
--------------------------------------------------------------------------------------------------------------------------
Class B 8,116,484 55,594,742 -- --
--------------------------------------------------------------------------------------------------------------------------
Class C 1,021,582 6,979,000 -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:***
Class A 1,200,781 7,816,358 -- --
--------------------------------------------------------------------------------------------------------------------------
Class B (1,198,212) (7,816,358) -- --
==========================================================================================================================
Reacquired:
Class A (42,574,877) (276,697,454) (26,805,775) (178,195,967)
--------------------------------------------------------------------------------------------------------------------------
Class B (10,303,838) (66,667,520) (11,702,242) (77,618,883)
--------------------------------------------------------------------------------------------------------------------------
Class C (3,361,539) (21,704,407) (2,930,754) (19,425,986)
--------------------------------------------------------------------------------------------------------------------------
Class R* (147,810) (963,765) -- --
==========================================================================================================================
27,946,826 $ 194,468,587 (4,388,599) $ (28,427,009)
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
* Class R shares commenced sales on June 3, 2002.
** As of the open of business on June 23, 2003, the Fund acquired all the net
assets of AIM Global Income Fund and AIM Strategic Income Fund pursuant to a
plan of reorganization approved by AIM Global Income Fund and AIM Strategic
Income Fund shareholders on June 4, 2003. The acquisition was accomplished
by a tax-free exchange of 36,480,538 shares of the Fund for 15,981,096
shares of AIM Global Income Fund outstanding and 12,468,897 shares of AIM
Strategic Fund outstanding as of the close of business on June 20, 2003. AIM
Global Income Fund's net assets at that date of $146,381,616 including
$12,323,096 of unrealized appreciation and AIM Strategic Income Fund's net
assets at that date of $103,249,865 including $4,131,358 of unrealized
appreciation, were combined with those of the Fund. The aggregate net assets
of the Fund immediately before the acquisition were $551,945,514. Included
in net assets of the acquiring fund is undistributed net investment income
(loss) of $(886,025) and undistributed net realized gain (loss) of
$(30,590,083) for Global Income and undistributed net investment income
(loss) of $(55,417) and undistributed net realized gain (loss) of
$(133,270,496) for Strategic Income.
*** Prior to the year ended July 31, 2003, conversion of Class B shares to Class
A shares were included in Class A shares sold and Class B shares reacquired.
NOTE 10--SIGNIFICANT EVENT
The Board of Trustees of AIM Investment Securities Funds ("Buyer") unanimously approved, on June 11, 2003, an Agreement and Plan of Reorganization (the "Plan") pursuant to which AIM Income Fund ("Buying Fund"), a series of Buyer, would acquire all of the assets of INVESCO Select Income Fund ("Selling Fund"), a series of INVESCO Bond Funds, Inc. (the "Reorganization"). As a result of the Reorganization, shareholders of Selling Fund would receive shares of Buying Fund in exchange for their shares of Selling Fund, and Selling Fund would cease operations.
The Plan requires approval of Selling Fund shareholders and will be submitted to the shareholders for their consideration at a meeting to be held on or around October 21, 2003. If the Plan is approved by shareholders of Selling Fund and certain conditions required by the Plan are satisfied, the transaction is expected to become effective shortly thereafter.
FS-36
NOTE 11--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
YEAR ENDED JULY 31, ENDED DECEMBER 31,
---------------------------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.20 $ 6.91 $ 7.14 $ 7.59 $ 8.38 $ 8.57
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.34(a) 0.44(a)(b) 0.53 0.34 0.57 0.57
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.35 (0.70) (0.23) (0.47) (0.81) (0.16)
=================================================================================================================================
Total from investment operations 0.69 (0.26) 0.30 (0.13) (0.24) 0.41
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.38) (0.43) (0.51) (0.25) (0.55) (0.55)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.05)
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.02) (0.02) (0.07) -- --
=================================================================================================================================
Total distributions (0.38) (0.45) (0.53) (0.32) (0.55) (0.60)
=================================================================================================================================
Net asset value, end of period $ 6.51 $ 6.20 $ 6.91 $ 7.14 $ 7.59 $ 8.38
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 11.36% (4.05)% 4.42% (1.70)% (2.92)% 4.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $446,526 $281,966 $346,967 $346,482 $393,414 $399,701
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.02%(d) 0.96% 0.95% 0.97%(e) 0.91% 0.91%
=================================================================================================================================
Ratio of net investment income to average net
assets 5.19%(d) 6.57%(b) 7.57% 8.03%(e) 7.11% 6.69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 141% 70% 83% 43% 78% 41%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.45 and the ratio of net investment income to average
net assets would have been 6.76%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $301,498,691.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-37
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
--------------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED
YEAR ENDED JULY 31, ENDED DECEMBER 31,
---------------------------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.21 $ 6.92 $ 7.14 $ 7.58 $ 8.37 $ 8.55
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.29(a) 0.39(a)(b) 0.48 0.31 0.50 0.50
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.35 (0.70) (0.23) (0.47) (0.80) (0.15)
=================================================================================================================================
Total from investment operations 0.64 (0.31) 0.25 (0.16) (0.30) 0.35
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.33) (0.38) (0.45) (0.21) (0.49) (0.48)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.05)
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.02) (0.02) (0.07) -- --
=================================================================================================================================
Total distributions (0.33) (0.40) (0.47) (0.28) (0.49) (0.53)
=================================================================================================================================
Net asset value, end of period $ 6.52 $ 6.21 $ 6.92 $ 7.14 $ 7.58 $ 8.37
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 10.53% (4.76)% 3.67% (2.09)% (3.72)% 4.20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $256,642 $216,710 $237,118 $213,926 $244,713 $219,033
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.77%(d) 1.71% 1.71% 1.73%(e) 1.66% 1.66%
=================================================================================================================================
Ratio of net investment income to average net
assets 4.44%(d) 5.82%(b) 6.81% 7.28%(e) 6.36% 5.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 141% 70% 83% 43% 78% 41%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.40 and the ratio of net investment income to average
net assets would have been 6.01%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $221,403,857.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-38
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
---------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED
YEAR ENDED JULY 31, ENDED DECEMBER 31,
------------------------------------- JULY 31, ------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.19 $ 6.91 $ 7.13 $ 7.57 $ 8.36 $ 8.54
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.29(a) 0.39(a)(b) 0.48 0.31 0.50 0.50
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.36 (0.71) (0.23) (0.47) (0.80) (0.15)
=================================================================================================================================
Total from investment operations 0.65 (0.32) 0.25 (0.16) (0.30) 0.35
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.33) (0.38) (0.45) (0.21) (0.49) (0.48)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.05)
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.02) (0.02) (0.07) -- --
=================================================================================================================================
Total distributions (0.33) (0.40) (0.47) (0.28) (0.49) (0.53)
=================================================================================================================================
Net asset value, end of period $ 6.51 $ 6.19 $ 6.91 $ 7.13 $ 7.57 $ 8.36
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 10.73% (4.92)% 3.68% (2.09)% (3.71)% 4.21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $41,912 $37,769 $44,216 $26,821 $28,202 $19,332
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.77%(d) 1.71% 1.71% 1.73%(e) 1.66% 1.66%
=================================================================================================================================
Ratio of net investment income to average net assets 4.44%(d) 5.82%(b) 6.81% 7.28%(e) 6.36% 5.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 141% 70% 83% 43% 78% 41%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.40 and the ratio of net investment income to average
net assets would have been 6.01%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $37,551,837.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-39
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS R
------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
JULY 31, JULY 31,
2003 2002
--------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.20 $ 6.53
--------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.32(a) 0.06(a)(b)
--------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.35 (0.32)
============================================================================================
Total from investment operations 0.67 (0.26)
============================================================================================
Less distributions:
Dividends from net investment income (0.36) (0.05)
--------------------------------------------------------------------------------------------
Return of capital -- (0.02)
============================================================================================
Total distributions (0.36) (0.07)
============================================================================================
Net asset value, end of period $ 6.51 $ 6.20
____________________________________________________________________________________________
============================================================================================
Total return(c) 11.08% (4.01)%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 509 $ 10
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets 1.27%(d) 1.21%(e)
============================================================================================
Ratio of net investment income to average net assets 4.94%(d) 6.32%(b)(e)
____________________________________________________________________________________________
============================================================================================
Portfolio turnover rate(f) 141% 70%
____________________________________________________________________________________________
============================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.07 and the ratio of net investment income to average
net assets would have been 6.51%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are based on average daily net assets of $367,505.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-40
To the Shareholders of AIM Intermediate Government Fund and the 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, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Intermediate Government Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas /s/ ERNST & YOUNG LLP September 10, 2003 |
FS-41
FINANCIALS
PRINCIPAL MARKET
AMOUNT VALUE
U.S. GOVERNMENT AGENCY SECURITIES-86.91%
FEDERAL FARM CREDIT BANK-2.12%
Bonds,
6.00%, 06/11/08 to 03/07/11 $ 19,000,000 $ 20,777,540
----------------------------------------------------------------------------
Medium Term Notes,
5.75%, 12/07/28 10,000,000 9,676,700
============================================================================
30,454,240
============================================================================
FEDERAL HOME LOAN BANK-2.06%
Unsec. Bonds,
7.36%, 07/01/04 2,800,000 2,957,976
----------------------------------------------------------------------------
6.50%, 11/15/05 2,000,000 2,191,720
----------------------------------------------------------------------------
7.25%, 02/15/07 5,500,000 6,278,525
----------------------------------------------------------------------------
4.88%, 05/15/07 16,000,000 16,981,600
----------------------------------------------------------------------------
5.48%, 01/08/09 1,000,000 1,072,940
============================================================================
29,482,761
============================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-16.64%
Pass Through Ctfs.,
9.00%, 12/01/05 to 04/01/25 804,030 879,254
----------------------------------------------------------------------------
8.00%, 07/01/06 to 11/17/30 5,257,666 5,754,578
----------------------------------------------------------------------------
8.50%, 07/01/07 to 10/01/29 6,028,993 6,519,869
----------------------------------------------------------------------------
7.00%, 11/01/10 to 02/01/33 28,799,681 30,360,797
----------------------------------------------------------------------------
6.50%, 02/01/11 to 09/01/32 48,620,132 50,417,538
----------------------------------------------------------------------------
10.00%, 11/01/11 to 04/01/20 2,289,274 2,562,603
----------------------------------------------------------------------------
12.00%, 02/01/13 3,801 4,307
----------------------------------------------------------------------------
6.00%, 06/01/17 to 05/01/33 29,321,745 29,626,779
----------------------------------------------------------------------------
5.00%, 05/01/18 37,185,183 37,202,615
----------------------------------------------------------------------------
10.50%, 08/01/19 to 01/01/21 422,311 473,935
----------------------------------------------------------------------------
9.50%, 11/01/20 to 04/01/25 1,978,404 2,193,352
----------------------------------------------------------------------------
7.50%, 09/01/29 to 09/01/30 33,752,168 35,887,003
----------------------------------------------------------------------------
Unsec. Global Notes,
5.00%, 07/30/09 31,200,000 31,795,608
----------------------------------------------------------------------------
Unsec. Medium Term Notes,
6.00%, 06/27/17 5,000,000 5,082,650
============================================================================
238,760,888
============================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-48.57%
Pass Through Ctfs.,
8.50%, 01/01/07 to 04/01/30 $ 23,719,513 $ 26,006,920
----------------------------------------------------------------------------
7.50%, 07/01/10 to 05/01/32 9,936,701 10,617,349
----------------------------------------------------------------------------
7.00%, 05/01/11 to 05/01/33 54,452,745 57,475,104
----------------------------------------------------------------------------
8.00%, 02/01/12 to 06/01/32 81,368,242 87,323,778
----------------------------------------------------------------------------
6.50%, 05/01/13 to 01/01/33 108,989,523 113,626,715
----------------------------------------------------------------------------
6.00%, 10/01/13 to 05/01/33 139,919,118 143,020,108
----------------------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 391,726 435,550
----------------------------------------------------------------------------
5.50%, 09/01/17 to 04/01/33 52,163,581 53,031,859
----------------------------------------------------------------------------
10.00%, 12/20/19 to 12/20/21 2,386,872 2,684,722
----------------------------------------------------------------------------
10.31%, 04/20/25 789,489 894,197
----------------------------------------------------------------------------
5.00%, 04/01/33 1,596,468 1,537,288
----------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 08/01/18(a) 18,937,000 18,944,966
----------------------------------------------------------------------------
5.50%, 08/01/33(a) 122,800,000 121,436,754
----------------------------------------------------------------------------
Series B, Unsec. Medium Term Notes,
6.88%, 09/10/12 to 09/24/12 24,765,000 27,240,651
----------------------------------------------------------------------------
6.47%, 09/25/12 10,550,000 11,704,381
----------------------------------------------------------------------------
Unsec. Global Notes,
4.25%, 07/15/07 20,000,000 20,733,800
============================================================================
696,714,142
============================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-11.22%
Pass Through Ctfs.,
9.00%, 10/15/08 to 04/15/21 323,017 358,456
----------------------------------------------------------------------------
6.00%, 10/15/08 to 12/15/32 6,118,872 6,244,863
----------------------------------------------------------------------------
7.00%, 10/15/08 to 06/15/33 13,001,529 13,659,225
----------------------------------------------------------------------------
6.50%, 10/15/08 to 07/15/33 103,604,401 107,462,351
----------------------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 1,284,135 1,428,390
----------------------------------------------------------------------------
10.00%, 11/15/09 to 07/15/24 2,884,308 3,245,032
----------------------------------------------------------------------------
11.00%, 12/15/09 to 10/15/15 23,452 26,355
----------------------------------------------------------------------------
12.50%, 11/15/10 32,466 37,238
----------------------------------------------------------------------------
13.00%, 01/15/11 to 05/15/15 118,193 138,069
----------------------------------------------------------------------------
13.50%, 04/15/11 to 04/15/15 131,321 152,642
----------------------------------------------------------------------------
12.00%, 02/15/13 to 07/15/15 133,179 153,641
----------------------------------------------------------------------------
10.50%, 02/15/16 21,915 24,829
----------------------------------------------------------------------------
8.00%, 01/15/22 to 06/15/27 5,963,745 6,460,122
----------------------------------------------------------------------------
7.50%, 03/15/26 to 08/15/28 1,237,211 1,312,878
----------------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.00%, 08/01/33(a) 19,830,000 20,201,296
============================================================================
160,905,387
============================================================================
|
FS-42
PRINCIPAL MARKET
AMOUNT VALUE
PRIVATE EXPORT FUNDING COMPANY-1.76%
Series G, Sec. Gtd. Notes,
6.67%, 09/15/09 $ 7,700,000 $ 8,737,652
----------------------------------------------------------------------------
Series J, Sec. Gtd. Notes,
7.65%, 05/15/06 7,000,000 7,954,940
----------------------------------------------------------------------------
Series UU, Sec. Gtd. Notes,
7.95%, 11/01/06 8,000,000 8,599,440
============================================================================
25,292,032
============================================================================
TENNESSEE VALLEY AUTHORITY-4.54%
Global Bonds,
4.88%, 12/15/16 10,000,000 10,790,800
----------------------------------------------------------------------------
Series A, Global Bonds,
5.63%, 01/18/11 28,517,000 30,200,073
----------------------------------------------------------------------------
Series G, Global Bonds,
5.38%, 11/13/08 22,600,000 24,205,278
============================================================================
65,196,151
============================================================================
Total U.S. Government Agency Securities
(Cost $1,253,842,056) 1,246,805,601
============================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY SECURITIES-12.59%
U.S. TREASURY NOTES-11.05%
6.75%, 05/15/05 $ 16,300,000 $ 17,754,286
----------------------------------------------------------------------------
1.13%, 06/30/05 96,000,000 94,890,240
----------------------------------------------------------------------------
4.63%, 05/15/06 19,800,000 21,077,694
----------------------------------------------------------------------------
4.88%, 02/15/12 23,900,000 24,837,358
============================================================================
158,559,578
============================================================================
U.S. TREASURY BONDS--1.31%
7.50%, 11/15/16 to 11/15/24 14,950,000 18,723,919
============================================================================
U.S. TREASURY STRIPS-0.23%(B)
6.79%, 11/15/18 7,750,000 3,286,465
============================================================================
Total U.S. Treasury Securities (Cost
$178,096,312) 180,569,962
============================================================================
SHARES
MONEY MARKET FUNDS-9.26%
STIT Government & Agency Portfolio (Cost
$132,830,068)(c) 132,830,068 132,830,068
============================================================================
TOTAL INVESTMENTS-108.76% (Cost
$1,564,768,436) 1,560,205,631
============================================================================
OTHER ASSETS LESS LIABILITIES-(8.76%) (125,629,253)
============================================================================
NET ASSETS-100.00% $1,434,576,378
____________________________________________________________________________
============================================================================
|
Investment Abbreviations:
Ctfs. - Certificates Gtd. - Guaranteed Sec. - Secured STRIPS - Separately Traded Registered Interest and Principal Security TBA - To Be Announced Unsec. - Unsecured |
Notes to Schedule of Investments:
(a) Securities purchased on a forward commitment basis. These securities are
subject to dollar roll transactions. See Note 1 Section C.
(b) STRIPS are traded on a discount basis. In such cases, the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-43
July 31, 2003
ASSETS:
Investments, at market value (cost
$1,431,938,368) $1,427,375,563
------------------------------------------------------------
Investments in affiliated money market funds
(cost $132,830,068) 132,830,068
------------------------------------------------------------
Receivables for:
Investments sold 127,062,850
------------------------------------------------------------
Fund shares sold 25,005,518
------------------------------------------------------------
Dividends and interest 8,637,073
------------------------------------------------------------
Principal paydowns 116,146
------------------------------------------------------------
Investment for deferred compensation plan 53,475
------------------------------------------------------------
Other assets 118,562
============================================================
Total assets 1,721,199,255
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 270,711,818
------------------------------------------------------------
Fund shares reacquired 13,634,988
------------------------------------------------------------
Dividends 864,988
------------------------------------------------------------
Deferred compensation plan 53,475
------------------------------------------------------------
Accrued distribution fees 843,702
------------------------------------------------------------
Accrued trustees' fees 1,002
------------------------------------------------------------
Accrued transfer agent fees 394,260
------------------------------------------------------------
Accrued operating expenses 118,644
============================================================
Total liabilities 286,622,877
============================================================
Net assets applicable to shares outstanding $1,434,576,378
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,474,672,975
------------------------------------------------------------
Undistributed net investment income 574,843
------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (36,108,635)
------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (4,562,805)
============================================================
$1,434,576,378
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 639,002,278
____________________________________________________________
============================================================
Class B $ 654,304,730
____________________________________________________________
============================================================
Class C $ 137,212,733
____________________________________________________________
============================================================
Class R $ 4,056,637
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 69,806,135
____________________________________________________________
============================================================
Class B 71,260,598
____________________________________________________________
============================================================
Class C 14,999,981
____________________________________________________________
============================================================
Class R 442,943
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.15
------------------------------------------------------------
Offering price per share:
(Net asset value of $9.15 divided by
95.25%) $ 9.61
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.18
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.15
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.16
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-44
For the year ended July 31, 2003
INVESTMENT INCOME:
Interest $ 62,427,071
--------------------------------------------------------------------------
Dividends from affiliated money market funds 1,309,644
==========================================================================
Total investment income 63,736,715
==========================================================================
EXPENSES:
Advisory fees 5,335,975
--------------------------------------------------------------------------
Administrative services fees 348,927
--------------------------------------------------------------------------
Custodian fees 152,895
--------------------------------------------------------------------------
Distribution fees -- Class A 1,489,062
--------------------------------------------------------------------------
Distribution fees -- Class B 7,152,387
--------------------------------------------------------------------------
Distribution fees -- Class C 1,499,525
--------------------------------------------------------------------------
Distribution fees -- Class R 5,879
--------------------------------------------------------------------------
Interest 74,609
--------------------------------------------------------------------------
Transfer agent fees 2,879,917
--------------------------------------------------------------------------
Trustees' fees 17,177
--------------------------------------------------------------------------
Other 615,657
==========================================================================
Total expenses 19,572,010
==========================================================================
Less: Fees waived and expenses paid indirectly (50,427)
==========================================================================
Net expenses 19,521,583
==========================================================================
Net investment income 44,215,132
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 16,683,688
--------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (27,772,540)
==========================================================================
Net gain (loss) from investment securities (11,088,852)
==========================================================================
Net increase in net assets resulting from operations $ 33,126,280
__________________________________________________________________________
==========================================================================
|
See Notes to Financial Statements.
FS-45
For the years ended July 31, 2003 and 2002
2003 2002
----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 44,215,132 $ 34,206,957
----------------------------------------------------------------------------------------------
Net realized gain from investment securities 16,683,688 7,060,161
----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (27,772,540) 13,327,043
==============================================================================================
Net increase in net assets resulting from operations 33,126,280 54,594,161
==============================================================================================
Distributions to shareholders from net investment income:
Class A (26,079,182) (18,042,169)
----------------------------------------------------------------------------------------------
Class B (26,326,300) (15,743,394)
----------------------------------------------------------------------------------------------
Class C (5,528,766) (3,470,538)
----------------------------------------------------------------------------------------------
Class R (50,065) (135)
==============================================================================================
Total distributions from net investment income (57,984,313) (37,256,236)
==============================================================================================
Share transactions-net:
Class A 177,560,836 162,667,870
----------------------------------------------------------------------------------------------
Class B 51,686,953 336,030,816
----------------------------------------------------------------------------------------------
Class C 12,514,743 65,503,763
----------------------------------------------------------------------------------------------
Class R 4,114,325 33,308
==============================================================================================
Net increase in net assets resulting from share
transactions 245,876,857 564,235,757
==============================================================================================
Net increase in net assets 221,018,824 581,573,682
==============================================================================================
NET ASSETS:
Beginning of year 1,213,557,554 631,983,872
==============================================================================================
End of year $1,434,576,378 $1,213,557,554
______________________________________________________________________________________________
==============================================================================================
|
See Notes to Financial Statements.
FS-46
July 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Intermediate Government Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is to achieve a high level of current income consistent with reasonable concern for safety of principal.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar security (same type, coupon and maturity) from the institution at a later date at an agreed upon price. The mortgage-backed securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on securities sold. Proceeds of the sale will be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. The Fund will segregate assets to cover its obligations under dollar roll transactions. The difference between the selling price and the future repurchase price is recorded as an adjustment to interest income.
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
FS-47
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $200 million of the Fund's average daily net assets, plus 0.40% on the next $300 million of the Fund's average daily net assets, plus 0.35% on the next $500 million of the Fund's average daily net assets, plus 0.30% on the Fund's average daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested (excluding investments made in affiliated money market funds with cash collateral from securities loaned to the Fund). For the year ended July 31, 2003, AIM waived fees of $22,714.
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, 2003, AIM was paid $348,927 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, 2003, AFS retained $1,454,420 for such services.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C, Class R and Investor Class shares of the Fund. Investor Class shares have not commenced operations. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C, Class R and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, the Fund may pay a service fee up to 0.25% of the average daily net assets of the Class A, Class B, Class C, Class R or Investor Class shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the Class A, Class B, Class C and Class R shares paid $1,489,062, $7,152,387, $1,499,525 and $5,879, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During year ended July 31, 2003, AIM Distributors retained $362,569 in front-end sales commissions from the sale of Class A shares and $346,465, $26,568, $93,589 and $0 from Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $25,338 and reductions in custodian fees of $2,375 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $27,713.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid legal fees of $5,178 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may enter into reverse repurchase agreements. Reverse repurchase agreements involve the sale of securities held by the Fund, with an agreement that the Fund will repurchase such securities at an agreed upon price and date. The Fund will use the proceeds of a reverse repurchase agreement (which are considered to be borrowings under the 1940 Act) to purchase other permitted securities either maturing, or under an agreement to resell, at a date simultaneous with or prior to the expiration of the reverse repurchase agreement. The agreements are collateralized by the underlying securities and are carried at the amount at which the securities subsequently will be repurchased as specified in the agreements. The maximum amount outstanding during the year ended July 31, 2003 was $89,705,000, while amounts outstanding averaged $6,881,479 per day with a weighted average interest rate of 1.08%.
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average
FS-48
of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 was as follows:
2003 2002
--------------------------------------------------------------
Distributions from ordinary income $57,984,313 $37,256,236
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 728,954 ------------------------------------------------------------ Unrealized appreciation (depreciation) -- investments (5,293,531) ------------------------------------------------------------ Temporary book/tax differences (89,867) ------------------------------------------------------------ Capital loss carryforward (29,699,182) ------------------------------------------------------------ Post-October capital loss deferral (5,742,971) ------------------------------------------------------------ Shares of beneficial interest 1,474,672,975 ============================================================ Total net assets $1,434,576,378 ____________________________________________________________ ============================================================ |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due primarily to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales and the treatment of bond premium amortization.
The temporary book/tax differences are primarily a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are primarily the result of trustee deferral of compensation and retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2007 $20,298,822
----------------------------------------------------------
July 31, 2008 9,400,360
==========================================================
Total capital loss carryforward $29,699,182
__________________________________________________________
==========================================================
|
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $3,937,238,274 and $3,722,092,986, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $ 15,948,417
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (21,241,948)
===========================================================
Net unrealized appreciation (depreciation) of
investment securities $ (5,293,531)
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $1,565,499,162.
|
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of paydowns on mortgage backed securities on July 31, 2003, undistributed net investment income was increased by $14,477,419 and undistributed net realized gains (losses) was decreased by $14,477,419. This reclassification had no effect on the net assets of the Fund.
FS-49
NOTE 9--SHARE INFORMATION
The Fund currently consists of five different classes of shares: Class A shares, Class B shares, Class C shares, Class R and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Class R shares and Investor Class shares are sold at net asset value. Under some circumstances, Class A shares and Class R shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase. Investor Class shares have not commenced operations.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------------
2003 2002
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 220,216,980 $ 2,079,496,949 141,358,670 $ 1,293,194,070
--------------------------------------------------------------------------------------------------------------------------------
Class B 39,224,867 371,793,547 54,984,125 507,221,308
--------------------------------------------------------------------------------------------------------------------------------
Class C 15,772,023 148,860,238 17,930,155 164,422,350
--------------------------------------------------------------------------------------------------------------------------------
Class R* 640,841 6,006,843 4,773 43,973
================================================================================================================================
Issued as reinvestment of dividends:
Class A 2,298,707 21,695,397 1,556,614 14,273,598
--------------------------------------------------------------------------------------------------------------------------------
Class B 2,246,868 21,273,356 1,318,829 12,129,999
--------------------------------------------------------------------------------------------------------------------------------
Class C 462,683 4,365,869 303,088 2,777,727
--------------------------------------------------------------------------------------------------------------------------------
Class R* 5,158 48,588 15 135
================================================================================================================================
Automatic conversion of Class B shares to Class A shares**:
Class A 2,912,619 27,474,869 -- --
--------------------------------------------------------------------------------------------------------------------------------
Class B (2,902,708) (27,474,869) -- --
================================================================================================================================
Reacquired:
Class A (206,614,068) (1,951,106,379) (125,208,629) (1,144,799,798)
--------------------------------------------------------------------------------------------------------------------------------
Class B (33,209,518) (313,905,081) (20,005,120) (183,320,491)
--------------------------------------------------------------------------------------------------------------------------------
Class C (14,941,292) (140,711,364) (11,125,287) (101,696,314)
--------------------------------------------------------------------------------------------------------------------------------
Class R* (206,681) (1,941,106) (1,163) (10,800)
================================================================================================================================
25,906,479 $ 245,876,857 61,116,070 $ 564,235,757
________________________________________________________________________________________________________________________________
================================================================================================================================
|
* Class R shares commenced sales on June 3, 2002. ** Prior to the year ended July 31, 2003, conversion of Class B to Class A shares were included in Class A shares sold and Class B shares reacquired.
NOTE 10--SIGNIFICANT EVENT
The Board of Trustees of AIM Investment Securities Funds ("Buyer") unanimously approved, on June 11, 2003, an Agreement and Plan of Reorganization ("Plan") pursuant to which AIM Intermediate Government Fund ("Buying Fund"), a series of Buyer, would acquire all of assets of INVESCO U.S. Government Securities Fund ("Seller Fund"), a series of INVESCO Bond Funds, Inc. ("the Reorganization"). As a result of the Reorganization, shareholders of Selling Fund would receive shares of Buying Fund in exchange for their shares of Selling Fund, and Selling Fund would cease operations.
The Plan requires approval of Selling Fund shareholders and will be submitted to the shareholders for their consideration at a meeting to be held on October 21, 2003. If the Plan is approved by shareholders of Selling Fund and certain conditions required by the Plan are satisfied, the transaction is expected to become effective shortly thereafter.
FS-50
NOTE 11--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
YEAR ENDED JULY 31, ENDED DECEMBER 31,
--------------------------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.28 $ 9.08 $ 8.77 $ 8.80 $ 9.58 $ 9.46
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.33(a) 0.43(b) 0.50(a) 0.34 0.60 0.62
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.04) 0.23 0.35 (0.03) (0.78) 0.13
=================================================================================================================================
Total from investment operations 0.29 0.66 0.85 0.31 (0.18) 0.75
=================================================================================================================================
Less dividends from net investment income (0.42) (0.46) (0.54) (0.34) (0.60) (0.63)
=================================================================================================================================
Net asset value, end of period $ 9.15 $ 9.28 $ 9.08 $ 8.77 $ 8.80 $ 9.58
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 3.03% 7.39% 9.91% 3.55% (1.87)% 8.17%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $639,002 $473,104 $302,391 $221,636 $238,957 $245,613
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 0.90%(d) 0.94% 1.32% 1.25%(e) 1.08% 1.20%
=================================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 0.89%(d) 0.90% 0.93% 0.98%(e) 0.89% 0.96%
=================================================================================================================================
Ratio of net investment income to average net
assets 3.47%(d) 4.58%(b) 5.61% 6.61%(e) 6.60% 6.43%
=================================================================================================================================
Ratio of interest expense to average net assets 0.01%(d) 0.04% 0.39% 0.27%(e) 0.19% 0.24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 275% 146% 194% 65% 141% 147%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses on asset-backed securities as adjustments to net investment
income. Had the Fund not amortized premiums on debt securities or
recorded paydown gains and losses as adjustments to investment income,
the investment income per share would have been $0.47 and the ratio of
net investment income to average net assets would have been 5.09%. In
accordance with the AICPA Audit and Accounting Guide for investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $595,624,627.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-51
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-------------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED
YEAR ENDED JULY 31, ENDED DECEMBER 31,
--------------------------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.31 $ 9.11 $ 8.79 $ 8.82 $ 9.59 $ 9.46
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.26(a) 0.37(b) 0.44(a) 0.30 0.53 0.55
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.04) 0.22 0.35 (0.04) (0.77) 0.13
=================================================================================================================================
Total from investment operations 0.22 0.59 0.79 0.26 (0.24) 0.68
=================================================================================================================================
Less dividends from net investment income (0.35) (0.39) (0.47) (0.29) (0.53) (0.55)
=================================================================================================================================
Net asset value, end of period $ 9.18 $ 9.31 $ 9.11 $ 8.79 $ 8.82 $ 9.59
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.30% 6.58% 9.17% 3.05% (2.56)% 7.40%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $654,305 $613,306 $269,677 $177,032 $228,832 $237,919
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 1.65%(d) 1.69% 2.08% 2.01%(e) 1.85% 1.96%
=================================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 1.64%(d) 1.65% 1.69% 1.74%(e) 1.66% 1.72%
=================================================================================================================================
Ratio of net investment income to average net
assets 2.72%(d) 3.83%(b) 4.85% 5.85%(e) 5.83% 5.68%
=================================================================================================================================
Ratio of interest expense to average net assets 0.01%(d) 0.04% 0.39% 0.27%(e) 0.19% 0.24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 275% 146% 194% 65% 141% 147%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses on asset-backed securities as adjustments to net investment
income. Had the Fund not amortized premiums on debt securities or
recorded paydown gains and losses as adjustments to investment income,
the investment income per share would have been $0.40 and the ratio of
net investment income to average net assets would have been 4.35%. In
accordance with the AICPA Audit and Accounting Guide for investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $715,238,695.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-52
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
----------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED
YEAR ENDED JULY 31, ENDED DECEMBER 31,
-------------------------------------- JULY 31, ------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.27 $ 9.08 $ 8.77 $ 8.79 $ 9.56 $ 9.44
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.26(a) 0.37(b) 0.44(a) 0.30 0.53 0.56
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.03) 0.21 0.34 (0.03) (0.77) 0.11
=================================================================================================================================
Total from investment operations 0.23 0.58 0.78 0.27 (0.24) 0.67
=================================================================================================================================
Less dividends from net investment income (0.35) (0.39) (0.47) (0.29) (0.53) (0.55)
=================================================================================================================================
Net asset value, end of period $ 9.15 $ 9.27 $ 9.08 $ 8.77 $ 8.79 $ 9.56
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.42% 6.48% 9.08% 3.18% (2.57)% 7.31%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $137,213 $127,114 $59,915 $34,206 $39,011 $38,026
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets (including
interest expense) 1.65%(d) 1.69% 2.08% 2.01%(e) 1.85% 1.96%
=================================================================================================================================
Ratio of expenses to average net assets (excluding
interest expense) 1.64%(d) 1.65% 1.69% 1.74%(e) 1.66% 1.72%
=================================================================================================================================
Ratio of net investment income to average net
assets 2.72%(d) 3.83%(b) 4.85% 5.85%(e) 5.83% 5.68%
=================================================================================================================================
Ratio of interest expense to average net assets 0.01%(d) 0.04% 0.39% 0.27%(e) 0.19% 0.24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 275% 146% 194% 65% 141% 147%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses on asset-backed securities as adjustments to net investment
income. Had the Fund not amortized premiums on debt securities or
recorded paydown gains and losses as adjustments to investment income,
the investment income per share would have been $0.40 and the ratio of
net investment income to average net assets would have been 4.35%. In
accordance with the AICPA Audit and Accounting Guide for investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $149,952,493.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-53
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS R
------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
JULY 31, JULY 31,
2003 2002
--------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.27 $ 9.13
--------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.30(a) 0.07(b)
--------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.02) 0.14
============================================================================================
Total from investment operations 0.28 0.21
============================================================================================
Less dividends from net investment income (0.39) (0.07)
============================================================================================
Net asset value, end of period $ 9.16 $ 9.27
____________________________________________________________________________________________
============================================================================================
Total return(c) 2.99% 2.34%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,057 $ 34
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets (including interest
expense) 1.15%(d) 1.19%(e)
============================================================================================
Ratio of expenses to average net assets (excluding interest
expense) 1.14%(d) 1.15%(e)
============================================================================================
Ratio of net investment income to average net assets 3.22%(d) 4.33%(b)(e)
============================================================================================
Ratio of interest expense to average net assets 0.01%(d) 0.04%(e)
____________________________________________________________________________________________
============================================================================================
Portfolio turnover rate(f) 275% 146%
____________________________________________________________________________________________
============================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses on asset-backed securities as adjustments to net investment
income. Had the Fund not amortized premiums on debt securities or
recorded paydown gains and losses adjustments to investment income, the
investment income per share would have remained the same and the ratio
of net investment income to average net assets would have been 4.85%. In
accordance with the AICPA Audit and Accounting Guide for investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are based on average daily net assets of $1,175,828.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-54
To the Shareholders of AIM Limited Maturity Treasury Fund and the 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, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Limited Maturity Treasury Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP September 10, 2003
FS-55
FINANCIALS
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
U.S. TREASURY NOTES--100.19%
2.13% 08/31/04 $ 56,300 $ 56,836,539
----------------------------------------------------------------------------------
1.88% 09/30/04 56,400 56,788,032
----------------------------------------------------------------------------------
2.13% 10/31/04 56,400 56,937,492
----------------------------------------------------------------------------------
2.00% 11/30/04 56,400 56,823,000
----------------------------------------------------------------------------------
1.75% 12/31/04 56,400 56,647,032
----------------------------------------------------------------------------------
1.63% 01/31/05 56,400 56,506,032
----------------------------------------------------------------------------------
1.50% 02/28/05 56,400 56,338,524
----------------------------------------------------------------------------------
1.63% 03/31/05 56,700 56,709,072
----------------------------------------------------------------------------------
1.63% 04/30/05 56,600 56,573,398
----------------------------------------------------------------------------------
1.25% 05/31/05 56,300 55,851,289
----------------------------------------------------------------------------------
1.13% 06/30/05 56,300 55,649,172
----------------------------------------------------------------------------------
1.50% 07/31/05 56,300 55,974,586
__________________________________________________________________________________
==================================================================================
TOTAL INVESTMENTS (Cost
$676,402,980)--100.19% 677,634,168
__________________________________________________________________________________
==================================================================================
OTHER ASSETS LESS LIABILITIES--(0.19%) (1,318,737)
__________________________________________________________________________________
==================================================================================
NET ASSETS--100.00% $ 676,315,431
__________________________________________________________________________________
==================================================================================
|
See Notes to Financial Statements.
FS-56
JULY 31, 2003
ASSETS:
Investments, at market value (cost
$676,402,980) $677,634,168
-----------------------------------------------------------
Cash 101,191
-----------------------------------------------------------
Receivables for:
Fund shares sold 2,463,653
-----------------------------------------------------------
Interest 2,511,024
-----------------------------------------------------------
Investment for deferred compensation plan 49,248
-----------------------------------------------------------
Other assets 38,828
===========================================================
Total assets 682,798,112
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 6,112,553
-----------------------------------------------------------
Dividends 103,437
-----------------------------------------------------------
Deferred compensation plan 49,248
-----------------------------------------------------------
Accrued distribution fees 102,750
-----------------------------------------------------------
Accrued trustees' fees 1,330
-----------------------------------------------------------
Accrued transfer agent fees 88,878
-----------------------------------------------------------
Accrued operating expenses 24,485
===========================================================
Total liabilities 6,482,681
===========================================================
Net assets applicable to shares outstanding $676,315,431
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $667,185,601
-----------------------------------------------------------
Undistributed net realized gain from
investment securities 7,898,642
-----------------------------------------------------------
Unrealized appreciation of investment
securities 1,231,188
===========================================================
$676,315,431
___________________________________________________________
===========================================================
NET ASSETS:
Class A $577,992,945
___________________________________________________________
===========================================================
Class A3 $ 94,409,036
___________________________________________________________
===========================================================
Institutional Class $ 3,913,450
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 55,236,888
___________________________________________________________
===========================================================
Class A3 9,025,708
___________________________________________________________
===========================================================
Institutional Class 374,086
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.46
-----------------------------------------------------------
Offering price per share:
(Net asset value of $10.46 divided by
99.00%) $ 10.57
___________________________________________________________
===========================================================
Class A3:
Net asset value and offering price per
share $ 10.46
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 10.46
___________________________________________________________
===========================================================
|
See Notes to Financial Statements.
FS-57
FOR THE YEAR ENDED JULY 31, 2003
INVESTMENT INCOME:
Interest $17,260,351
=========================================================================
EXPENSES:
Advisory fees 1,392,547
-------------------------------------------------------------------------
Administrative services fees 174,870
-------------------------------------------------------------------------
Custodian fees 27,714
-------------------------------------------------------------------------
Distribution fees -- Class A 1,021,729
-------------------------------------------------------------------------
Distribution fees -- Class A3 140,276
-------------------------------------------------------------------------
Transfer agent fees 917,517
-------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,338
-------------------------------------------------------------------------
Trustees' fees 13,643
-------------------------------------------------------------------------
Other 251,901
=========================================================================
Total expenses 3,941,535
=========================================================================
Less: Expenses paid indirectly (11,767)
=========================================================================
Net expenses 3,929,768
=========================================================================
Net investment income 13,330,583
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 11,624,560
-------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (9,284,613)
=========================================================================
Net gain from investment securities 2,339,947
=========================================================================
Net increase in net assets resulting from operations $15,670,530
_________________________________________________________________________
=========================================================================
|
See Notes to Financial Statements.
FS-58
FOR THE YEARS ENDED JULY 31, 2003 AND 2002
2003 2002
-------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 13,330,583 $ 19,243,725
-------------------------------------------------------------------------------------------
Net realized gain from investment securities 11,624,560 12,398,048
-------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (9,284,613) 4,356,374
===========================================================================================
Net increase in net assets resulting from operations 15,670,530 35,998,147
===========================================================================================
Distributions to shareholders from net investment income:
Class A (12,750,428) (19,170,139)
-------------------------------------------------------------------------------------------
Class A3 (517,649) --
-------------------------------------------------------------------------------------------
Institutional Class (62,506) (70,078)
===========================================================================================
Total distributions from net investment income (13,330,583) (19,240,217)
===========================================================================================
Distributions to shareholders from net realized gains:
Class A (7,010,203) --
-------------------------------------------------------------------------------------------
Class A3 (129,528) --
-------------------------------------------------------------------------------------------
Institutional Class (24,193) --
===========================================================================================
Total distributions from net realized gains (7,163,924) --
===========================================================================================
Decrease in net assets resulting from distributions (20,494,507) (19,240,217)
===========================================================================================
Share transactions-net:
Class A (113,847,783) 171,767,941
-------------------------------------------------------------------------------------------
Class A3 94,792,404 --
-------------------------------------------------------------------------------------------
Institutional Class 966,624 1,091,152
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (18,088,755) 172,859,093
===========================================================================================
Net increase (decrease) in net assets (22,912,732) 189,617,023
===========================================================================================
NET ASSETS:
Beginning of year 699,228,163 509,611,140
===========================================================================================
End of year $ 676,315,431 $699,228,163
___________________________________________________________________________________________
===========================================================================================
|
See Notes to Financial Statements.
FS-59
JULY 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management company consisting of eight separate series portfolios each having an unlimited number of shares of beneficial interest. The Fund currently consists of multiple classes of shares. Matters affecting each portfolio or class are voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is to seek liquidity with minimum fluctuation in principal value, and consistent with this objective, the highest total return achievable.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
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 and commercial paper are valued at amortized cost which approximates market value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.20% on the first $500 million of the Fund's average daily net assets, plus 0.175% on the Fund's average daily net assets in excess of $500 million.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the year ended July 31, 2003, AIM was paid $174,870 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, 2003, AFS retained $401,816 for such services.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A shares, Class A3 shares and the Institutional Class shares of the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A and Class A3 shares (collectively the "Plans"). 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 and 0.35% of the average daily net assets of Class A3 shares. Of these amounts, the Fund may pay a service fee of 0.15% of the average daily net assets of Class A shares and 0.25% of the average daily net assets of Class A3 shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plan would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the
FS-60
Fund. Pursuant to the Plans, for the year ended July 31, 2003, Class A and Class A3 shares paid $1,021,729 and $140,276, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During year ended July 31, 2003, AIM Distributors retained $93,147 in front-end sales commissions from the sale of Class A shares and $26,131 from Class A shares, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS, and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $11,767 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $11,767.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid legal fees of $4,084 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The fund may participate in an interfund lending facility that AIM has established an interfund lending facility for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 was as follows:
2003 2002
--------------------------------------------------------------
Distributions paid from ordinary
income $20,494,507 $19,240,217
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 8,029,117 ----------------------------------------------------------- Unrealized appreciation -- investments 1,181,517 ----------------------------------------------------------- Temporary book/tax differences (80,804) ----------------------------------------------------------- Shares of beneficial interest 667,185,601 =========================================================== Total net assets $676,315,431 ___________________________________________________________ =========================================================== |
The difference between book-basis and tax-basis unrealized appreciation is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation difference is attributable primarily to the tax deferral of losses on wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $893,902,089 and $910,680,934, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $2,152,207
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (970,690)
===========================================================
Net unrealized appreciation of investment
securities $1,181,517
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $676,452,651.
|
FS-61
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of the utilization of a portion of the proceeds from redemptions as distributions for federal income tax purposes on July 31, 2003, undistributed net realized gains (losses) was decreased by $3,685,882 and shares of beneficial interest was increased by $3,685,882. This reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
The Fund currently consists of three different classes of shares: Class A shares, Class A3 shares and Institutional Class shares. Class A shares are sold with front-end sales charge. Class A3 shares and Institutional Class shares are sold at net asset value. Under some circumstances, Class A shares are subject to CDSC. As of the close of business on October 30, 2002, Class A shares were closed to new investors.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 25,805,338 $ 271,953,993 75,803,443 $ 786,911,782
--------------------------------------------------------------------------------------------------------------------------
Class A3* 12,760,368 134,005,850 -- --
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 220,446 2,316,869 184,259 1,912,257
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,610,631 16,920,387 1,557,231 16,184,908
--------------------------------------------------------------------------------------------------------------------------
Class A3* 55,441 581,385 -- --
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 425 4,464 238 2,477
==========================================================================================================================
Reacquired:
Class A (38,275,556) (402,722,163) (60,767,295) (631,328,749)
--------------------------------------------------------------------------------------------------------------------------
Class A3* (3,790,101) (39,794,831) -- --
--------------------------------------------------------------------------------------------------------------------------
Institutional Class (128,741) (1,354,709) (79,249) (823,582)
==========================================================================================================================
(1,741,749) $ (18,088,755) 16,698,627 $ 172,859,093
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
* Class A3 shares commenced sales on October 31, 2002.
FS-62
NOTE 10--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,
------------------------------------------------------------
2003 2002 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.53 $ 10.26 $ 9.96 $ 10.03 $ 10.07
--------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.33(a) 0.52(b) 0.51 0.47
--------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.03 0.27 0.31 (0.07) (0.04)
==========================================================================================================================
Total from investment operations 0.22 0.60 0.83 0.44 0.43
==========================================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.33) (0.53) (0.51) (0.47)
--------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.10) -- -- -- --
==========================================================================================================================
Total distributions (0.29) (0.33) (0.53) (0.51) (0.47)
==========================================================================================================================
Net asset value, end of period $ 10.46 $ 10.53 $ 10.26 $ 9.96 $ 10.03
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(c) 2.18% 5.89% 8.53% 4.50% 4.32%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $577,993 $696,259 $507,799 $300,058 $390,018
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 0.53%(d) 0.48% 0.56% 0.54% 0.54%
==========================================================================================================================
Ratio of net investment income to average net assets 1.85%(d) 3.12%(a) 5.15% 5.07% 4.61%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 124% 149% 137% 122% 184%
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.34 and the ratio of net investment income to average net
assets would have been 3.29%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of $681,152,755.
FS-63
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS A3
----------------
OCTOBER 31, 2002
(DATE OPERATIONS
COMMENCED) TO
JULY 31, 2003
--------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.59
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13
--------------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (0.04)
================================================================================
Total from investment operations 0.09
================================================================================
Less distributions:
Dividends from net investment income (0.12)
--------------------------------------------------------------------------------
Distributions from net realized gains (0.10)
================================================================================
Total distributions (0.22)
================================================================================
Net asset value, end of period $ 10.46
________________________________________________________________________________
================================================================================
Total return(a) 0.88%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $94,409
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets 0.73%(b)
================================================================================
Ratio of net investment income to average net assets 1.65%(b)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(c) 124%
________________________________________________________________________________
================================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$53,389,601.
(c) Not annualized for periods less than one year.
FS-64
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
INSTITUTIONAL CLASS
-----------------------------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.53 $10.26 $ 9.96 $10.03 $ 10.07
-------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.22 0.34(a) 0.54(b) 0.54 0.49
-------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.03 0.27 0.31 (0.07) (0.04)
===================================================================================================================
Total from investment operations 0.25 0.61 0.85 0.47 0.45
===================================================================================================================
Less distributions:
Dividends from net investment income (0.22) (0.34) (0.55) (0.54) (0.49)
-------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.10) -- -- -- --
===================================================================================================================
Total distributions (0.32) (0.34) (0.55) (0.54) (0.49)
===================================================================================================================
Net asset value, end of period $10.46 $10.53 $10.26 $ 9.96 $ 10.03
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(c) 2.42% 6.05% 8.80% 4.78% 4.55%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,913 $2,970 $1,812 $2,455 $17,131
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets 0.30%(d) 0.34% 0.33%(e) 0.29% 0.31%
===================================================================================================================
Ratio of net investment income to average net assets 2.08%(d) 3.26%(a) 5.38% 5.31% 4.84%
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate 124% 149% 137% 122% 184%
___________________________________________________________________________________________________________________
===================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and the Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.35 and the ratio of net investment income to average assets
would have been 3.43%. In accordance with the AICPA Audit and Accounting
Guide for Investment Companies, per share and ratios for periods prior
to August 1, 2001 have not been restated to reflect this change in
presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America.
(d) Ratios are based on average daily net assets of $3,080,901.
(e) Including expense reimbursement. Ratio of expenses to average net assets
excluding reimbursement is 0.41%
FS-65
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, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Money Market Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas /s/ ERNST & YOUNG LLP September 10, 2003 |
FS-66
FINANCIALS
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
COMMERCIAL PAPER-24.36%(a)
ASSET-BACKED SECURITIES-COMMERCIAL
LOANS/LEASES-7.55%
Atlantis One Funding Corp. (Rabobank-ABS
Program Sponsor),
(Acquired 04/25/03; Cost $39,831,944)
1.25%(b) 08/27/03 $40,000 $ 39,963,889
----------------------------------------------------------------------------------
(Acquired 05/20/03; Cost $34,882,361)
1.21%(b) 08/28/03 35,000 34,968,237
----------------------------------------------------------------------------------
(Acquired 05/22/03; Cost $19,926,000)
1.20%(b) 09/10/03 20,000 19,973,333
----------------------------------------------------------------------------------
Fountain Square Commercial Funding Corp.
(Fifth Third Bank-ABS Program Sponsor)
(Acquired 07/09/03; Cost $44,920,700)
1.04%(b) 09/08/03 45,000 44,950,600
==================================================================================
139,856,059
==================================================================================
ASSET-BACKED SECURITIES-FULLY BACKED-0.86%
Aquinas Funding LLC (Rabobank-ABS Program
Sponsor) (Acquired 07/10/03; Cost
$15,943,147)
1.04%(b) 11/10/03 16,000 15,953,316
==================================================================================
ASSET-BACKED SECURITIES-MULTI-PURPOSE-9.37%
Charta Corp. (Citibank N.A.-ABS Program
Sponsor) (Acquired 06/09/03; Cost
$9,980,833)
1.15%(b)(c) 08/08/03 10,000 9,997,764
----------------------------------------------------------------------------------
Edison Asset Securitization, LLC (GE Capital
Corp.-ABS Program Sponsor)
(Acquired 06/11/03; Cost $46,838,633)
1.03%(b) 10/09/03 47,000 46,907,214
----------------------------------------------------------------------------------
(Acquired 05/16/03; Cost $44,735,225)
1.19%(b) 11/10/03 45,000 44,849,762
----------------------------------------------------------------------------------
|
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
ASSET-BACKED SECURITIES-MULTI-PURPOSE-(CONTINUED)
Jupiter Securitization Corp. (Bank One
N.A.-ABS Program Sponsor)
(Acquired 07/22/03; Cost $34,793,179)
1.03%(b) 10/14/03 $34,877 $ 34,803,158
----------------------------------------------------------------------------------
Receivables Capital Corp. (Bank of America
N.A.-ABS Program Sponsor)
(Acquired 07/03/03; Cost $37,050,519)
1.04%(b)(c) 09/03/03 37,117 37,081,615
==================================================================================
173,639,513
==================================================================================
ASSET-BACKED SECURITIES-TRADE
RECEIVABLES-2.70%
FCAR Owner Trust-Series II (Ford Motor Credit
Co.-ABS Program Sponsor)
1.27% 08/19/03 50,000 49,968,250
==================================================================================
DIVERSIFIED BANKS-3.07%
Fortis Funding
(Acquired 07/10/03; Cost $56,817,347)
1.03%(b) 10/30/03 57,000 56,853,225
==================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.81%
GE Capital International Funding, Inc.-
Series A
(Acquired 04/23/03; Cost $14,905,500)
1.26%(b) 10/20/03 15,000 14,958,000
==================================================================================
Total Commercial Paper (Cost
$451,228,363) 451,228,363
==================================================================================
MASTER NOTE AGREEMENTS-8.91%(d)
Merrill Lynch Mortgage Capital, Inc.
1.29%(e) 08/18/03 70,000 70,000,000
----------------------------------------------------------------------------------
Morgan Stanley
1.20%(f) 09/15/03 95,000 95,000,000
==================================================================================
Total Master Note Agreements (Cost
$165,000,000) 165,000,000
==================================================================================
|
FS-67
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-8.56%
FEDERAL HOME LOAN BANK-5.30%
Unsec. Bonds,
3.75% 02/13/04 $18,000 $ 18,225,573
----------------------------------------------------------------------------------
1.42% 04/21/04 20,000 20,000,000
----------------------------------------------------------------------------------
1.12% 07/12/04 10,000 10,000,000
----------------------------------------------------------------------------------
1.03% 07/23/04 50,000 50,000,000
==================================================================================
98,225,573
==================================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-0.81%
Disc. Notes,
1.04% 09/11/03 15,000 14,982,233
==================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-2.45%
Unsec. Notes,
3.13% 11/15/03 45,000 45,263,717
==================================================================================
Total U.S. Government Agency Securities
(Cost $158,471,523) 158,471,523
==================================================================================
ASSET-BACKED SECURITIES-6.99%
CONSUMER RECEIVABLES-1.32%
Honda Auto Receivables 2003-2 Owner Trust,
Class A-1 Notes,
1.23% 06/11/04 15,009 15,008,903
----------------------------------------------------------------------------------
Nissan Auto Receivables 2003-A Owner Trust,
Class A-1 Notes,
1.30% 03/15/04 9,511 9,511,160
==================================================================================
24,520,063
==================================================================================
STRUCTURED INVESTMENT VEHICLES-5.67%
Beta Finance Inc., Floating Rate (Citibank
International PLC-ABS Program Sponsor)
(Acquired 10/24/02; Cost $50,000,000)
1.11%(b)(g) 10/07/03 50,000 50,000,000
----------------------------------------------------------------------------------
(Acquired 10/03/02; Cost $45,000,000)
1.11%(b)(g) 10/14/03 45,000 45,000,000
----------------------------------------------------------------------------------
Holmes Financing (No. 7) PLC (United
Kingdom)-Series 1, Class A,
1.07%(h) 04/15/04 10,000 10,000,000
==================================================================================
105,000,000
==================================================================================
Total Asset-Backed Securities (Cost
$129,520,063) 129,520,063
==================================================================================
|
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
PROMISSORY NOTES-5.40%
Goldman Sachs Group, Inc. (The)
(Acquired 03/21/03; Cost $71,000,000)
1.26%(b)(g)(i) 09/17/03 $71,000 $ 71,000,000
----------------------------------------------------------------------------------
(Acquired 03/13/03; Cost $29,000,000)
1.33%(b)(g)(i) 10/07/03 29,000 29,000,000
==================================================================================
Total Promissory Notes (Cost
$100,000,000) 100,000,000
==================================================================================
CERTIFICATES OF DEPOSIT-3.56%
Danske Bank A/S (Denmark)
2.00% 08/01/03 11,000 11,000,000
----------------------------------------------------------------------------------
National Australia Bank Ltd.
1.26% 08/24/04 20,000 20,000,000
----------------------------------------------------------------------------------
Rabobank Nederland (Netherlands)
1.19% 08/04/04 35,000 34,996,485
==================================================================================
Total Certificates of Deposit (Cost
$65,996,485) 65,996,485
==================================================================================
MEDIUM-TERM NOTES-2.70%
Money Market Trust LLY-
Series 2002-B, Floating Rate Notes,
(Acquired 12/03/02; Cost $50,000,000)
1.17%(b)(h)(i) 12/03/03 50,000 50,000,000
==================================================================================
VARIABLE RATE DEMAND
NOTES-2.52%
INSURED-0.35%
Michigan (State of) Housing Development
Authority; Series C RB,
1.05%(c)(j)(k)(l) 12/01/20 6,405 6,405,000
==================================================================================
LETTER OF CREDIT GUARANTEED-2.17%(J)(K)(M)
Colorado (State of) Health Facilities
Authority (National Benevolent
Association); Series E RB
(LOC-KBC Bank N.V.),
1.15%(1) 03/01/30 9,545 9,545,000
----------------------------------------------------------------------------------
Family Express Corp., LLC-Series A, Loan
Program Notes (LOC-Fifth Third Bank),
1.10% 04/01/28 9,070 9,070,000
----------------------------------------------------------------------------------
Miami-Dade (County of) Industrial Development
Authority (Dolphins Stadium); IDR
(LOC-Societe Generale),
1.10%(1) 07/01/22 100 100,000
----------------------------------------------------------------------------------
Mississippi (State of) Business Finance Corp.
(Viking Range Corp. Project); IDR (LOC-Bank
of America N.A.),
1.17%(1) 06/01/15 14,095 14,095,000
----------------------------------------------------------------------------------
|
FS-68
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
LETTER OF CREDIT GUARANTEED-(CONTINUED)
PxPort Blakely Communities; Series C RB
(LOC-Bank of America N.A.),
1.10%(1) 02/15/21 $ 7,500 $ 7,500,000
==================================================================================
40,310,000
==================================================================================
Total Variable Rate Demand Notes (Cost
$46,715,000) 46,715,000
==================================================================================
FUNDING AGREEMENT-0.54%
New York Life Insurance Co. (Acquired
04/03/03; Cost $10,000,000)
1.20%(b)(h)(i) 04/07/04 10,000 10,000,000
==================================================================================
Total Investments (excluding Repurchase
Agreements) (Cost $1,176,931,434) 1,176,931,434
==================================================================================
REPURCHASE AGREEMENTS-38.48%(n)
Banc of America Securities LLC
1.21%(o) 08/01/03 60,000 60,000,000
----------------------------------------------------------------------------------
Barclays Capital Inc.-New York Branch (United
Kingdom)
1.12%(p) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
|
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
REPURCHASE AGREEMENTS-(CONTINUED)
BNP Paribas Securities Corp.-New York Branch
(France)
1.12%(q) 08/01/03 $67,706 $ 67,706,034
----------------------------------------------------------------------------------
1.20%(r) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
Deutsche Bank Securities Inc.-New York Branch
(Germany)
1.19%(s) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
Greenwich Capital Markets, Inc.
1.12%(t) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
UBS Warburg LLC-New York Branch (Switzerland)
1.12%(u) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
Wachovia Securities, Inc.
1.12%(v) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
1.23%(w) 08/01/03 75,000 75,000,000
==================================================================================
Total Repurchase Agreements (Cost
$712,706,034) 712,706,034
==================================================================================
TOTAL INVESTMENTS-102.02% (Cost
$1,889,637,468)(x) 1,889,637,468
==================================================================================
OTHER ASSETS LESS LIABILITIES-(2.02%) (37,364,191)
==================================================================================
NET ASSETS-100.00% $1,852,273,277
__________________________________________________________________________________
==================================================================================
|
Investment Abbreviations:
ABS - Asset Backed Security Disc. - Discounted IDR - Industrial Development Revenue Bonds LOC - Letter of Credit RB - Revenue Bonds Unsec. - Unsecured |
Notes to Schedule of Investments:
(a) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 07/31/03 was $656,260,114,
which represented 35.43% of the Fund's net assets. Unless otherwise
indicated these securities are not considered to be illiquid.
(c) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp. or MBIA Insurance Co.
(d) 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.
(e) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one or two business day's notice based on timing of
the demand. Interest rates on master notes are redetermined daily. Rate
shown is the rate in effect on 07/31/03.
(f) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one business day's oral notice for up to 10% of
outstanding amount, otherwise, upon seven business day's written notice for
more than 10% of outstanding balance. Interest rates on master notes are
redetermined daily. Rate shown is the rate in effect on 07/31/03.
(g) Interest rates are redetermined daily. Rate shown is the rate in effect on
07/31/03.
(h) Interest rates are redetermined monthly. Rates shown are rates in effect on
07/31/03.
(i) Security considered to be illiquid. The aggregate market value of these
securities at 07/31/03 was $160,000,000 which represented 8.64% of the
Fund's net assets.
(j) Interest rates are redetermined weekly. Rates shown are rates in effect on
07/31/03.
(k) Demand security; payable upon demand by the Fund with usually no more than
seven calendar days' notice.
(l) Interest on this security is taxable income to the Fund.
(m) Principal and interest payments are guaranteed by the letter of credit
agreement.
FS-69
(n) 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. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities (money market funds only). Collateral
consisting of U.S. Government Securities and U.S. Government Agency
Securities is marked to market daily to ensure its market value is at least
102% of the sales price of the repurchase agreement. Collateral consisting
of Investment Grade Debt Securities is marked to market daily to ensure its
market value is at least 105% of the sales price of the repurchase
agreement. The investments in some repurchase agreements are through
participation with other mutual funds, private accounts and certain
non-registered investment companies managed by the investment advisor or its
affiliates.
(o) Repurchase agreement entered into 07/31/03 with a maturing value of
$60,002,017. Collateralized by $60,659,655 corporate obligations, 0.01% to
7.00% due 07/15/05 to 09/01/30 with an aggregate market value at 07/31/03 of
$63,000,001.
(p) Joint repurchase agreement entered into 07/31/03 with a maturing value of
$624,136,058. Collateralized by $625,305,000 U.S. Government obligations, 0%
to 6.25% due 02/26/04 to 09/15/11 with an aggregate market value at 07/31/03
of $636,599,808.
(q) Joint repurchase agreement entered into 07/31/03 with a maturing value of
$500,015,556. Collateralized by $455,553,000 U.S. Government obligations,
5.00% to 6.88% due 05/15/04 to 09/15/11 with an aggregate market value at
07/31/03 of $510,000,993.
(r) Repurchase agreement entered into 07/31/03 with a maturing value of
$85,002,833. Collateralized by $80,527,782 corporate obligations, 3.25% to
9.80% due 05/16/05 to 06/01/16 with an aggregate market value at 07/31/03 of
$89,250,001.
(s) Repurchase agreement entered into 07/31/03 with a maturing value of
$85,002,810. Collateralized by $201,799,264 corporate obligations, 0% to
7.71% due 03/01/06 to 07/05/35 with an aggregate market value at 07/31/03 of
$89,250,000.
(t) Joint repurchase agreement entered into 07/31/03 with a maturing value of
$500,015,556. Collateralized by $556,079,881 U.S. Government obligations,
4.50% to 7.00% due 09/01/17 to 08/01/33 with an aggregate market value at
07/31/03 of $510,002,294.
(u) Joint repurchase agreement entered into 07/31/03 with a maturing value of
$250,007,778. Collateralized by $286,330,000 U.S. Government obligations,
4.50% to 6.00% due 09/01/17 to 07/01/33 with an aggregate market value at
07/31/03 of $255,001,995.
(v) Joint repurchase agreement entered into 07/31/03 with a maturing value of
$750,023,333. Collateralized by $758,853,097 U.S. Government obligations,
4.00% to 7.25% due 02/15/04 to 07/01/33 with an aggregate market value at
07/31/03 of $765,001,266.
(w) Repurchase agreement entered into 07/31/03 with a maturing value of
$75,002,563. Collateralized by $389,240,300 corporate obligations, 0% to
7.75% due 12/18/10 to 07/11/43 with an aggregate market value at 07/31/03 of
$78,750,000.
(x) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-70
ASSETS:
Investments, excluding repurchase agreements
at value (amortized cost) $1,176,931,434
------------------------------------------------------------
Repurchase agreements 712,706,034
------------------------------------------------------------
Cash 6,499
------------------------------------------------------------
Receivables for:
Fund shares sold 38,256,721
------------------------------------------------------------
Interest 1,457,940
------------------------------------------------------------
Investment for deferred compensation plan 82,816
------------------------------------------------------------
Other assets 154,560
============================================================
Total assets 1,929,596,004
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 34,996,485
------------------------------------------------------------
Fund shares reacquired 41,337,329
------------------------------------------------------------
Dividends 53,902
------------------------------------------------------------
Deferred compensation plan 82,816
------------------------------------------------------------
Accrued distribution fees 636,946
------------------------------------------------------------
Accrued trustees' fees 1,371
------------------------------------------------------------
Accrued transfer agent fees 79,912
------------------------------------------------------------
Accrued operating expenses 133,966
============================================================
Total liabilities 77,322,727
============================================================
Net assets applicable to shares outstanding $1,852,273,277
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,852,113,368
------------------------------------------------------------
Undistributed net investment income 159,909
============================================================
$1,852,273,277
____________________________________________________________
============================================================
NET ASSETS:
AIM Cash Reserve Shares $1,188,876,324
____________________________________________________________
============================================================
Class B $ 543,810,575
____________________________________________________________
============================================================
Class C $ 113,306,025
____________________________________________________________
============================================================
Class R $ 6,280,353
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
AIM Cash Reserve Shares 1,188,857,238
____________________________________________________________
============================================================
Class B 543,801,758
____________________________________________________________
============================================================
Class C 113,304,148
____________________________________________________________
============================================================
Class R 6,280,270
____________________________________________________________
============================================================
Net asset value and offering price per share
for each class $ 1.00
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-71
INVESTMENT INCOME:
Interest $29,297,390
=========================================================================
EXPENSES:
Advisory fees 10,145,165
-------------------------------------------------------------------------
Administrative services fees 406,127
-------------------------------------------------------------------------
Custodian fees 76,482
-------------------------------------------------------------------------
Distribution fees -- AIM Cash Reserve Shares 2,854,476
-------------------------------------------------------------------------
Distribution fees -- Class B 6,669,844
-------------------------------------------------------------------------
Distribution fees -- Class C 1,167,526
-------------------------------------------------------------------------
Distribution fees -- Class R 17,527
-------------------------------------------------------------------------
Transfer agent fees 3,700,720
-------------------------------------------------------------------------
Trustees' fees 20,736
-------------------------------------------------------------------------
Other 637,578
=========================================================================
Total expenses 25,696,181
=========================================================================
Less: Fees waived, expenses reimbursed and expenses paid
indirectly (4,241,727)
=========================================================================
Net expenses 21,454,454
=========================================================================
Net investment income 7,842,936
=========================================================================
Net realized gain from investment securities 44,022
=========================================================================
Net increase in net assets resulting from operations $ 7,886,958
_________________________________________________________________________
=========================================================================
|
See Notes to Financial Statements.
FS-72
For the years ended July 31, 2003 and 2002
2003 2002
----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 7,842,936 $ 19,419,288
----------------------------------------------------------------------------------------------
Net realized gain from investment securities 44,022 1,145
==============================================================================================
Net increase in net assets resulting from operations 7,886,958 19,420,433
==============================================================================================
Distributions to shareholders from net investment income:
AIM Cash Reserve Shares (7,299,075) (15,341,349)
----------------------------------------------------------------------------------------------
Class B (432,412) (3,410,961)
----------------------------------------------------------------------------------------------
Class C (100,719) (666,967)
----------------------------------------------------------------------------------------------
Class R (10,730) (11)
==============================================================================================
Total distributions from net investment income (7,842,936) (19,419,288)
==============================================================================================
Distributions to shareholders from net realized gains:
AIM Cash Reserve Shares (35,590) --
----------------------------------------------------------------------------------------------
Class B (20,898) --
----------------------------------------------------------------------------------------------
Class C (3,549) --
----------------------------------------------------------------------------------------------
Class R (38) --
==============================================================================================
Total distributions from net realized gains (60,075) --
==============================================================================================
Decrease in net assets resulting from distributions (7,903,011) (19,419,288)
==============================================================================================
Share transactions-net:
AIM Cash Reserve Shares 67,004,557 184,349,260
----------------------------------------------------------------------------------------------
Class B (174,148,217) 278,519,026
----------------------------------------------------------------------------------------------
Class C (5,640,712) 32,062,975
----------------------------------------------------------------------------------------------
Class R 6,270,260 10,010
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (106,514,112) 494,941,271
==============================================================================================
Net increase (decrease) in net assets (106,530,165) 494,942,416
==============================================================================================
NET ASSETS:
Beginning of year 1,958,803,442 1,463,861,026
==============================================================================================
End of year $1,852,273,277 $1,958,803,442
______________________________________________________________________________________________
==============================================================================================
|
See Notes to Financial Statements.
FS-73
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Money Market Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to provide as high a level of current income as is consistent with the preservation of capital and liquidity. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- The Fund's securities are valued on the basis of amortized cost which approximates market value as permitted under Rule 2a-7 of the 1940 Act. This method values a security at its cost on the date of purchase and, thereafter, assumes a constant amortization to maturity of any premiums or accretion of discount.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income, adjusted for amortization of premiums and accretion of discounts on investments, is recorded on the accrual basis from settlement date.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.55% on the first $1 billion of the Fund's average daily net assets, plus 0.50% on the Fund's average daily net assets in excess of $1 billion. AIM and/or A I M Distributors, Inc. ("AIM Distributors") voluntarily waived fees and/or reimbursed expenses in order to increase the Fund's yield. Waivers and/or reimbursements may be changed from time to time. During the year ended July 31, 2003, AIM waived fees of $2,809,789.
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, 2003, AIM was paid $406,127 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, 2003, AFS retained $2,290,443 for such services.
The Trust has entered into master distribution agreements with AIM Distributors to serve as the distributor for the AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class shares of the Fund. Investor Class shares have not commenced operations. 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, Class C and Class R shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of AIM Cash Reserve shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.50% of the average daily net assets of Class R shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the AIM Cash Reserve Shares, Class B, Class C or Class R shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the AIM Cash Reserve Shares, Class B, Class C and Class R shares paid $2,854,476, $5,497,582, $943,558 and $17,527, respectively after AIM Distributors waived and/or reimbursed plan fees of $1,172,262 and $223,968 for Class B and Class C shares, respectively.
FS-74
Contingent deferred sales charges ("CDSC") are not recorded as expenses of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During year ended July 31, 2003, AIM Distributors retained $2,2310,327, $43,330, $280,508 and $0 from AIM Cash Reserve Shares, Class B, Class C and Class R shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $35,708 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $35,708.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid legal fees of $6,285 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. The Fund did not borrow or lend under the facility during the year ended July 31, 2003.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 was as follows:
2003 2002
--------------------------------------------------------------
Distributions paid from ordinary
income $7,903,011 $19,419,288
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 280,839 ------------------------------------------------------------ Temporary book/tax differences (120,930) ------------------------------------------------------------ Shares of beneficial interest 1,852,113,368 ============================================================ Total net assets $1,852,273,277 ____________________________________________________________ ============================================================ |
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
NOTE 7--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of distributions and other items on July 31, 2003, undistributed net investment income was increased by $159,909, undistributed net realized gains decreased by $48,683 and shares of beneficial interest decreased by $111,226. This reclassification had no effect on the net assets of the Fund.
FS-75
NOTE 8--SHARE INFORMATION
The Fund currently consists of five different classes of shares: AIM Cash Reserve Shares, Class B shares, Class C shares, Class R shares and Investor Class shares. AIM Cash Reserve Shares, Class R shares and Investor Class shares are sold at net asset value. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class R shares are subject to CDSC. Generally, Class B shares will automatically convert to AIM Cash Reserve Shares eight years after the end of the calendar month of purchase. Investor Class shares have not commenced operations.
CHANGES IN SHARES OUTSTANDING
---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------------------
2003 2002
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------------------------
Sold:
AIM Cash Reserve Shares 5,372,980,834 $ 5,372,980,834 7,239,176,762 $ 7,239,176,762
---------------------------------------------------------------------------------------------------------------------------------
Class B 485,890,867 485,890,867 920,671,959 920,671,959
---------------------------------------------------------------------------------------------------------------------------------
Class C 570,319,822 570,319,822 492,311,444 492,311,444
---------------------------------------------------------------------------------------------------------------------------------
Class R* 24,594,921 24,594,921 14,201 14,201
=================================================================================================================================
Issued as reinvestment of dividends:
AIM Cash Reserve Shares 6,288,154 6,288,154 12,953,250 12,953,250
---------------------------------------------------------------------------------------------------------------------------------
Class B 408,246 408,246 3,021,507 3,021,507
---------------------------------------------------------------------------------------------------------------------------------
Class C 89,880 89,880 550,550 550,550
---------------------------------------------------------------------------------------------------------------------------------
Class R* 9,756 9,756 5 5
=================================================================================================================================
Automatic conversion of Class B shares to AIM Cash
Reserve Shares:**
AIM Cash Reserve Shares 25,073,560 25,073,560 -- --
---------------------------------------------------------------------------------------------------------------------------------
Class B (25,073,560) (25,073,560) -- --
=================================================================================================================================
Reacquired:
AIM Cash Reserve Shares (5,337,337,991) (5,337,337,991) (7,067,780,752) (7,067,780,752)
---------------------------------------------------------------------------------------------------------------------------------
Class B (635,373,770) (635,373,770) (645,174,440) (645,174,440)
---------------------------------------------------------------------------------------------------------------------------------
Class C (576,050,414) (576,050,414) (460,799,019) (460,799,019)
---------------------------------------------------------------------------------------------------------------------------------
Class R* (18,334,417) (18,334,417) (4,196) (4,196)
=================================================================================================================================
(106,514,112) $ (106,514,112) 494,941,271 $ 494,941,271
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
* Class R shares commenced sales on June 3, 2002. ** Prior to the year ended July 31, 2003, conversion of Class B shares to AIM Cash Reserve Shares was included in AIM Cash Reserve Shares sold and Class B shares reacquired.
NOTE 9--SIGNIFICANT EVENT
The Board of Trustees of AIM Investment Securities Funds ("Buyer") unanimously approved, on June 11, 2003, an Agreement and Plan of Reorganization (the "Plan") pursuant to which AIM Money Market Fund ("Buying Fund"), a series of Buyer, would acquire all of the assets of INVESCO Cash Reserves Fund ("Selling Fund"), a series of INVESCO Money Market Funds, Inc. ("the Reorganization"). As a result of the Reorganization, shareholders of Selling Fund would receive shares of Buying Fund in exchange for their shares of Selling Fund, and Selling Fund would cease operations.
The Plan requires approval of Selling Fund shareholders and will be submitted to the shareholders for their consideration at a meeting to be held on October 21, 2003. If the Plan is approved by shareholders of Selling Fund and certain conditions required by the Plan are satisfied, the transaction is expected to become effective shortly thereafter.
FS-76
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CASH RESERVE
---------------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER
YEAR ENDED JULY 31, ENDED 31,
--------------------------------------- JULY 31, ----------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0064 0.0141 0.0467 0.0300(a) 0.0414 0.0453
=================================================================================================================================
Less distributions from net investment income (0.0064) (0.0141) (0.0467) (0.0300) (0.0414) (0.0453)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.64% 1.42% 4.77% 3.03% 4.22% 4.62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,188,876 $1,121,879 $937,532 $912,042 $989,478 $1,179,072
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets(c) 0.88%(d) 1.01% 1.06% 1.07%(e) 1.04% 0.99%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net
assets 0.64%(d) 1.40% 4.61% 5.15%(e) 4.16% 4.53%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.03% for the year ended July 31, 2003.
(d) Ratios are based on average net assets of $1,141,790,438.
(e) Annualized.
CLASS B
---------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER
YEAR ENDED JULY 31, ENDED 31,
----------------------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0007 0.0065 0.0392 0.0256(a) 0.0339 0.0371
=================================================================================================================================
Less distributions from net investment income (0.0007) (0.0065) (0.0392) (0.0256) (0.0339) (0.0371)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.07% 0.66% 3.99% 2.59% 3.45% 3.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $543,811 $717,967 $439,445 $289,327 $404,911 $310,534
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets(c) 1.46%(d) 1.76% 1.81% 1.82%(e) 1.79% 1.81%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net assets 0.06%(d) 0.65% 3.86% 4.40%(e) 3.41% 3.71%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.78% for the year ended July 31, 2003.
(d) Ratios are based on average net assets of $666,984,613.
(e) Annualized.
FS-77
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
---------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER
YEAR ENDED JULY 31, ENDED 31,
----------------------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0008 0.0065 0.0393 0.0256(a) 0.0339 0.0371
=================================================================================================================================
Less distributions from net investment income (0.0008) (0.0065) (0.0393) (0.0256) (0.0339) (0.0371)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.09% 0.66% 4.00% 2.59% 3.44% 3.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $113,306 $118,947 $ 86,884 $ 45,457 $ 56,636 $ 27,391
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets(c) 1.44%(d) 1.76% 1.81% 1.82%(e) 1.79% 1.81%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net assets 0.08%(d) 0.65% 3.86% 4.40%(e) 3.41% 3.71%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.78% for the year ended July 31, 2003.
(d) Ratios are based on average net assets of $116,752,566.
(e) Annualized.
CLASS R
------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
JULY 31, JULY 31,
2003 2002
--------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00
--------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0038 0.0010
============================================================================================
Less distributions from net investment income (0.0038) (0.0010)
============================================================================================
Net asset value, end of period $ 1.00 $ 1.00
____________________________________________________________________________________________
============================================================================================
Total return(a) 0.38% 0.10%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 6,280 $ 10
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets(b) 1.13%(c) 1.26%(d)
____________________________________________________________________________________________
============================================================================================
Ratio of net investment income to average net assets 0.39%(c) 1.15%(d)
____________________________________________________________________________________________
============================================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and not annualized for periods
less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.28% for the year ended July 31, 2003.
(c) Ratios are based on average net assets of $3,505,481.
(d) Annualized.
FS-78
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Municipal Bond Fund and the 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, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Municipal Bond Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas /s/ ERNST & YOUNG LLP
September 10, 2003
FS-79
|
FINANCIALS
July 31, 2003
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
ALABAMA-1.44%
Alabama (State of) Public School & College
Authority; Capital Improvement Series 1999
C RB
5.75%, 07/01/17 AA Aa3 $1,400 $ 1,538,866
------------------------------------------------------------------------------------
Birmingham (City of) Special Care Facilities
Financing Authority (Children's Hospital of
Alabama); Health Care Facility Series 2002
RB
5.38%, 06/01/23(b) AAA Aaa 1,500 1,523,565
------------------------------------------------------------------------------------
Courtland (City of) Industrial Development
Board (Champion International Corp.
Project); Refunding Environmental
Improvement Series 1996 RB
6.40%, 11/01/26(c) -- Baa2 2,315 2,355,837
------------------------------------------------------------------------------------
Jefferson (County of);
Prerefunded Capital Improvement Sewer
Series 2001 A RB Wts.
5.00%, 02/01/11(d)(e) AAA Aaa 775 843,076
------------------------------------------------------------------------------------
Unrefunded Capital Improvement Sewer Series
2001 A RB Wts.
5.00%, 02/01/41(b) AAA Aaa 225 214,405
====================================================================================
6,475,749
====================================================================================
ALASKA-0.24%
Alaska (State of) Housing Finance Corp.;
Collateralized First Veterans' Home
Mortgage Series 1992 A-2 RB
6.75%, 12/01/24(c) AAA Aaa 1,065 1,071,475
====================================================================================
AMERICAN SAMOA-0.31%
American Samoa (Territory of); Refunding
Unlimited Tax Series 2000 GO
6.00%, 09/01/08(b) A -- 1,280 1,408,141
====================================================================================
ARIZONA-1.45%
Arizona (State of) Tourism & Sports Authority
(Multipurpose Stadium Facility); Tax Series
2003 A RB
5.00%, 07/01/25(b) -- Aaa 1,000 992,060
------------------------------------------------------------------------------------
5.00%, 07/01/31(b) -- Aaa 1,000 985,150
------------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Radisson City Center Project);
Refunding Development Series 2002 RB
6.50%, 12/01/09(f) -- -- 365 361,368
------------------------------------------------------------------------------------
6.70%, 12/01/10(f) -- -- 390 385,741
------------------------------------------------------------------------------------
6.70%, 12/01/11(f) -- -- 415 410,091
------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
ARIZONA-(CONTINUED)
Pima (County of) Unified School District No.
10; Unlimited Tax School Improvement Series
1992 E GO
6.50%, 07/01/05 A+ A2 $3,100 $ 3,379,868
====================================================================================
6,514,278
====================================================================================
ARKANSAS-0.60%
Jefferson (County of) (Regional Medical
Center Project); Refunding & Improvement
Hospital Series 2001 RB
5.85%, 06/01/26 A -- 500 510,640
------------------------------------------------------------------------------------
University of Arkansas (Fayetteville Campus
Facilities); University Series 2002 RB
5.00%, 12/01/27(b) -- Aaa 1,155 1,121,690
------------------------------------------------------------------------------------
Van Buren (County of); Refunding &
Construction Sales & Use Tax Series 2000 RB
5.60%, 12/01/25(b) -- Aaa 1,000 1,050,720
====================================================================================
2,683,050
====================================================================================
CALIFORNIA-2.15%
Abag Financing Authority for Non-Profit
Corps. (Lincoln Glen Manor for Sr.
Citizens); Series 2000 COP
6.10%, 02/15/25 BBB -- 1,000 1,052,470
------------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit
Corps. (Lytton Gardens Inc.); Series 1999
COP
6.00%, 02/15/19 BBB -- 2,085 2,155,244
------------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit
Corps. (Old Fellows Home of California);
Series 1999 COP
6.00%, 08/15/24 BBB -- 1,000 1,056,610
------------------------------------------------------------------------------------
California (State of) Department of Water
Resources; Power Supply Series 2002 A RB
5.38%, 05/01/22 BBB+ A3 1,000 983,110
------------------------------------------------------------------------------------
California (State of) Educational Facilities
Authority (Fresno Pacific University);
Series 2000 A RB
6.05%, 03/01/11 -- Baa3 1,350 1,464,304
------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency (California
Toll Road Project); Sr. Lien Series 1995 A
RB
6.00%, 01/01/10(d)(e) AAA Aaa 400 459,396
------------------------------------------------------------------------------------
Los Angeles (County of); Series 2001 RB
5.15%, 02/12/06 (Acquired 03/29/01; Cost
$279,934)(f)(g) -- -- 279 291,374
------------------------------------------------------------------------------------
|
FS-80
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
CALIFORNIA-(CONTINUED)
Sacramento (City of) Cogeneration Authority
(Proctor & Gamble Project); Series 1995 RB
7.00%, 07/01/04 BBB -- $ 500 $ 524,865
------------------------------------------------------------------------------------
Sacramento City Financing Authority
(Convention Center Hotel); Sr. Series 1999
A RB
6.25%, 01/01/30(f) -- -- 750 735,885
------------------------------------------------------------------------------------
Whittier (City of) Utility Authority; Water
Series 2003 A RB
5.00%, 06/01/33(b) AAA Aaa 1,000 977,190
====================================================================================
9,700,448
====================================================================================
COLORADO-3.75%
Aurora (City of); Public Improvement Series
2000 COP
5.50%, 12/01/30(b) AAA Aaa 3,230 3,327,772
------------------------------------------------------------------------------------
Broomfield (City of); Refunding & Improvement
Sales & Use Tax Series 2002 A RB
5.00%, 12/01/31(b) -- Aaa 1,000 973,340
------------------------------------------------------------------------------------
Colorado (State of) E-470 Public Highway
Authority; Sr. Series 2000 A RB
5.75%, 09/01/35(b) AAA Aaa 1,000 1,063,870
------------------------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Johnson & Wales
University Project); Series 2003 A RB
5.00%, 04/01/20 AAA Aaa 1,705 1,727,046
------------------------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Student
Housing-University of Colorado Foundation
Project); Series 2002 RB
5.00%, 07/01/22(b) AAA Aaa 1,000 1,002,090
------------------------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (Exempla Inc.); Series 2002 A RB
5.50%, 01/01/23 A- A1 3,500 3,450,545
------------------------------------------------------------------------------------
5.63%, 01/01/33 A- A1 2,000 1,970,180
------------------------------------------------------------------------------------
El Paso (County of) School District No. 2
(Harrison); Unlimited Tax Series 2001 GO
5.25%, 12/01/26(b) -- Aaa 1,435 1,447,398
------------------------------------------------------------------------------------
Meridian Metropolitan District; Refunding &
Improvement Unlimited Tax Series 2001 B GO
5.00%, 12/01/25 AA -- 1,000 963,460
------------------------------------------------------------------------------------
Northwest Parkway Public Highway Authority;
Sr. Series 2001 A RB
5.25%, 06/15/41(b) AAA Aaa 1,000 996,670
====================================================================================
16,922,371
====================================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
CONNECTICUT-5.10%
Brooklyn (City of); Unlimited Tax Series 1995
GO
5.50%, 05/01/05(d)(e) AAA Aaa $ 250 $ 272,970
------------------------------------------------------------------------------------
5.70%, 05/01/05(d)(e) AAA Aaa 250 273,827
------------------------------------------------------------------------------------
Connecticut (State of) (Bradley International
Airport); Special Obligation Parking Series
2000 A RB
6.60%, 07/01/24(b)(c) A -- 1,250 1,303,712
------------------------------------------------------------------------------------
Connecticut (State of) (Transportation
Infrastructure); Special Obligation Tax
Series 1991 B RB
6.50%, 10/01/10 AA- A1 530 625,803
------------------------------------------------------------------------------------
6.50%, 10/01/12 AA- A1 1,500 1,791,390
------------------------------------------------------------------------------------
Connecticut (State of) Area Cooperative
Educational Services (Staff
Development/Administration Facilities);
Unlimited Tax Series 1999 GO
5.63%, 07/15/19(b) A -- 1,060 1,096,973
------------------------------------------------------------------------------------
Connecticut (State of) Development Authority
(Pfizer Inc. Project); Series 1982 PCR
6.55%, 08/15/03 AAA Aaa 250 256,642
------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Bridgeport Hospital);
Series 1992 A RB
6.63%, 07/01/18(b) AAA Aaa 500 515,955
------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Danbury Hospital);
Series 1999 G RB
5.63%, 07/01/25(b) AAA Aaa 250 261,980
------------------------------------------------------------------------------------
Unrefunded Series 1991 E RB
6.50%, 07/01/14(b) AAA Aaa 110 110,234
------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Loomis Chaffee
School); Series 2001 D RB
5.25%, 07/01/31 -- A2 1,500 1,497,735
------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Stamford Hospital);
Series 1996 F RB
5.40%, 07/01/09(b) AAA Aaa 1,000 1,089,310
------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (William W. Backus
Hospital); Series 1997 D RB
5.75%, 07/01/27(b) AAA Aaa 1,000 1,044,640
------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Windham Community
Memorial Hospital); Series 1996 C RB
5.75%, 07/01/11(b) A Baa3 670 711,171
------------------------------------------------------------------------------------
|
FS-81
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
CONNECTICUT-(CONTINUED)
Connecticut (State of) Housing Finance
Authority (Group Home Mortgage); Special
Obligation Series 2000 GH-5 RB
5.85%, 06/15/30(b) AAA Aaa $ 500 $ 520,565
------------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance
Program);
Series 1996 C-1 RB
6.30%, 11/15/17 AAA Aaa 1,270 1,336,040
------------------------------------------------------------------------------------
Series 1996 C-2 RB
6.25%, 11/15/18 AAA Aaa 750 788,040
------------------------------------------------------------------------------------
Series 1996 G RB
6.00%, 11/15/27(c) AAA Aaa 1,000 1,029,450
------------------------------------------------------------------------------------
Series 1998 C RB
5.50%, 11/15/35(c) AAA Aaa 1,775 1,795,146
------------------------------------------------------------------------------------
Series 1998 D-2 RB
5.45%, 11/15/24(c) AAA Aaa 215 218,019
------------------------------------------------------------------------------------
Series 2001 A-1 RB
5.25%, 11/15/28 AAA Aaa 550 550,451
------------------------------------------------------------------------------------
Sub-Series 1996 E-1 RB
5.95%, 05/15/17 AAA Aaa 500 520,105
------------------------------------------------------------------------------------
Sub-Series 1997 C-2 RB
5.85%, 11/15/28(c) AAA Aaa 360 368,302
------------------------------------------------------------------------------------
Sub-Series 1998 E-1 RB
5.13%, 05/15/21 AAA Aaa 445 447,456
------------------------------------------------------------------------------------
Sub-Series 2000 B-2 RB
5.85%, 05/15/31(c) AAA Aaa 770 784,884
------------------------------------------------------------------------------------
Manchester (City of) Eighth Utilities
District; Unlimited Tax Series 1991 GO
6.75%, 08/15/06 -- Aa3 180 204,770
------------------------------------------------------------------------------------
Mansfield (City of); Unlimited Tax Series
1990 GO
6.00%, 06/15/07 -- Aa3 100 113,039
------------------------------------------------------------------------------------
6.00%, 06/15/08 -- Aa3 100 114,396
------------------------------------------------------------------------------------
6.00%, 06/15/09 -- Aa3 100 115,140
------------------------------------------------------------------------------------
New Britain (City of); Unlimited Tax Series
1992 GO
6.00%, 02/01/11(b) AAA Aaa 400 457,728
------------------------------------------------------------------------------------
North Canaan (City of); Unlimited Tax Series
1991 GO
6.50%, 01/15/08 -- A3 125 143,861
------------------------------------------------------------------------------------
6.50%, 01/15/09 -- A3 125 145,322
------------------------------------------------------------------------------------
6.50%, 01/15/10 -- A3 125 145,994
------------------------------------------------------------------------------------
6.50%, 01/15/11 -- A3 125 147,145
------------------------------------------------------------------------------------
Somers (City of); Unlimited Tax Series 1990
GO
6.00%, 12/01/10 -- A1 190 219,906
------------------------------------------------------------------------------------
University of Connecticut; Student Fee Series
2000 A RB
6.00%, 11/15/10(d)(e) NRR NRR 1,325 1,546,407
------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
CONNECTICUT-(CONTINUED)
Westbrook (City of); Unlimited Tax Series
1992 GO
6.40%, 03/15/10(b) AAA Aaa $ 380 $ 443,057
====================================================================================
23,007,565
====================================================================================
DELAWARE-0.07%
Delaware (State of) Economic Development
Authority (Osteopathic Hospital
Association); Series 1993 A RB
6.75%, 01/01/13(d) NRR Aaa 250 300,727
====================================================================================
DISTRICT OF COLUMBIA-0.46%
District of Columbia (George Washington
University); Series 2001 A RB
5.13%, 09/15/31(b) AAA Aaa 1,000 973,090
------------------------------------------------------------------------------------
District of Columbia (Gonzaga College High
School); Series 1999 RB
5.38%, 07/01/19(b) AAA Aaa 1,055 1,092,147
====================================================================================
2,065,237
====================================================================================
FLORIDA-2.24%
Crossings at Fleming Island Community
Development District; Refunding Special
Assessment Series 2000 B RB
5.80%, 05/01/16(b) AAA Aaa 1,000 1,106,750
------------------------------------------------------------------------------------
Escambia (County of) (Champion International
Corp. Project); Series 1994 PCR
6.90%, 08/01/22(c) BBB Baa2 1,125 1,168,785
------------------------------------------------------------------------------------
Escambia (County of) Health Facilities
Authority (Health Care Facility Loan-
Veterans Hospital Project); Series 2000 RB
5.95%, 07/01/20(b) -- Aaa 1,000 1,038,980
------------------------------------------------------------------------------------
Jacksonville (City of) Electric Authority;
Water & Sewer Series 2000 A RB
5.30%, 10/01/30 A+ Aa3 1,000 1,009,850
------------------------------------------------------------------------------------
Jacksonville (City of) Health Facilities
Authority (Ascension Health Credit Group);
Series 2002 A RB
5.25%, 11/15/32 AA Aa2 1,750 1,696,450
------------------------------------------------------------------------------------
Miami-Dade (County of) (Miami International
Airport); Aviation Series 2000 B RB
5.75%, 10/01/29(b) AAA Aaa 2,000 2,115,560
------------------------------------------------------------------------------------
Orlando (City of) Utilities Commission;
Refunding Water & Electric Series 2002 C RB
5.00%, 10/01/27 AA- Aa2 1,000 987,500
------------------------------------------------------------------------------------
Sunrise (City of) Utility System; Refunding
Series 1998 RB
5.00%, 10/01/28(b) AAA Aaa 1,000 994,270
====================================================================================
10,118,145
====================================================================================
|
FS-82
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
GEORGIA-0.44%
Athens-Clarke (County of) Unified Government
Development Authority (Catholic Health
East); Series 2002 RB
5.50%, 11/15/32 A A2 $ 500 $ 488,575
------------------------------------------------------------------------------------
Floyd (County of) Hospital Authority (Floyd
Medical Center Project); Series 2002 RAC
5.25%, 07/01/29(b) -- Aaa 1,510 1,507,795
====================================================================================
1,996,370
====================================================================================
GUAM-0.03%
Guam (Territory of) Power Authority; Series
1993 A RB
5.25%, 10/01/23 BB+ -- 125 118,556
====================================================================================
ILLINOIS-7.24%
Bellwood (City of); Unlimited Tax Series 2002
GO
5.25%, 12/01/25(b) -- Aaa 1,000 1,003,580
------------------------------------------------------------------------------------
Chicago (City of);
Project & Refunding Unlimited Tax Series
2000 C GO
5.50%, 01/01/40(b) AAA Aaa 1,750 1,792,700
------------------------------------------------------------------------------------
Project & Refunding Unlimited Tax Series
2001 A GO
5.25%, 01/01/33(b) AAA Aaa 3,940 3,939,803
------------------------------------------------------------------------------------
Special Transportation Series 2001 RB
5.25%, 01/01/31(b) AAA Aaa 1,000 1,000,620
------------------------------------------------------------------------------------
Chicago (City of) (Cottage View Terrace
Apartments); FHA/GNMA Collateralized
Multi-Family Housing Series 2000 A RB
6.13%, 02/20/42(c) AAA -- 1,575 1,618,958
------------------------------------------------------------------------------------
Chicago (City of) Parks District; Unlimited
Tax Series 2001 D GO
5.00%, 01/01/29(b) AAA Aaa 3,000 2,903,460
------------------------------------------------------------------------------------
Freeport (City of); Unlimited Tax Sewer
Improvement Series 2000 GO
6.00%, 12/01/29(b) AAA Aaa 1,000 1,097,870
------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (Adventist Health Systems
Project); Series 1997 A RB
6.00%, 11/15/11(b) AAA Aaa 2,500 2,840,050
------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (Evanston Northwestern Healthcare
Corp.); VRD Series 2001 C RB
0.85%, 05/01/31(h) A-1+ VMIG-1 5,700 5,700,000
------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (Peoples Gas Light & Coke Co.);
Refunding Gas Supply Series 2003 RB
5.00%, 02/01/33(b) AAA Aaa 1,500 1,444,065
------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
ILLINOIS-(CONTINUED)
Illinois (State of) Educational Facilities
Authority (Northwestern University);
Adjustable Rate Medium Term Series 1997 RB
5.25%, 11/01/14(e) AA+ Aa1 $1,000 $ 1,077,420
------------------------------------------------------------------------------------
Illinois (State of) Educational Facilities
Authority (Robert Morris College); Series
2000 RB
5.80%, 06/01/30(b) -- Aaa 1,000 1,078,140
------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Blessing Hospital); Series 1999
A RB
6.00%, 11/15/19(b) AAA Aaa 1,000 1,106,490
------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Evangelical Hospital Corp.);
Refunding
Series 1992 A RB
6.25%, 04/15/22(d) NRR Aaa 1,000 1,139,710
------------------------------------------------------------------------------------
Series 1992 C RB
6.25%, 04/15/22(d) NRR Aaa 1,150 1,310,666
------------------------------------------------------------------------------------
Metropolitan Pier & Exposition Authority
(McCormick Place Expansion); Dedicated
State Tax Series 2002 A RB
5.25%, 06/15/42(b) AAA Aaa 1,000 983,640
------------------------------------------------------------------------------------
6.00%, 12/15/29(b)(i) AAA Aaa 1,500 323,895
------------------------------------------------------------------------------------
6.02%, 06/15/30(b)(i) AAA Aaa 1,000 209,190
------------------------------------------------------------------------------------
Rockford (City of) School District No. 205;
Unlimited Tax Series 2001 GO
5.00%, 02/01/17(b) -- Aaa 500 523,525
------------------------------------------------------------------------------------
Tazewell (County of) Community High School
District No. 303 (Pekin); Unlimited Tax
Series 1996 GO
5.63%, 01/01/14(b) AAA Aaa 1,435 1,550,245
====================================================================================
32,644,027
====================================================================================
INDIANA-2.93%
Carmel (City of) (Beverly Enterprises Inc.
Project); Refunding Retirement Rental
Housing Series 1992 RB
8.75%, 12/01/08(f) -- -- 75 77,316
------------------------------------------------------------------------------------
East Allen (City of) Multi-School Building
Corp.; First Mortgage Series 2000 RB
5.75%, 01/15/10(d)(e) AAA Aaa 735 829,653
------------------------------------------------------------------------------------
Indiana (State of) Bond Bank; Series 2000 A
RB
5.90%, 02/01/14(b) AAA Aaa 1,000 1,113,560
------------------------------------------------------------------------------------
Indiana (State of) Housing Finance Authority;
Single Family Mortgage Series 1995 B-1 RB
6.15%, 07/01/17 -- Aaa 90 92,854
------------------------------------------------------------------------------------
|
FS-83
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
INDIANA-(CONTINUED)
Indiana (State of) Transportation Finance
Authority; Highway
Series 2000 RB
5.38%, 12/01/25 AA Aa2 $2,000 $ 2,049,060
------------------------------------------------------------------------------------
Unrefunded Airport Facilities Lease Series
1992 A RB
6.25%, 11/01/16 AA A1 105 107,345
------------------------------------------------------------------------------------
Indianapolis (City of) (Lake Nora & Fox Club
Project); Multifamily Series 1999 A RB
5.90%, 10/01/19(b) -- Aaa 1,795 1,893,366
------------------------------------------------------------------------------------
Indianapolis (City of) Local Public
Improvement Bond Bank; Waterworks Project
Series 2002 A RB
5.25%, 07/01/33(b) AAA Aaa 1,000 999,950
------------------------------------------------------------------------------------
Indianapolis (City of) Thermal Energy System;
Series 2001 A RB
5.00%, 10/01/11(b) AAA Aaa 1,500 1,614,240
------------------------------------------------------------------------------------
Lafayette (City of); Sewer Series 2002 RB
5.15%, 07/01/24(b) AAA Aaa 1,000 998,680
------------------------------------------------------------------------------------
Petersburg (City of) (Indiana Power &
Lighting Project); Refunding Series 1991
PCR
5.75%, 08/01/21 BB+ Baa2 2,500 2,394,675
------------------------------------------------------------------------------------
Wa-Nee Middle School Building Corp.;
Unlimited Tax First Mortgage Series 2001 GO
5.50%, 01/15/20(b) AAA Aaa 1,000 1,045,080
====================================================================================
13,215,779
====================================================================================
KANSAS-0.31%
Newton (City of) (Newton Healthcare Corp.);
Hospital Series 1994 A RB
7.38%, 11/15/04(d)(e) NRR NRR 250 274,260
------------------------------------------------------------------------------------
Overland Park (City of) Development Corp.
(First Tier-Overland Park Project); Series
2001 A RB
7.38%, 01/01/32(f) -- -- 1,135 1,140,675
====================================================================================
1,414,935
====================================================================================
KENTUCKY-1.04%
Jefferson (County of) (Beverly Enterprises
Project); Refunding Health Facilities
Series 1999 RB
5.88%, 05/01/08(f) -- -- 595 586,938
------------------------------------------------------------------------------------
Mount Sterling (City of) (Kentucky League
Cities); Lease Funding Series 1993 A RB
6.15%, 03/01/13 -- Aa3 3,000 3,106,500
------------------------------------------------------------------------------------
Russell (City of) (Bon Secours- St. Francis
Medical Center Inc.); Series 2002 A RB
5.63%, 11/15/30 A- A3 1,000 974,730
====================================================================================
4,668,168
====================================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
LOUISIANA-6.88%
Lafayette (City of); Public Improvement Sales
Tax Series 2000 A RB
5.50%, 03/01/23(b) AAA Aaa $1,360 $ 1,423,294
------------------------------------------------------------------------------------
Lafayette (City of) Public Power Authority;
Refunding Electric Series 2003 A RB
5.00%, 11/01/05(b) AAA Aaa 1,500 1,611,345
------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority;
Capital Projects & Equipment Acquisitions
Series 2000 RB
6.55%, 09/01/25(b) A -- 6,040 6,473,974
------------------------------------------------------------------------------------
Capital Projects & Equipment Acquisitions
Series 2000 A RB
6.30%, 07/01/30(b) AAA Aaa 3,000 3,494,310
------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority (BRCC Facilities
Corp. Project); Series 2002 RB
5.00%, 12/01/26(b) AAA Aaa 1,000 978,370
------------------------------------------------------------------------------------
5.00%, 12/01/32(b) AAA Aaa 2,000 1,937,080
------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority (Parking Facilities
Corp. Garage Project); Series 2001 A RB
5.20%, 10/01/20(b) AAA Aaa 1,000 1,021,930
------------------------------------------------------------------------------------
Louisiana (State of) Public Facilities
Authority (Ochsner Clinic Foundation
Project); Series 2002 B RB
5.50%, 05/15/32 -- A3 3,250 3,140,475
------------------------------------------------------------------------------------
Louisiana (State of) Public Facilities
Authority (Tulane University);
Series 1996 RB
6.00%, 10/01/16(b) AAA Aaa 2,500 2,788,125
------------------------------------------------------------------------------------
Series 2002 A RB
5.13%, 07/01/27(b) AAA Aaa 2,100 2,084,166
------------------------------------------------------------------------------------
Series 2002 D RB
5.00%, 02/15/26(b) AAA Aaa 500 489,410
------------------------------------------------------------------------------------
Ouachita (Parish of) Hospital Service
District No. 1 (Glenwood Regional Medical
Center); Refunding Series 1996 RB
5.70%, 05/15/16(b) AAA Aaa 1,000 1,083,930
------------------------------------------------------------------------------------
St. John Baptist (Parish of) Sales Tax
District; Series 1987 RB
7.60%, 01/01/08(d) NRR NRR 500 599,845
------------------------------------------------------------------------------------
7.60%, 01/01/09(d) NRR NRR 500 607,350
------------------------------------------------------------------------------------
|
FS-84
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
LOUISIANA-(CONTINUED)
Tangipahoa (Parish of) Hospital Service
District No. 1 (North Oaks Medical Center
Project); Refunding Hospital Series 2003 A
RB
5.00%, 02/01/25 A -- $1,500 $ 1,355,550
------------------------------------------------------------------------------------
5.00%, 02/01/30 A -- 1,000 902,040
------------------------------------------------------------------------------------
West Feliciana (Parish of) (Gulf States
Utilities); Series 1992 A PCR
7.50%, 05/01/15 BB+ -- 1,000 1,031,350
====================================================================================
31,022,544
====================================================================================
MAINE-0.35%
Maine (State of) Housing Authority; Mortgage
Series 1999 E-1 RB
5.85%, 11/15/20 AA+ Aa1 1,500 1,556,400
====================================================================================
MARYLAND-0.58%
Maryland (State of) Health & Higher
Educational Facilities Authority
(University of Maryland Medical System);
Series 2001 RB
5.25%, 07/01/28 A Baa1 1,000 974,190
------------------------------------------------------------------------------------
5.25%, 07/01/34 A Baa1 1,750 1,660,365
====================================================================================
2,634,555
====================================================================================
MASSACHUSETTS-1.16%
Massachusetts (State of) Health & Educational
Facilities Authority (Winchester Hospital);
Series 1994 D RB
5.80%, 07/01/09(b) AAA -- 1,000 1,053,180
------------------------------------------------------------------------------------
Massachusetts (State of) Housing Finance
Agency; Single Family Housing Series 1994
RB
6.60%, 12/01/26(c) AA Aa3 1,020 1,048,876
------------------------------------------------------------------------------------
Massachusetts (State of) Water Resources
Authority;
Series 2002 B RB
5.13%, 08/01/27(b) AAA Aaa 2,000 1,993,140
------------------------------------------------------------------------------------
Series 2002 J RB
5.00%, 08/01/42 AA Aa3 1,200 1,144,692
====================================================================================
5,239,888
====================================================================================
MICHIGAN-6.71%
Almont (City of) Community Schools; Refunding
Unlimited Tax School Building & Site Series
2002 GO
5.00%, 05/01/27 AAA Aaa 1,000 984,890
------------------------------------------------------------------------------------
Anchor Bay School District; Refunding
Unlimited Tax Series 2001 GO
5.00%, 05/01/29 AAA Aaa 1,000 980,060
------------------------------------------------------------------------------------
Bullock Creek School District; Unlimited Tax
Series 2000 GO
5.50%, 05/01/22 AAA Aaa 1,000 1,036,320
------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
MICHIGAN-(CONTINUED)
Chippewa Valley Schools; Refunding Unlimited
Tax Series 2002 GO
5.13%, 05/01/27 AAA Aaa $1,000 $ 1,000,970
------------------------------------------------------------------------------------
Detroit (City of) School District; Unlimited
Tax Series 2001 A GO
5.13%, 05/01/31(b) AAA Aaa 1,000 990,420
------------------------------------------------------------------------------------
Detroit (City of) Water Supply System;
Prerefunded Sr. Lien Series 2001 A RB
5.25%, 07/01/11(d)(e) AAA Aaa 1,655 1,822,238
------------------------------------------------------------------------------------
Sr. Lien Series 2001 A RB
5.00%, 07/01/30(b) AAA Aaa 6,000 5,835,420
------------------------------------------------------------------------------------
Unrefunded Sr. Lien Series 2001 A RB
5.25%, 07/01/33(b) AAA Aaa 1,845 1,856,771
------------------------------------------------------------------------------------
Grand Rapids (City of) Building Authority;
Series 2002 A RB
5.00%, 10/01/22(b) AAA Aaa 1,660 1,670,807
------------------------------------------------------------------------------------
Lake Orion Community School District;
Refunding Unlimited Tax Series 1994 GO
7.00%, 05/01/05(d)(e) AAA Aaa 2,500 2,769,525
------------------------------------------------------------------------------------
Lincoln Park (City of) School District;
Unlimited Tax Series 1996 GO
6.00%, 05/01/06(d)(e) AAA Aaa 1,210 1,352,199
------------------------------------------------------------------------------------
Melvindale-Northern Allen Park School
District; Limited Tax Building & Site
Series 2003 GO
5.00%, 05/01/28(b) AAA Aaa 1,500 1,466,565
------------------------------------------------------------------------------------
Michigan (State of) Municipal Bond Authority
(Drinking Water Revolving Fund); Series
2000 RB
5.50%, 10/01/10(d)(e) AAA Aaa 1,000 1,133,380
------------------------------------------------------------------------------------
Michigan (State of) Public Water Agency
(Combustion Turbine No. 1); Series 2001 A
RB
5.25%, 01/01/24(b) AAA Aaa 2,500 2,552,675
------------------------------------------------------------------------------------
Ypsilanti (City of) School District;
Refunding Unlimited Tax Series 1996 GO
5.75%, 05/01/07(d)(e) AAA Aaa 4,275 4,784,024
====================================================================================
30,236,264
====================================================================================
MINNESOTA-0.43%
Minneapolis (City of); Unlimited Tax Parking
Ramp Series 2000 A GO
5.90%, 12/01/20 AAA Aa1 1,000 1,098,870
------------------------------------------------------------------------------------
Minneapolis & St. Paul (Cities of)
Metropolitan Airports Commission (Northwest
Airlines Inc.); Special Facilities Series
2001 A RB
7.00%, 04/01/25(c)(f) -- -- 1,000 839,200
====================================================================================
1,938,070
====================================================================================
|
FS-85
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
MISSISSIPPI-1.32%
Mississippi (State of); Refunding Unlimited
Tax Series 2003 A GO
5.25%, 11/01/17 AA Aa3 $ 250 $ 269,265
------------------------------------------------------------------------------------
5.25%, 11/01/19 AA Aa3 500 532,130
------------------------------------------------------------------------------------
Mississippi (State of) Higher Education
Assistance Corp.; Sub-Series 1994 C RB
7.50%, 09/01/09(c) -- A2 5,000 5,129,700
====================================================================================
5,931,095
====================================================================================
MISSOURI-0.89%
Kansas City Industrial Development Authority
(General Motors Corp. Project); Series 1984
PCR
6.05%, 04/01/06 BBB Baa1 170 170,343
------------------------------------------------------------------------------------
Missouri (State of) Environmental Improvement
& Energy Resources Authority (State
Revolving Fund);
Prerefunded Water Series 1995 C PCR
5.85%, 01/01/05(d)(e) NRR Aaa 730 783,487
------------------------------------------------------------------------------------
Unrefunded Water Series 1995 C PCR
5.85%, 01/01/10 -- Aaa 270 286,683
------------------------------------------------------------------------------------
Missouri (State of) Health & Educational
Facilities Authority (Washington University
Project); Educational Facilities Series
2001 A RB
5.13%, 06/15/41 AA+ Aa1 2,750 2,754,235
====================================================================================
3,994,748
====================================================================================
NEBRASKA-0.23%
Omaha (City of) Public Power District;
Electric Series 2002 A RB
5.20%, 02/01/22 AA Aa2 1,000 1,016,500
====================================================================================
NEVADA-3.35%
Boulder (City of) (Boulder City Hospital Inc.
Project); Refunding Hospital Series 1998 RB
5.85%, 01/01/22(f) -- -- 500 421,380
------------------------------------------------------------------------------------
Clark (County of); Airport Lien Sub-Series
2001 B RB
5.25%, 07/01/34(b) AAA Aaa 3,000 2,986,200
------------------------------------------------------------------------------------
Clark (County of) (Nevada Power Co. Project);
Refunding Series 1992 C IDR
7.20%, 10/01/22 BB Ba2 1,500 1,509,225
------------------------------------------------------------------------------------
Clark (County of) Bond Bank; Limited Tax
Series 2001 GO
5.00%, 06/01/31(b) AAA Aaa 5,000 4,860,600
------------------------------------------------------------------------------------
Humboldt (County of) (Sierra Pacific
Project); Refunding Series 1987 PCR
6.55%, 10/01/13(b) AAA Aaa 3,000 3,096,360
------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
NEVADA-(CONTINUED)
Reno (City of) Redevelopment Agency;
Refunding Sub-Series 1995 A TAN
6.00%, 06/01/10 -- Baa3 $1,185 $ 1,232,175
------------------------------------------------------------------------------------
Truckee Meadows Water Authority; Water Series
2001 A RB
5.13%, 07/01/30(b) AAA Aaa 1,000 990,580
====================================================================================
15,096,520
====================================================================================
NEW JERSEY-2.44%
New Jersey (State of) Economic Development
Authority (Continental Airlines, Inc.
Project);
Special Facility Series 1999 RB
6.25%, 09/15/29(c) B Caa2 4,750 3,997,838
------------------------------------------------------------------------------------
6.40%, 09/15/23(c) B Caa2 1,000 862,500
------------------------------------------------------------------------------------
Special Facility Series 2000 RB
7.00%, 11/15/30(c) B Caa2 4,000 3,416,320
------------------------------------------------------------------------------------
New Jersey (State of) Health Care Facilities
Financing Authority (Raritan Bay Medical
Center); Series 1994 RB
7.25%, 07/01/27(f) -- -- 250 258,948
------------------------------------------------------------------------------------
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 RB
5.75%, 06/01/32 A- Baa2 2,000 1,687,480
------------------------------------------------------------------------------------
6.13%, 06/01/42 A- Baa2 1,000 794,140
====================================================================================
11,017,226
====================================================================================
NEW MEXICO-1.09%
Las Cruces (City of) South Central Solid
Waste Authority; Environmental Services
Series 1995 RB
5.65%, 06/01/09 -- A3 575 599,921
------------------------------------------------------------------------------------
Los Alamos (County of) Incorporated Utility
System; Refunding Series 1994 A RB
6.00%, 07/01/15(b) AAA Aaa 2,000 2,112,740
------------------------------------------------------------------------------------
Santa Fe (City of); Series 1994 RB
6.25%, 06/01/04(d)(e) AAA Aaa 2,100 2,190,909
====================================================================================
4,903,570
====================================================================================
NEW YORK-3.55%
Metropolitan Transportation Authority;
Dedicated Tax Fund Series 2000 A RB
5.88%, 04/01/10(d)(e) AAA Aaa 1,500 1,714,590
------------------------------------------------------------------------------------
Refunding Series 2002 A RB
5.13%, 01/01/29 AA- A3 1,000 967,540
------------------------------------------------------------------------------------
|
FS-86
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
NEW YORK-(CONTINUED)
New York (City of);
Prerefunded Unlimited Tax Series 1994 B1 GO
7.38%, 08/15/04(d)(e) NRR Aaa $ 500 $ 537,460
------------------------------------------------------------------------------------
Prerefunded Unlimited Tax Series 1996 A GO
6.25%, 08/01/06(d)(e) NRR NRR 2,540 2,893,162
------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1991 B GO
7.00%, 02/01/18(b) AAA Aaa 40 40,377
------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1996 A GO
6.25%, 08/01/17 A A2 495 545,955
------------------------------------------------------------------------------------
New York (City of) Municipal Water Finance
Authority;
Water & Sewer System Series 1996 A RB
5.50%, 06/15/24(b) AAA Aaa 1,000 1,051,540
------------------------------------------------------------------------------------
Water & Sewer System Series 1997 B RB
5.75%, 06/15/29 AA Aa2 3,850 4,133,129
------------------------------------------------------------------------------------
Water & Sewer System Series 2003 E RB
5.00%, 06/15/38 AA Aa2 2,000 1,904,940
------------------------------------------------------------------------------------
New York (State of) Dormitory Authority
(State University Educational Facilities);
Series 1995 A RB
6.50%, 05/15/06 AA- A3 1,000 1,114,640
------------------------------------------------------------------------------------
New York (State of) Environmental Facilities
Corp. (State Water Revolving Project);
Unrefunded Series 1991 E PCR
6.88%, 06/15/10 AAA Aaa 1,100 1,101,947
====================================================================================
16,005,280
====================================================================================
NORTH CAROLINA-1.27%
North Carolina (State of) Eastern Municipal
Power Agency; Power System Series 1993 A RB
6.13%, 01/01/10(d) AAA Aaa 1,500 1,724,145
------------------------------------------------------------------------------------
North Carolina (State of) Housing Finance
Agency; Single Family Series 1996 II RB
6.20%, 03/01/16 AA Aa2 400 417,588
------------------------------------------------------------------------------------
North Carolina (State of) Municipal Power
Agency (No. 1 Catawba Electric Project);
Refunded Series 1990 RB
6.50%, 01/01/10(d) AAA Aaa 260 303,888
------------------------------------------------------------------------------------
Refunding Series 1992 RB
7.25%, 01/01/07 BBB+ Baa1 2,890 3,256,741
====================================================================================
5,702,362
====================================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
OHIO-2.19%
Cuyahoga (County of); Refunding Series 2003 A
RB
5.50%, 01/01/29 A A1 $1,000 $ 1,000,700
------------------------------------------------------------------------------------
Fairfield (City of) School District;
Unlimited Tax Series 1995 GO
6.10%, 12/01/05(d)(e) AAA Aaa 1,000 1,107,480
------------------------------------------------------------------------------------
Findlay (City of); Limited Tax Series 1996 GO
5.88%, 07/01/17 AA- Aa3 1,000 1,100,390
------------------------------------------------------------------------------------
Montgomery (County of) (Grandview Hospital &
Medical Center); Refunding Hospital Series
1997 RB
5.50%, 12/01/09(d)(e) NRR NRR 1,000 1,122,520
------------------------------------------------------------------------------------
Ohio (State of) Department of Transportation
(Panhandle Rail Line Project); Series 1992
COP
6.50%, 04/15/12(b) AAA Aaa 1,035 1,049,976
------------------------------------------------------------------------------------
Stark (County of) Lake Local School District;
Unlimited Tax Series 2000 GO
5.75%, 12/01/26(b) AAA Aaa 2,500 2,676,825
------------------------------------------------------------------------------------
University of Cincinnati; Series 2002 F RB
5.00%, 06/01/22 AA- Aa3 820 816,974
------------------------------------------------------------------------------------
5.00%, 06/01/23 AA- Aa3 1,000 990,010
====================================================================================
9,864,875
====================================================================================
OKLAHOMA-1.93%
Mustang (City of) Improvement Authority;
Utility Series 1999 RB
5.70%, 10/01/19(b) -- Aaa 1,500 1,620,240
------------------------------------------------------------------------------------
Oklahoma (State of) Development Finance
Authority (St. John Health System);
Refunding Series 1999 RB
5.75%, 02/15/18 AA Aa3 675 712,496
------------------------------------------------------------------------------------
5.75%, 02/15/25 AA Aa3 1,750 1,835,208
------------------------------------------------------------------------------------
Oklahoma (State of) Water Resource Board;
State Loan Program Series 2003 A RB
5.00%, 10/01/22 AA+ -- 1,000 985,390
------------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority (St.
John's Medical Center Project); Hospital
Series 1994 RB
6.25%, 02/15/06(d)(e) NRR NRR 2,000 2,212,140
------------------------------------------------------------------------------------
Tulsa (City of) Public Facilities Authority;
Capital Improvement Series 1988 B RB
6.00%, 03/01/08 A+ -- 1,305 1,329,195
====================================================================================
8,694,669
====================================================================================
OREGON-0.74%
Cow Creek Band Umpqua Tribe of Indians;
Series 1998 B RB
5.10%, 07/01/12 (Acquired 08/18/98; Cost
$997,470)(b)(g) AAA Aaa 1,000 1,030,870
------------------------------------------------------------------------------------
|
FS-87
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
OREGON-(CONTINUED)
Portland (City of) Sewer System; Series 1994
A RB
6.20%, 06/01/04(d)(e) AAA NRR $1,200 $ 1,263,360
------------------------------------------------------------------------------------
6.25%, 06/01/04(d)(e) AAA NRR 1,000 1,053,210
====================================================================================
3,347,440
====================================================================================
PENNSYLVANIA-2.79%
Allegheny (County of) Higher Education
Building Authority (Carnegie Mellon
University); Series 2002 RB
5.25%, 03/01/32 AA- -- 1,500 1,508,160
------------------------------------------------------------------------------------
Allegheny (County of) Port Authority; Special
Transportation Series 1999 RB
6.13%, 03/01/09(d)(e) AAA Aaa 1,000 1,161,550
------------------------------------------------------------------------------------
Benton (City of) Area School District;
Unlimited Tax Series 2002 B GO
5.13%, 06/01/31(b) -- Aaa 1,000 996,250
------------------------------------------------------------------------------------
Chester (County of) Industrial Development
Authority (Westtown School Project);
Educational Facilities Series 2002 RB
5.00%, 01/01/31(b) AAA Aaa 1,000 978,050
------------------------------------------------------------------------------------
Clarion (County of) Industrial Development
Authority (Beverly Enterprises Inc.
Project); Refunding Series 2001 RB
7.38%, 12/01/08(f) -- -- 1,450 1,461,499
------------------------------------------------------------------------------------
Montgomery (County of) Industrial Development
Authority (Pennsburg Nursing &
Rehabilitation Center); Series 1993 RB
7.63%, 03/31/04(d)(e) NRR Aaa 100 107,108
------------------------------------------------------------------------------------
Pennsylvania (State of); Unlimited Tax Third
Series 1994 GO
6.75%, 11/15/04(d)(e) AAA Aaa 1,250 1,360,363
------------------------------------------------------------------------------------
Pennsylvania (State of) Economic Development
Financing Authority (Colver Project);
Resource Recovery Series 1994 D RB
7.05%, 12/01/10(c) BBB- -- 2,900 3,005,763
------------------------------------------------------------------------------------
Pennsylvania (State of) Public School
Building Authority (Lehigh Career &
Technical Institution); Series 2001 RB
5.00%, 10/01/26(b) -- Aaa 1,000 987,770
------------------------------------------------------------------------------------
Spring-Ford Area School District; Unlimited
Tax Series 2002 GO
5.00%, 04/01/23(b) -- Aaa 1,025 1,028,506
====================================================================================
12,595,019
====================================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
PUERTO RICO-0.50%
Children's Trust Fund;
Asset-Backed Tobacco Settlement Series 2000
RB
5.38%, 05/15/33 A- Baa2 $ 500 $ 429,200
------------------------------------------------------------------------------------
Tobacco Settlement Series 2000 RB
6.00%, 07/01/10(d)(e) AAA NRR 1,000 1,148,840
------------------------------------------------------------------------------------
Puerto Rico (Commonwealth of); Unlimited Tax
Public Improvement Series 2000 GO
6.00%, 07/01/29 A- Baa1 500 548,660
------------------------------------------------------------------------------------
Puerto Rico (Commonwealth of) Highway &
Transportation Authority; Transportation
Series 2000 B RB
6.00%, 07/01/10(d)(e) NRR NRR 100 116,002
====================================================================================
2,242,702
====================================================================================
RHODE ISLAND-0.68%
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 A RB
6.00%, 06/01/23 A- Baa2 3,500 3,043,215
====================================================================================
SOUTH CAROLINA-1.62%
Piedmont Municipal Power Agency; Refunding
Electric Series 1986 A RB
5.75%, 01/01/24 BBB- Baa3 1,150 1,108,497
------------------------------------------------------------------------------------
South Carolina (State of) Jobs Economic
Development Authority (Bon Secours-St.
Francis Medical Center Inc.); Economic
Development Series 2002 A RB
5.50%, 11/15/23 A- A3 1,000 989,070
------------------------------------------------------------------------------------
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 1,094,660
------------------------------------------------------------------------------------
South Carolina (State of) Jobs Economic
Development Authority (South Carolina
Electric & Gas Co. Project); Series 2002 A
IDR
5.20%, 11/01/27(b) AAA Aaa 1,000 1,011,620
------------------------------------------------------------------------------------
South Carolina (State of) Public Service
Authority; Series 2002 B RB
5.13%, 01/01/32(b) AAA Aaa 1,250 1,247,150
------------------------------------------------------------------------------------
South Carolina (State of) Transportation
Infrastructure Bank; Series 2001 A RB
5.00%, 10/01/29(b) -- Aaa 1,000 988,420
------------------------------------------------------------------------------------
Tobacco Settlement Revenue Management
Authority; Tobacco Settlement Series 2001 B
RB
6.38%, 05/15/28 A- Baa2 1,000 862,080
====================================================================================
7,301,497
====================================================================================
|
FS-88
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
SOUTH DAKOTA-0.48%
Aberdeen (City of) School District No. 6-1;
Unlimited Tax Series 2000 GO
5.45%, 01/01/26(b) AAA Aaa $2,000 $ 2,055,040
------------------------------------------------------------------------------------
South Dakota (State of) Health & Educational
Facilities Authority (Huron Regional
Medical Center); Series 1994 RB
7.25%, 04/01/20 BBB -- 100 102,770
====================================================================================
2,157,810
====================================================================================
TENNESSEE-1.23%
Franklin (City of) Industrial Development
Board (Landings Apartment Project);
Refunding Multifamily Housing Series 1996 A
RB
5.75%, 04/01/10(b) AAA Aaa 735 782,341
------------------------------------------------------------------------------------
Putnam (County of); Refunding Unlimited Tax
Series 2001 GO
5.25%, 04/01/17(b) -- Aaa 2,500 2,692,250
------------------------------------------------------------------------------------
Robertson & Somner (Counties of) White House
Utility District; Water & Sewer Series 2000
RB
6.00%, 01/01/10(d)(e) NRR Aaa 1,000 1,142,310
------------------------------------------------------------------------------------
Shelby (County of) Health Educational &
Housing Facilities Board (Kirby Pines
Retirement Community); Health Care
Facilities Series 1997 A RB
6.25%, 11/15/16(f) -- -- 1,000 938,790
====================================================================================
5,555,691
====================================================================================
TEXAS-21.33%
Allen (City of) Independent School District;
Refunding Unlimited Tax Series 2000 GO
(CEP-Texas Permanent School Fund)
5.95%, 02/15/25 AAA Aaa 1,600 1,715,936
------------------------------------------------------------------------------------
Arlington (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1995 GO
(CEP-Texas Permanent School Fund)
5.75%, 02/15/05(d)(e) NRR Aaa 705 752,524
------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1995 GO
(CEP-Texas Permanent School Fund)
5.75%, 02/15/21 -- Aaa 295 309,464
------------------------------------------------------------------------------------
Austin (City of); Refunding Hotel Occupancy
Tax Sub. Lien Series 1999 RB
5.80%, 11/15/29(b) AAA Aaa 1,000 1,072,590
------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Austin (City of) Community College District;
Refunding Combined Fee Series 1995 RB
6.10%, 02/01/05(d)(e) AAA Aaa $1,115 $ 1,194,009
------------------------------------------------------------------------------------
Bellville (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1995 GO
(CEP-Texas Permanent School Fund)
6.13%, 02/01/06(d)(e) NRR Aaa 535 589,281
------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1995 GO
(CEP-Texas Permanent School Fund)
6.13%, 02/01/20 -- Aaa 295 318,644
------------------------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Dymaxion & Monarch Park Apartments);
Multifamily Housing Series 2000 A RB
6.10%, 08/01/30(b) -- Aaa 1,000 1,039,220
------------------------------------------------------------------------------------
Bexar (County of) Metropolitan Water
District; Lease Purchase Series 2001 RB
5.53%, 07/20/06 (Acquired 07/27/01; Cost
$527,043)(f)(g) -- -- 522 545,887
------------------------------------------------------------------------------------
Brazos (County of) Health Facilities
Development Corp. (Franciscan Services
Corp. Obligated Group); Series 1997 A RB
5.38%, 01/01/22(b) AAA Aaa 1,250 1,275,575
------------------------------------------------------------------------------------
Carroll (City of) Independent School
District; Refunding Unlimited Tax Series
2001 GO (CEP-Texas Permanent School Fund)
5.25%, 02/15/33 AAA Aaa 1,350 1,359,153
------------------------------------------------------------------------------------
Carrollton (City of); Limited Tax Series 1996
GO
5.75%, 08/15/06(d)(e) NRR NRR 1,000 1,110,260
------------------------------------------------------------------------------------
Cisco (City of) Jr. College District;
Refunding Consolidated Series 2002 RB
5.25%, 07/01/26(b) -- Aaa 1,000 1,008,440
------------------------------------------------------------------------------------
Cleveland (City of) Independent School
District; Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
5.13%, 02/01/31 AAA Aaa 2,000 1,995,600
------------------------------------------------------------------------------------
|
FS-89
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Comal (County of) Independent School
District;
Refunding Unlimited Tax School Building
Series 2001 GO (CEP-Texas Permanent School
Fund)
5.25%, 02/01/28 -- Aaa $1,000 $ 1,008,000
------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
5.75%, 08/01/28 -- Aaa 1,000 1,075,290
------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2002 GO
(CEP-Texas Permanent School Fund)
5.00%, 02/01/28 -- Aaa 1,500 1,454,670
------------------------------------------------------------------------------------
DeSoto (City of) Independent School District;
Refunding Unlimited Tax Series 1998 GO
(CEP-Texas Permanent School Fund)
5.13%, 08/15/17 AAA -- 1,000 1,001,400
------------------------------------------------------------------------------------
Georgetown (City of) Utility System; Series
1995 A RB
6.20%, 08/15/05(d)(e) AAA Aaa 1,500 1,645,665
------------------------------------------------------------------------------------
Grapevine (City of); Limited Tax Series 2000
GO Ctfs.
5.88%, 08/15/26(b) AAA Aaa 1,610 1,727,063
------------------------------------------------------------------------------------
Harris (County of); Refunding Limited Tax
Series 2002 GO
5.13%, 08/15/31 AA+ Aa1 1,000 978,870
------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Memorial Hermann Health
Care Project); Hospital Series 2001 A RB
6.38%, 06/01/29 A A2 750 783,585
------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (St. Luke's Episcopal
Hospital Project);
Series 2001 A RB
5.38%, 02/15/26 AA- -- 1,000 989,040
------------------------------------------------------------------------------------
Series 2002 RB
5.13%, 02/15/32 AA- -- 1,000 946,300
------------------------------------------------------------------------------------
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 1,985,780
------------------------------------------------------------------------------------
Harris (County of) Houston Sports Authority;
Refunding Jr. Lien Series 2001 B RB
5.25%, 11/15/40(b) AAA Aaa 3,000 2,956,260
------------------------------------------------------------------------------------
Harris (County of) Mental Health & Mental
Retardation Authority; Refunding Series
1992 RB
6.25%, 09/15/10(b) AAA Aaa 4,500 4,522,005
------------------------------------------------------------------------------------
Houston (City of) Airport System; Sub. Lien
Series 2000 B RB
5.50%, 07/01/30(b) AAA Aaa 1,000 1,028,840
------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Houston (City of) Water & Sewer System; Jr.
Lien Series 1997 C RB
5.38%, 12/01/27(b) AAA Aaa $2,495 $ 2,546,347
------------------------------------------------------------------------------------
Hurst-Euless-Bedford Independent School
District;
Prerefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
6.50%, 08/15/04(d)(e) AAA Aaa 640 676,243
------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
6.50%, 08/15/24 AAA Aaa 360 376,999
------------------------------------------------------------------------------------
Katy (City of) Independent School District;
Limited Tax Series 1999 GO (CEP- Texas
Permanent School Fund)
6.13%, 02/15/32 AAA Aaa 1,500 1,642,650
------------------------------------------------------------------------------------
Unlimited Tax Series 2001 B GO (CEP-Texas
Permanent School Fund)
5.00%, 02/15/32 AAA Aaa 3,000 2,893,950
------------------------------------------------------------------------------------
Keller (City of) Independent School District;
Refunding Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
5.25%, 08/15/26 AAA Aaa 2,000 2,019,520
------------------------------------------------------------------------------------
Series 1994 COP
6.00%, 08/15/05(b) AAA Aaa 655 712,548
------------------------------------------------------------------------------------
Laredo (City of) Community College District;
Limited Tax Series 2002 GO
5.25%, 08/01/32(b) AAA Aaa 1,000 1,004,260
------------------------------------------------------------------------------------
Little Elm (City of) Independent School
District;
Refunding Unlimited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
6.00%, 08/15/35 AAA -- 2,500 2,737,425
------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2000 GO
(CEP-Texas Permanent School Fund)
6.13%, 08/15/35 AAA -- 1,000 1,095,070
------------------------------------------------------------------------------------
Lockhart (City of) Tax and Utility Systems;
Limited Tax Series 1996 GO Ctfs.
5.85%, 08/01/11(b) AAA Aaa 605 659,916
------------------------------------------------------------------------------------
5.90%, 08/01/06(d)(e) AAA Aaa 1,100 1,226,236
------------------------------------------------------------------------------------
Nacogdoches (City of) Independent School
District; Refunding Unlimited Tax Series
2001 GO (CEP-Texas Permanent School Fund)
5.30%, 02/15/25 AAA Aaa 1,765 1,787,910
------------------------------------------------------------------------------------
|
FS-90
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Northside Independent School District;
Unlimited Tax Series 1999 A GO (CEP-Texas
Permanent School Fund)
5.50%, 08/15/24 AAA Aaa $1,000 $ 1,033,080
------------------------------------------------------------------------------------
Pasadena (City of); Limited Tax Series 2002
GO Ctfs.
5.25%, 04/01/32(b) AAA Aaa 2,000 2,013,640
------------------------------------------------------------------------------------
Pflugerville (City of) Independent School
District; Unlimited Tax Series 2000 GO
(CEP-Texas Permanent School Fund)
5.50%, 08/15/23 AAA Aaa 1,615 1,667,165
------------------------------------------------------------------------------------
Plano (City of); Limited Tax Series 2000 GO
5.88%, 09/01/19 AAA Aaa 850 934,669
------------------------------------------------------------------------------------
Richardson (City of);
Limited Tax Hotel Occupancy Series 2000 A
GO Ctfs.
5.75%, 02/15/21(b) AAA Aaa 2,000 2,140,020
------------------------------------------------------------------------------------
Limited Tax Series 2001 GO Ctfs.
5.00%, 02/15/19 AA+ Aa1 1,720 1,729,615
------------------------------------------------------------------------------------
Richardson (City of) Hospital Authority
(Baylor/Richardson Medical Center);
Unrefunded Hospital Series 1993 RB
6.50%, 12/01/12 BBB+ Baa1 785 810,410
------------------------------------------------------------------------------------
San Angelo (City of) Waterworks & Sewer
System; Refunding & Improvement Series 2001
RB
5.25%, 04/01/19(b) AAA Aaa 1,000 1,033,660
------------------------------------------------------------------------------------
San Antonio (City of) Independent School
District; Unlimited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
5.50%, 08/15/24 AAA Aaa 3,500 3,632,440
------------------------------------------------------------------------------------
Schertz-Cibolo-Universal City Independent
School District;
Refunding Unlimited Tax Building Series
2001 GO (CEP-Texas Permanent School Fund)
5.13%, 08/01/25 -- Aaa 1,535 1,531,976
------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2002 GO
(CEP-Texas Permanent School Fund)
5.00%, 08/01/23 -- Aaa 750 739,740
------------------------------------------------------------------------------------
Spring Branch Independent School District;
Limited Tax Series 2000 GO (CEP-Texas
Permanent School Fund)
5.75%, 02/01/24 AAA Aaa 1,700 1,812,523
------------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Texas (State of);
Refunding Unlimited Tax Water Development
Series 2001 A GO
5.25%, 08/01/35 AA Aa1 $1,840 $ 1,847,139
------------------------------------------------------------------------------------
Unlimited Tax Water Financial Assistance
Series 2002 GO
5.00%, 08/01/23 AA Aa1 1,000 983,860
------------------------------------------------------------------------------------
Texas (State of) (Veteran's Land); Unlimited
Tax Series 1994 GO
6.40%, 12/01/24(c) AA Aa1 2,000 2,106,380
------------------------------------------------------------------------------------
Texas (State of) Department of Housing &
Community Affairs (Asmara Affordable
Housing Inc. Project); Multifamily Housing
Series 1996 A RB
6.30%, 01/01/16 A -- 310 317,198
------------------------------------------------------------------------------------
Texas (State of) Public Property Finance
Corp. (Mental Health & Mental Retardation);
Series 1996 RB
6.20%, 09/01/16 BBB+ -- 735 740,351
------------------------------------------------------------------------------------
Texas (State of) Turnpike Authority (Central
Texas Turnpike System); First Tier Series
2002 A RB
5.50%, 08/15/39(b) AAA Aaa 1,000 1,029,360
------------------------------------------------------------------------------------
Town Center Improvement District; Sales &
Hotel Occupancy Tax Series 2001 RB
5.13%, 03/01/23(b) AAA Aaa 1,000 1,004,630
------------------------------------------------------------------------------------
5.25%, 03/01/27(b) AAA Aaa 2,800 2,819,012
------------------------------------------------------------------------------------
5.50%, 03/01/13(b) AAA Aaa 1,725 1,855,220
------------------------------------------------------------------------------------
United Independent School District; Unlimited
Tax Series 2000 GO (CEP-Texas Permanent
School Fund)
5.13%, 08/15/26 AAA Aaa 1,000 996,630
------------------------------------------------------------------------------------
University of Texas Financing System; Series
1999 B RB
5.70%, 08/15/09(d)(e) AAA Aaa 1,000 1,141,350
------------------------------------------------------------------------------------
Victoria (County of) (Citizens Medical
Center); Hospital Series 1994 RB
6.20%, 01/01/10(b) AAA Aaa 1,000 1,036,100
------------------------------------------------------------------------------------
Waxahachie (City of) Independent School
District; Refunding Unlimited Tax Series
2002 GO (CEP-Texas Permanent School Fund)
5.25%, 08/15/26 -- Aaa 2,000 2,019,520
------------------------------------------------------------------------------------
5.38%, 08/15/27 -- Aaa 1,000 1,020,550
------------------------------------------------------------------------------------
|
FS-91
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Weatherford (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
6.40%, 02/15/05(d)(e) NRR Aaa $ 900 $ 969,489
------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
6.40%, 02/15/12 -- Aaa 100 106,322
------------------------------------------------------------------------------------
Ysleta (City of) Independent School District
Public Facility Corp.; Refunding Lease
Series 2001 RB
5.38%, 11/15/24(b) AAA Aaa 1,300 1,320,839
====================================================================================
96,161,313
====================================================================================
UTAH-1.43%
Intermountain Power Agency; Power Supply
Series 1995 B RB
5.00%, 07/01/16(d) NRR NRR 2,000 2,009,040
------------------------------------------------------------------------------------
Salt Lake (County of) (Westminster College
Project); Series 1997 RB
5.75%, 10/01/27 BBB -- 1,000 1,017,740
------------------------------------------------------------------------------------
South Jordan (City of); Sales Tax Series 2001
RB
5.20%, 08/15/26(b) AAA Aaa 1,500 1,501,920
------------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency;
Single Family Mortgage Sub-Series 1994 C RB
6.05%, 07/01/06 -- Aa1 60 63,323
------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994 E-1
RB
6.30%, 07/01/06 AA- -- 35 37,048
------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994 G-1
RB
7.15%, 07/01/06 AA- Aaa 5 5,154
------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 2000 B-1
RB
6.00%, 07/01/10(c) AA- Aa3 400 417,316
------------------------------------------------------------------------------------
Sr. Single Family Mortgage Series 1995 G-2
RB
6.45%, 07/01/27(c) AAA Aaa 310 318,925
------------------------------------------------------------------------------------
Utah (State of) Transit Authority; Sales Tax
Series 2002 A RB
5.00%, 06/15/25(b) AAA Aaa 1,105 1,080,502
====================================================================================
6,450,968
====================================================================================
VERMONT-0.25%
Vermont (State of) Educational & Health
Buildings Financing Agency (Fletcher Allen
Health Care); Hospital Series 2000 A RB
6.00%, 12/01/23(b) AAA Aaa 1,000 1,109,080
====================================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
VIRGIN ISLANDS-0.12%
Virgin Islands (Territory of) Public Finance
Authority (Gross Receipts Taxes Loan
Notes); Series 1999 A RB
6.13%, 10/01/29(b) A -- $ 500 $ 529,360
====================================================================================
VIRGINIA-0.88%
Fauquier (County of) Industrial Development
Authority (Fauquier Hospital Foundation,
Inc.); Hospital Series 2002 RB
5.25%, 10/01/31 AA -- 1,000 982,610
------------------------------------------------------------------------------------
Henrico (County of) Economic Development
Authority (Virginia United Methodist Homes
Inc.); Refunding Residential Care
Facilities Series 2002 A RB
6.50%, 06/01/22(f) -- -- 1,000 972,420
------------------------------------------------------------------------------------
Norton (City of) Industrial Development
Authority (Norton Community Hospital);
Refunding & Improvement Hospital Series
2001 RB
6.00%, 12/01/22(b) A -- 1,000 1,041,290
------------------------------------------------------------------------------------
Virginia (State of) Resources Authority
(Goochland County Tuckahoe Creek Service
District Project); Water & Sewer System
Series 2002 RB
5.00%, 11/01/35 AA Aa2 1,000 977,990
====================================================================================
3,974,310
====================================================================================
WASHINGTON-1.75%
Clark (County of) School District No. 117;
Unlimited Tax Series 1995 GO
6.00%, 12/01/05(d)(e) AAA Aaa 1,000 1,102,780
------------------------------------------------------------------------------------
King (County of); Sewer Series 1999 RB
5.50%, 01/01/22(b) AAA Aaa 1,000 1,059,280
------------------------------------------------------------------------------------
Lewis (County of) Public Utility District No.
1 (Cowlitz Falls Hydroelectric Project);
Refunding Series 2003 RB
5.00%, 10/01/21(b) AAA Aaa 500 491,765
------------------------------------------------------------------------------------
Pend Oreille (County of) Public Utility
District No. 1; Electric Series 1996 B RB
6.30%, 01/01/17 BBB+ A3 1,400 1,488,886
------------------------------------------------------------------------------------
Washington (State of) Health Care Facilities
Authority (Providence Health System
Project); Series 2001 A RB
5.25%, 10/01/21(b) AAA Aaa 1,000 1,015,170
------------------------------------------------------------------------------------
|
FS-92
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
WASHINGTON-(CONTINUED)
Washington (State of) Public Power Supply
System (Nuclear Project No. 1); Refunding
Series 1996 A RB
5.75%, 07/01/12(b) AAA Aaa $2,000 $ 2,208,680
------------------------------------------------------------------------------------
West Richland (City of); Water & Sewer Series
1994 RB
7.00%, 12/01/04(d)(e) AAA Aaa 500 539,645
====================================================================================
7,906,206
====================================================================================
WISCONSIN-1.18%
Muskego-Norway School District; Refunding
Unlimited Tax Series 2002 GO
5.00%, 04/01/21(b) -- Aaa 1,000 1,000,630
------------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Sinai Samaritan
Medical Center Inc.);
Series 1996 RB
5.75%, 08/15/16(b) AAA Aaa 1,500 1,638,600
------------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Sisters of the
Sorrowful Mother Ministry Corp.);
Series 1997 A RB
5.90%, 08/15/24(b) AAA Aaa 2,500 2,688,000
====================================================================================
5,327,230
====================================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
------------------------------------------------------------------------------------
WYOMING-0.52%
Laramie (County of) (Memorial Hospital
Project); Hospital Series 1992 RB
6.70%, 05/01/12(b) AAA Aaa $ 250 $ 255,848
------------------------------------------------------------------------------------
Natrona (County of) (Wyoming Medical Center
Project); Hospital Series 1995 RB
6.00%, 09/15/11(b) AAA Aaa 1,000 1,086,390
------------------------------------------------------------------------------------
Sweetwater (County of) (Idaho Power Co.
Project); Refunding Series 1996 A PCR
6.05%, 07/15/26 BBB+ A3 1,000 1,017,010
====================================================================================
2,359,248
====================================================================================
TOTAL INVESTMENTS-99.67% (Cost $431,042,337) 449,240,676
====================================================================================
OTHER ASSETS LESS LIABILITIES-0.33% 1,493,962
====================================================================================
NET ASSETS-100.00% $450,734,638
____________________________________________________________________________________
====================================================================================
|
Investment Abbreviations:
CEP - Credit Enhancement Provider COP - Certificate of Participation Ctfs. - Certificates FHA - Federal Housing Administration GNMA - Government National Mortgage Association GO - General Obligation Bonds IDR - Industrial Development Revenue Bonds Jr. - Junior PCR - Pollution Control Revenue Bonds RAC - Revenue Anticipation Certificates RB - Revenue Bonds Sr. - Senior Sub. - Subordinated TAN - Tax Allocation Notes VRD - Variable Rate Demand Wts. - Warrants |
Notes to Schedule of Investments:
(a) Ratings assigned by Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's"). NRR indicates a security that is not
re-rated subsequent to funding of an escrow fund (consisting of U.S.
Treasury obligations); this funding is pursuant to an advance refunding of
this security. Ratings are not covered by the Report of Independent
Auditors.
(b) Principal and interest are secured by bond insurance provided by one of the
following companies: Ambac Assurance Corp., American Capital Access Corp.,
Financial Guaranty Insurance Co., Financial Security Assurance, or MBIA
Insurance Corp.
(c) Security subject to the alternative minimum tax.
(d) Advance refunded; 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) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 07/31/03 was $1,868,131,
which represented 0.41% of the Fund's net assets. These securities are
considered to be illiquid.
(h) Demand securities; payable upon demand by the Fund with usually no more than
seven calendar days' notice. Interest rates are redetermined weekly. Rates
shown are rates in effect on 07/31/03.
(i) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
See Notes to Financial Statements.
FS-93
July 31, 2003
ASSETS:
Investments, at market value (cost
$431,042,337) $449,240,676
-----------------------------------------------------------
Cash 65,774
-----------------------------------------------------------
Receivables for:
Fund shares sold 2,089,596
-----------------------------------------------------------
Interest 6,472,504
-----------------------------------------------------------
Investment for deferred compensation plan 89,641
-----------------------------------------------------------
Other assets 44,674
===========================================================
Total assets 458,002,865
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,614,225
-----------------------------------------------------------
Fund shares reacquired 4,608,324
-----------------------------------------------------------
Dividends 701,417
-----------------------------------------------------------
Deferred compensation plan 89,641
-----------------------------------------------------------
Accrued distribution fees 186,508
-----------------------------------------------------------
Accrued trustees' fees 1,058
-----------------------------------------------------------
Accrued transfer agent fees 4,777
-----------------------------------------------------------
Accrued operating expenses 62,277
===========================================================
Total liabilities 7,268,227
===========================================================
Net assets applicable to shares outstanding $450,734,638
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $443,133,802
-----------------------------------------------------------
Undistributed net investment income (59,092)
-----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (10,538,411)
-----------------------------------------------------------
Unrealized appreciation of investment
securities 18,198,339
===========================================================
$450,734,638
___________________________________________________________
===========================================================
NET ASSETS:
Class A $328,279,819
___________________________________________________________
===========================================================
Class B $ 97,029,572
___________________________________________________________
===========================================================
Class C $ 25,425,247
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 41,228,856
___________________________________________________________
===========================================================
Class B 12,164,746
___________________________________________________________
===========================================================
Class C 3,193,992
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 7.96
-----------------------------------------------------------
Offering price per share:
(Net asset value of $7.96 divided by
95.25%) $ 8.36
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 7.98
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 7.96
___________________________________________________________
===========================================================
|
See Notes to Financial Statements.
FS-94
For the year ended July 31, 2003
INVESTMENT INCOME:
Interest $25,636,153
=========================================================================
EXPENSES:
Advisory fees 2,109,878
-------------------------------------------------------------------------
Administrative services fees 123,845
-------------------------------------------------------------------------
Custodian fees 17,790
-------------------------------------------------------------------------
Distribution fees -- Class A 858,948
-------------------------------------------------------------------------
Distribution fees -- Class B 1,067,329
-------------------------------------------------------------------------
Distribution fees -- Class C 271,571
-------------------------------------------------------------------------
Transfer agent fees 290,861
-------------------------------------------------------------------------
Trustees' fees 11,888
-------------------------------------------------------------------------
Other 179,620
=========================================================================
Total expenses 4,931,730
=========================================================================
Less: Expenses paid indirectly (7,453)
=========================================================================
Net expenses 4,924,277
=========================================================================
Net investment income 20,711,876
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 194,250
-------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (4,964,846)
=========================================================================
Net gain (loss) from investment securities (4,770,596)
=========================================================================
Net increase in net assets resulting from operations $15,941,280
_________________________________________________________________________
=========================================================================
|
See Notes to Financial Statements.
FS-95
For the years ended July 31, 2003 and 2002
2003 2002
------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 20,711,876 $ 21,138,440
------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 194,250 (210,205)
------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (4,964,846) (392,841)
==========================================================================================
Net increase in net assets resulting from operations 15,941,280 20,535,394
==========================================================================================
Distributions to shareholders from net investment income:
Class A (15,869,640) (16,156,773)
------------------------------------------------------------------------------------------
Class B (4,141,072) (3,770,131)
------------------------------------------------------------------------------------------
Class C (1,054,998) (953,868)
==========================================================================================
Decrease in net assets resulting from distributions (21,065,710) (20,880,772)
==========================================================================================
Share transactions-net:
Class A (7,594,641) 17,431,346
------------------------------------------------------------------------------------------
Class B (5,994,533) 17,606,047
------------------------------------------------------------------------------------------
Class C (3,421,085) 11,286,232
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (17,010,259) 46,323,625
==========================================================================================
Net increase (decrease) in net assets (22,134,689) 45,978,247
==========================================================================================
NET ASSETS:
Beginning of year 472,869,327 426,891,080
==========================================================================================
End of year $450,734,638 $472,869,327
__________________________________________________________________________________________
==========================================================================================
|
NOTES TO FINANCIAL STATEMENTS
July 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Municipal Bond Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is to achieve a high level of current income exempt from federal income taxes, consistent with the preservation of principal.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Portfolio securities are valued on the basis of prices provided by an independent pricing service approved by the Board of Trustees. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Portfolio securities for which prices are not provided by the pricing service are valued at the mean between the last available bid and asked prices, unless the Board of Trustees, or persons designated by the Board of Trustees, determines that the mean between the last available bid and asked prices does not accurately reflect the current market value of the security. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Securities with a demand feature exercisable within one to seven days are valued at par. Notwithstanding the above, short-term obligations with maturities of 60 days or less and commercial paper are valued at amortized cost which approximates market value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend
FS-96
income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $200 million of the Fund's average daily net assets, plus 0.40% on the next $300 million of the Fund's average daily net assets, plus 0.35% on the next $500 million of the Fund's average daily net assets, plus 0.30% on the Fund's average daily net assets in excess of $1 billion.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the year ended July 31, 2003, AIM was paid $123,845 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, 2003, AFS retained $174,538 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C and Investor Class shares of the Fund. Investor Class shares have not commenced operations. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, the Fund may pay a service fee up to 0.25% of the average daily net assets of the Class A, Class B, Class C or Investor Class shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges, that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the Class A, Class B and Class C shares paid $858,948, $1,067,329 and $271,571, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended July 31, 2003, AIM Distributors retained $60,271 in front-end sales commissions from the sale of Class A shares and $72,278, $1,713 and $16,877 from Class A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $7,453 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $7,453.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid legal fees of $3,649 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties
FS-97
to the line of credit can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 were as follows:
2003 2002
--------------------------------------------------------------
Distributions paid from ordinary
income-tax exempt $21,065,710 $20,880,772
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 51,312 ----------------------------------------------------------- Unrealized appreciation -- investments 18,144,502 ----------------------------------------------------------- Temporary book/tax differences (123,350) ----------------------------------------------------------- Capital loss carryforward (10,471,628) ----------------------------------------------------------- Shares of beneficial interest 443,133,802 =========================================================== Total net assets $450,734,638 ___________________________________________________________ =========================================================== |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable to the tax deferral of losses on wash sales and premium amortization on bonds.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2004 $ 92,144
----------------------------------------------------------
July 31, 2007 1,947,609
----------------------------------------------------------
July 31, 2008 8,431,875
==========================================================
Total capital loss carryforward $10,471,628
__________________________________________________________
==========================================================
|
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $91,152,955 and $105,020,554, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $21,639,055
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,494,553)
===========================================================
Net unrealized appreciation of investment
securities $18,144,502
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $431,096,174.
|
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of expiration of the capital loss carryforward and bond premium amortization on July 31, 2003, undistributed net investment income was decreased by $25,082, undistributed net realized gains (losses) increased by $736,184 and shares of beneficial interest decreased by $711,102. This reclassification had no effect on the net assets of the Fund.
FS-98
NOTE 9--SHARE INFORMATION
The Fund currently consists of four different classes of shares: Class A shares, Class B shares, Class C and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Investor Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase. Investor Class shares have not commenced operations.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 41,276,911 $ 336,373,916 25,443,792 $ 203,919,132
--------------------------------------------------------------------------------------------------------------------------
Class B 3,425,769 27,924,611 5,648,537 45,438,128
--------------------------------------------------------------------------------------------------------------------------
Class C 2,577,392 21,026,115 3,492,497 27,986,065
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,071,470 8,718,591 1,118,428 8,950,726
--------------------------------------------------------------------------------------------------------------------------
Class B 314,210 2,560,594 281,101 2,253,388
--------------------------------------------------------------------------------------------------------------------------
Class C 90,736 737,965 86,031 687,981
==========================================================================================================================
Issued in connection with acquisitions:*
Class A -- -- 4,890,500 39,744,960
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:**
Class A 668,278 5,433,316 -- --
--------------------------------------------------------------------------------------------------------------------------
Class B (625,570) (5,433,316) -- --
==========================================================================================================================
Reacquired:
Class A (43,911,135) (358,120,464) (29,353,247) (235,183,472)
--------------------------------------------------------------------------------------------------------------------------
Class B (3,849,409) (31,046,422) (3,758,234) (30,085,469)
--------------------------------------------------------------------------------------------------------------------------
Class C (3,094,367) (25,185,165) (2,179,285) (17,387,814)
==========================================================================================================================
(2,055,715) $ (17,010,259) 5,670,120 $ 46,323,625
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
* As of the close of business September 7, 2001, the Fund acquired all the net assets of AIM Tax-Exempt Bond Fund of Connecticut pursuant to a plan of reorganization approved by AIM Tax-Exempt Bond Fund of Connecticut shareholders on June 13, 2001. The acquisition was accomplished by a tax-free exchange of 4,890,500 shares of the Fund for 3,624,409 shares of AIM Tax-Exempt Bond Fund of Connecticut outstanding as of the close of business on September 7, 2001. AIM Tax-Exempt Bond Fund of Connecticut net assets at that date of $39,744,960, including $2,619,081 of unrealized appreciation, were combined with those of the Fund. The aggregate net assets of the Fund immediately before the acquisition were $446,100,096. ** Prior to the year ended July 31, 2003, conversion of Class B shares to Class A shares were included in Class A shares sold and Class B shares reacquired.
NOTE 10--SIGNIFICANT EVENT
The Board of Trustees of AIM Investment Securities Funds ("Buyer") unanimously approved, on June 11, 2003, an Agreement and Plan of Reorganization (the "Plan") pursuant to which AIM Municipal Bond Fund ("Buying Fund"), a series of Buyer, would acquire all of the assets of INVESCO Tax-Free Bond Fund ("Selling Fund"), a series of INVESCO Bond Funds, Inc. (the "Reorganization"). As a result of the Reorganization, shareholders of Selling Fund would receive shares of Buying Fund in exchange for their shares of Selling Fund, and Selling Fund would cease operations.
The Plan requires approval of Selling Fund shareholders and will be submitted to the shareholders for their consideration at a meeting to be held on or around October 21, 2003. If the Plan is approved by shareholders of Selling Fund and certain conditions required by the Plan are satisfied, the transaction is expected to become effective shortly thereafter.
FS-99
NOTE 11--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 DECEMBER
YEAR ENDED JULY 31, ENDED 31,
-------------------------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.06 $ 8.06 $ 7.83 $ 7.74 $ 8.35 $ 8.34
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.37 0.38(a) 0.40 0.24(b) 0.41 0.42
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.09) 0.00 0.23 0.09 (0.61) 0.01
=================================================================================================================================
Total from investment operations 0.28 0.38 0.63 0.33 (0.20) 0.43
=================================================================================================================================
Less dividends from net investment income (0.38) (0.38) (0.40) (0.24) (0.41) (0.42)
=================================================================================================================================
Net asset value, end of period $ 7.96 $ 8.06 $ 8.06 $ 7.83 $ 7.74 $ 8.35
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 3.43% 4.84% 8.28% 4.32% (2.45)% 5.28%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $328,280 $339,545 $322,437 $283,416 $294,720 $327,705
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.82%(d) 0.81% 0.85% 0.85%(e) 0.84% 0.82%
=================================================================================================================================
Ratio of net investment income to average net
assets 4.55%(d) 4.79%(a) 5.06% 5.32%(e) 5.01% 5.00%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 20% 35% 28% 18% 28% 19%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $343,579,427.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-100
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
--------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED
YEAR ENDED JULY 31, ENDED DECEMBER 31,
------------------------------------ JULY 31, ------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.07 $ 8.07 $ 7.84 $ 7.75 $ 8.37 $ 8.36
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.31 0.32(a) 0.34 0.21(b) 0.35 0.36
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.08) 0.00 0.23 0.08 (0.62) 0.01
=================================================================================================================================
Total from investment operations 0.23 0.32 0.57 0.29 (0.27) 0.37
=================================================================================================================================
Less dividends from net investment income (0.32) (0.32) (0.34) (0.20) (0.35) (0.36)
=================================================================================================================================
Net asset value, end of period $ 7.98 $ 8.07 $ 8.07 $ 7.84 $ 7.75 $ 8.37
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.79% 4.05% 7.46% 3.84% (3.28)% 4.48%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $97,030 $104,150 $86,565 $67,363 $72,256 $72,723
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.57%(d) 1.56% 1.60% 1.61%(e) 1.59% 1.57%
=================================================================================================================================
Ratio of net investment income to average net assets 3.80%(d) 4.04%(a) 4.31% 4.56%(e) 4.26% 4.25%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 20% 35% 28% 18% 28% 19%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $106,732,858.
(e) Annualized.
(f) Not annualized for periods less than one year.
CLASS C
-----------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED
YEAR ENDED JULY 31, ENDED DECEMBER 31,
----------------------------------- JULY 31, ----------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.06 $ 8.05 $ 7.83 $ 7.74 $ 8.35 $ 8.35
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.31 0.32(a) 0.34 0.21(b) 0.35 0.36
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.09) 0.01 0.22 0.08 (0.61) 0.00
=================================================================================================================================
Total from investment operations 0.22 0.33 0.56 0.29 (0.26) 0.36
=================================================================================================================================
Less dividends from net investment income (0.32) (0.32) (0.34) (0.20) (0.35) (0.36)
=================================================================================================================================
Net asset value, end of period $ 7.96 $ 8.06 $ 8.05 $ 7.83 $ 7.74 $ 8.35
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.67% 4.19% 7.34% 3.85% (3.16)% 4.36%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $25,425 $29,175 $17,889 $8,252 $9,652 $9,565
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.57%(d) 1.56% 1.60% 1.61%(e) 1.59% 1.57%
=================================================================================================================================
Ratio of net investment income to average net assets 3.80%(d) 4.04%(a) 4.31% 4.56%(e) 4.26% 4.25%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 20% 35% 28% 18% 28% 19%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $27,157,126.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-101
We have audited the accompanying statement of assets and liabilities of AIM Real Estate Fund (a portfolio of AIM Advisor Funds), including the schedule of investments, as of July 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Real Estate Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP September 10, 2003
FS-102
FINANCIALS
JULY 31, 2003
MARKET
SHARES VALUE
-----------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS & COMMON
STOCKS-96.33%
APARTMENTS-13.15%
Archstone-Smith Trust 321,817 $ 8,318,969
-----------------------------------------------------------------------
Avalonbay Communities, Inc. 79,900 3,753,702
-----------------------------------------------------------------------
BRE Properties, Inc.-Class A 20,000 661,000
-----------------------------------------------------------------------
Camden Property Trust 78,300 2,921,373
-----------------------------------------------------------------------
Canadian Apartment Properties Real Estate
Investment Trust (Canada) 138,700 1,466,393
-----------------------------------------------------------------------
Equity Residential 67,900 1,894,410
-----------------------------------------------------------------------
Essex Property Trust, Inc. 241,800 14,653,080
-----------------------------------------------------------------------
Residential Equities Real Estate Investment
Trust (Canada) 105,100 1,084,971
-----------------------------------------------------------------------
United Dominion Realty Trust, Inc. 739,200 13,327,776
=======================================================================
48,081,674
=======================================================================
DIVERSIFIED-5.38%
Canadian Real Estate Investment Trust
(Canada) 32,200 317,507
-----------------------------------------------------------------------
Catellus Development Corp.(a) 130,900 3,015,936
-----------------------------------------------------------------------
Cominar Real Estate Investment Trust (Canada) 74,500 739,908
-----------------------------------------------------------------------
H&R Real Estate Investment Trust (Canada) 69,000 763,883
-----------------------------------------------------------------------
Vornado Realty Trust 323,800 14,842,992
=======================================================================
19,680,226
=======================================================================
HEALTHCARE-4.31%
Health Care Property Investors, Inc. 105,500 4,624,065
-----------------------------------------------------------------------
Health Care REIT, Inc. 137,200 4,320,428
-----------------------------------------------------------------------
Nationwide Health Properties, Inc. 102,000 1,746,240
-----------------------------------------------------------------------
Senior Housing Properties Trust 110,000 1,523,500
-----------------------------------------------------------------------
Ventas, Inc. 214,600 3,551,630
=======================================================================
15,765,863
=======================================================================
INDUSTRIAL PROPERTIES-11.62%
AMB Property Corp. 199,900 5,617,190
-----------------------------------------------------------------------
CenterPoint Properties Corp. 225,400 14,335,440
-----------------------------------------------------------------------
ProLogis 818,400 22,546,920
=======================================================================
42,499,550
=======================================================================
INDUSTRIAL/OFFICE PROPERTIES-2.60%
Kilroy Realty Corp. 121,500 3,495,555
-----------------------------------------------------------------------
Liberty Property Trust 173,450 6,016,980
=======================================================================
9,512,535
=======================================================================
|
MARKET
SHARES VALUE
-----------------------------------------------------------------------
LODGING-RESORTS-4.09%
Fairmont Hotels & Resorts Inc. (Canada) 191,400 $ 4,823,280
-----------------------------------------------------------------------
Hilton Hotels Corp. 389,200 5,682,320
-----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 137,000 4,466,200
=======================================================================
14,971,800
=======================================================================
OFFICE PROPERTIES-15.76%
Alexandria Real Estate Equities, Inc. 167,400 7,658,550
-----------------------------------------------------------------------
Arden Realty, Inc. 110,700 3,099,600
-----------------------------------------------------------------------
Boston Properties, Inc. 357,200 15,463,188
-----------------------------------------------------------------------
Brookfield Properties Corp. (Canada) 20,000 451,600
-----------------------------------------------------------------------
CarrAmerica Realty Corp. 17,400 508,254
-----------------------------------------------------------------------
Highwoods Properties, Inc. 129,900 3,005,886
-----------------------------------------------------------------------
Mack-Cali Realty Corp. 229,900 8,464,918
-----------------------------------------------------------------------
Prentiss Properties Trust 171,600 5,311,020
-----------------------------------------------------------------------
SL Green Realty Corp. 381,000 13,643,610
=======================================================================
57,606,626
=======================================================================
REGIONAL MALLS-21.56%
Borealis Retail Real Estate Investment Trust
(Canada) 237,600 1,708,501
-----------------------------------------------------------------------
CBL & Associates Properties, Inc. 261,900 12,618,342
-----------------------------------------------------------------------
General Growth Properties, Inc. 346,500 23,624,370
-----------------------------------------------------------------------
Macerich Co. (The) 322,100 12,023,993
-----------------------------------------------------------------------
Mills Corp. (The) 115,100 4,098,711
-----------------------------------------------------------------------
Rouse Co. (The) 25,000 999,750
-----------------------------------------------------------------------
Simon Property Group, Inc. 560,800 23,749,880
=======================================================================
78,823,547
=======================================================================
SHOPPING CENTERS-16.47%
Acadia Realty Trust 107,300 1,073,000
-----------------------------------------------------------------------
Chelsea Property Group, Inc. 381,900 16,650,840
-----------------------------------------------------------------------
Developers Diversified Realty Corp. 375,900 11,164,230
-----------------------------------------------------------------------
Federal Realty Investment Trust 232,600 8,110,762
-----------------------------------------------------------------------
New Plan Excel Realty Trust 226,700 5,078,080
-----------------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 167,700 7,175,883
-----------------------------------------------------------------------
Ramco-Gershenson Properties Trust 27,100 666,118
-----------------------------------------------------------------------
Regency Centers Corp. 142,700 5,191,426
-----------------------------------------------------------------------
RioCan Real Estate Investment Trust (Canada) 154,900 1,599,067
-----------------------------------------------------------------------
Urstadt Biddle Properties-Class A 259,100 3,510,805
=======================================================================
60,220,211
=======================================================================
|
FS-103
MARKET
SHARES VALUE
-----------------------------------------------------------------------
SPECIALTY PROPERTIES-1.39%
American Financial Realty Trust 186,400 $ 2,747,536
-----------------------------------------------------------------------
Entertainment Properties Trust 75,500 2,325,400
=======================================================================
5,072,936
=======================================================================
Total Real Estate Investment Trusts &
Common Stocks (Cost $288,260,116) 352,234,968
=======================================================================
MONEY MARKET FUNDS-4.98%
STIC Liquid Assets Portfolio(b) 9,094,930 9,094,930
-----------------------------------------------------------------------
STIC Prime Portfolio(b) 9,094,930 9,094,930
=======================================================================
Total Money Market Funds (Cost
$18,189,860) 18,189,860
=======================================================================
TOTAL INVESTMENTS-101.31% (Cost $306,449,976) 370,424,828
=======================================================================
OTHER ASSETS LESS LIABILITIES-(1.31%) (4,783,046)
=======================================================================
NET ASSETS-100.00% $365,641,782
_______________________________________________________________________
=======================================================================
|
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-104
JULY 31, 2003
ASSETS:
Investments, at market value (cost
$288,260,116) $352,234,968
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $18,189,860) 18,189,860
-----------------------------------------------------------
Receivables for:
Investments sold 161,910
-----------------------------------------------------------
Fund shares sold 3,431,207
-----------------------------------------------------------
Dividends 531,532
-----------------------------------------------------------
Investment for deferred compensation plan 26,177
-----------------------------------------------------------
Other assets 47,571
===========================================================
Total assets 374,623,225
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 8,115,395
-----------------------------------------------------------
Fund shares reacquired 466,713
-----------------------------------------------------------
Dividends 4,379
-----------------------------------------------------------
Deferred compensation plan 26,177
-----------------------------------------------------------
Accrued distribution fees 203,576
-----------------------------------------------------------
Accrued trustees' fees 845
-----------------------------------------------------------
Accrued transfer agent fees 126,687
-----------------------------------------------------------
Accrued operating expenses 37,671
===========================================================
Total liabilities 8,981,443
===========================================================
Net assets applicable to shares outstanding $365,641,782
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $316,741,425
-----------------------------------------------------------
Undistributed net investment income 574,152
-----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (15,650,916)
-----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 63,977,121
===========================================================
$365,641,782
___________________________________________________________
===========================================================
NET ASSETS:
Class A $177,901,039
___________________________________________________________
===========================================================
Class B $123,092,658
___________________________________________________________
===========================================================
Class C $ 64,648,085
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 10,163,942
___________________________________________________________
===========================================================
Class B 7,013,258
___________________________________________________________
===========================================================
Class C 3,690,390
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 17.50
-----------------------------------------------------------
Offering price per share:
(Net asset value of $17.50 divided by
95.25%) $ 18.37
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 17.55
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 17.52
___________________________________________________________
===========================================================
|
See Notes to Financial Statements.
FS-105
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $63,610) $11,942,995
-------------------------------------------------------------------------
Dividends from affiliated money market funds 180,305
-------------------------------------------------------------------------
Interest 11,587
=========================================================================
Total investment income 12,134,887
=========================================================================
EXPENSES:
Advisory fees 2,327,770
-------------------------------------------------------------------------
Administrative services fees 79,487
-------------------------------------------------------------------------
Custodian fees 60,596
-------------------------------------------------------------------------
Distribution fees -- Class A 414,390
-------------------------------------------------------------------------
Distribution fees -- Class B 919,868
-------------------------------------------------------------------------
Distribution fees -- Class C 482,573
-------------------------------------------------------------------------
Transfer agent fees 885,755
-------------------------------------------------------------------------
Trustees' fees 10,106
-------------------------------------------------------------------------
Other 187,412
=========================================================================
Total expenses 5,367,957
=========================================================================
Less: Fees waived and expenses paid indirectly (7,374)
=========================================================================
Net expenses 5,360,583
=========================================================================
Net investment income 6,774,304
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (4,083,840)
-------------------------------------------------------------------------
Foreign currencies (23,020)
=========================================================================
(4,106,860)
=========================================================================
Change in net unrealized appreciation of:
Investment securities 48,776,717
-------------------------------------------------------------------------
Foreign currencies 829
=========================================================================
48,777,546
=========================================================================
Net gain from investment securities and foreign currencies 44,670,686
=========================================================================
Net increase in net assets resulting from operations $51,444,990
_________________________________________________________________________
=========================================================================
|
See Notes to Financial Statements.
FS-106
2003 2002
------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 6,774,304 $ 2,902,798
------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (4,106,860) 2,344,896
------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 48,777,546 7,441,074
==========================================================================================
Net increase in net assets resulting from operations 51,444,990 12,688,768
==========================================================================================
Distributions to shareholders from net investment income:
Class A (3,329,708) (1,366,733)
------------------------------------------------------------------------------------------
Class B (2,034,884) (741,067)
------------------------------------------------------------------------------------------
Class C (1,070,734) (669,922)
==========================================================================================
Decrease in net assets resulting from distributions (6,435,326) (2,777,722)
==========================================================================================
Share transactions-net:
Class A 70,728,483 53,809,611
------------------------------------------------------------------------------------------
Class B 37,706,329 49,731,417
------------------------------------------------------------------------------------------
Class C 18,496,500 12,210,117
==========================================================================================
Net increase in net assets resulting from share
transactions 126,931,312 115,751,145
==========================================================================================
Net increase in net assets 171,940,976 125,662,191
==========================================================================================
NET ASSETS:
Beginning of year 193,700,806 68,038,615
==========================================================================================
End of year $365,641,782 $193,700,806
__________________________________________________________________________________________
==========================================================================================
|
See Notes to Financial Statements.
FS-107
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Real Estate Fund (the "Fund") is a series portfolio of AIM Advisor Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of two separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve high total return. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
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
FS-108
account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the fund's book and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
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.
G. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.90% of the Fund's average daily net assets. AIM has entered into a sub-advisory agreement with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM pays INVESCO 40% of the fee paid by the Fund to AIM. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended July 31, 2003, AIM waived fees of $2,113.
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, 2003, AIM was paid $79,487 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, 2003, AFS retained $463,931 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C and Investor Class shares of the Fund. Investor Class shares have not commenced operations. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, the Fund may pay a service fee up to 0.25% of the average daily net assets of the Class A, Class B, Class C or Investor Class shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the Class A, Class B and Class C shares paid $414,390, $919,868 and $482,573, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended July 31, 2003, AIM Distributors retained $162,429 in front-end sales commissions from the sale of Class A shares and $9,515, $88 and $19,224 from Class A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $5,160 and reductions in custodian fees of $101 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $5,261.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
The law firm Kramer, Levin, Naftalis & Frankel LLP of which a trustee is a member as counsel to the Independent Trustees. During the year ended July 31, 2003, the Fund paid legal fees of $2,993.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on
FS-109
investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 were as follows:
2003 2002
--------------------------------------------------------------
Distributions paid from ordinary
income $6,435,326 $2,777,722
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 837,934 ----------------------------------------------------------- Unrealized appreciation -- investments 62,694,429 ----------------------------------------------------------- Temporary book/tax differences (34,380) ----------------------------------------------------------- Capital loss carryforward (13,350,647) ----------------------------------------------------------- Post-October capital loss deferral (1,246,979) ----------------------------------------------------------- Shares of beneficial interest 316,741,425 =========================================================== Total net assets $365,641,782 ___________________________________________________________ =========================================================== |
The difference between book-basis and tax-basis unrealized appreciation is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation difference is attributable to the tax deferral of losses on wash sales, realization for tax purposes of unrealized gains on passive foreign investment companies and other deferrals. The tax-basis unrealized appreciation on investments includes appreciation on foreign currencies of $2,269.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2007 $ 9,612,829
----------------------------------------------------------
July 31, 2008 1,275,744
----------------------------------------------------------
July 31, 2011 2,462,074
==========================================================
Total capital loss carryforward $13,350,647
__________________________________________________________
==========================================================
|
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $340,224,591 and $214,512,526, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON
A TAX BASIS
-------------------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $62,714,500
-------------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (22,340)
===================================================================
Net unrealized appreciation of investment
securities $62,692,160
___________________________________________________________________
===================================================================
Cost of investments for tax purposes is $307,732,668.
|
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency transactions and passive foreign investment companies on July 31, 2003, undistributed net investment income was decreased by $5,973, undistributed net realized gains (losses) increased by $5,938 and shares of beneficial interest increased by $35. This reclassification had no effect on the net assets of the Fund.
FS-110
NOTE 9--SHARE INFORMATION
The Fund currently consists of four different classes of shares: Class A shares, Class B shares, Class C and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Investor Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase. Investor Class shares have not commenced operations.
CHANGES IN SHARES OUTSTANDING
----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 10,040,616 $153,310,327 5,154,009 $ 76,791,735
----------------------------------------------------------------------------------------------------------------------
Class B 4,612,513 69,835,946 4,236,687 63,066,596
----------------------------------------------------------------------------------------------------------------------
Class C 2,144,150 32,601,275 1,526,796 22,598,155
======================================================================================================================
Issued as reinvestment of dividends:
Class A 199,768 3,041,849 86,632 1,253,375
----------------------------------------------------------------------------------------------------------------------
Class B 118,414 1,804,757 45,952 669,735
----------------------------------------------------------------------------------------------------------------------
Class C 60,550 921,382 40,989 588,258
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:*
Class A 158,310 2,459,992 -- --
----------------------------------------------------------------------------------------------------------------------
Class B (157,917) (2,459,992) -- --
======================================================================================================================
Reacquired:
Class A (5,900,039) (88,083,685) (1,670,317) (24,235,499)
----------------------------------------------------------------------------------------------------------------------
Class B (2,108,225) (31,474,382) (979,116) (14,004,914)
----------------------------------------------------------------------------------------------------------------------
Class C (986,180) (15,026,157) (770,478) (10,976,296)
======================================================================================================================
8,181,960 $126,931,312 7,671,154 $115,751,145
______________________________________________________________________________________________________________________
======================================================================================================================
|
* Prior to the year ended July 31, 2003, conversion of Class B shares to Class A shares were included in Class A shares sold and Class B shares reacquired.
NOTE 10--SIGNIFICANT EVENT
The Board of Trustees of AIM Advisor Funds (the "Trust") approved, on July 30, 2003, an Agreement and Plan of Reorganization (the "Plan"), which provides for the restructuring of AIM International Core Equity Fund and AIM Real Estate Fund, the two series portfolios of the Trust (each a "Fund" and, collectively, the "Funds"), as new series portfolios of AIM Investment Securities Funds ("AISF") and, in connection therewith, the sale of all of each Fund's assets and the termination of each Fund as a designated series of the Trust. AISF is an existing Delaware statutory trust. The Plan has been structured as a tax-free reorganization.
The Plan provides for a series of transactions to convert each Fund to a corresponding series (a "New Fund") of AISF. Under the Plan, each Fund will transfer all its assets to a corresponding New Fund in exchange solely for voting shares of beneficial interest in the New Fund and the New Fund's assumption of all the Fund's liabilities (collectively, the "Restructuring"). The operations of each New Fund following the Restructuring will be substantially similar to those of its predecessor Fund. AISF, like the Trust operates as an open-end management investment company.
The proposed Restructuring relates to an integration initiative announced on March 27, 2003, by AMVESCAP PLC ("AMVESCAP"), the parent company of both AIM and INVESCO, with respect to its North American mutual fund operations. AMVESCAP has recommended that certain series portfolios of funds within The AIM Family of Funds (the "AIM Funds") with few portfolios be restructured as new series of an existing Delaware statutory trust. This change should simplify the organizational structure and reduce costs of the AIM Funds.
The proposed Restructuring of each Fund requires the approval of such Funds's shareholders and will be submitted to shareholders for their consideration at a meeting to be held on October 21, 2003. If approved by shareholders and certain closing conditions required by the Plan are satisfied, the proposed Restructuring is expected to be consummated shortly thereafter. If shareholders of a Fund do no approve the proposed Restructuring, such Fund will continue to operate as a series of the Trust.
FS-111
NOTE 11--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
YEAR ENDED JULY 31, ENDED DECEMBER 31,
--------------------------------- JULY 31, ------------------
2003 2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46 $ 15.74
--------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.45(a) 0.47(a) 0.50 0.30(a) 0.42 0.58(a)
--------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.24 1.68 0.54 2.38 (0.75) (4.11)
================================================================================================================================
Total from investment operations 2.69 2.15 1.04 2.68 (0.33) (3.53)
================================================================================================================================
Less distributions:
Dividends from net investment income (0.44) (0.46) (0.52) (0.25) (0.52) (0.50)
--------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25)
================================================================================================================================
Total distributions (0.44) (0.46) (0.52) (0.25) (0.52) (0.75)
================================================================================================================================
Net asset value, end of period $ 17.50 $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 18.12% 16.10% 8.23% 25.61% (2.88)% (22.54)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $177,901 $86,411 $28,400 $23,187 $16,279 $20,087
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.72%(c) 1.77% 1.63% 1.62%(d) 1.61% 1.55%
--------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.72%(c) 1.77% 1.79% 2.05%(d) 1.73% 1.71%
================================================================================================================================
Ratio of net investment income to average net assets 2.97%(c) 3.25% 3.88% 4.49%(d) 3.70% 4.37%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 87% 77% 85% 39% 52% 69%
________________________________________________________________________________________________________________________________
================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $118,397,069.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-112
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
----------------------------------------------------------------------------------
MARCH 3, 1998
SEVEN MONTHS (DATE SALES
YEAR ENDED JULY 31, ENDED YEAR ENDED COMMENCED) TO
--------------------------------- JULY 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.29 $ 13.59 $ 13.07 $ 10.64 $11.48 $ 15.34
------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36(a) 0.38(a) 0.41 0.25(a) 0.32 0.37(a)
------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 2.24 1.68 0.53 2.39 (0.72) (3.58)
==============================================================================================================================
Total from investment operations 2.60 2.06 0.94 2.64 (0.40) (3.21)
==============================================================================================================================
Less distributions:
Dividends from net investment income (0.34) (0.36) (0.42) (0.21) (0.44) (0.40)
------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25)
==============================================================================================================================
Total distributions (0.34) (0.36) (0.42) (0.21) (0.44) (0.65)
==============================================================================================================================
Net asset value, end of period $ 17.55 $ 15.29 $ 13.59 $ 13.07 $10.64 $ 11.48
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 17.37% 15.40% 7.42% 25.08% (3.53)% (21.02)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $123,093 $69,557 $16,917 $12,722 $9,839 $ 6,901
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.37%(c) 2.41% 2.36% 2.37%(d) 2.35% 2.31%(d)
------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.37%(c) 2.41% 2.43% 2.70%(d) 2.37% 2.35%(d)
==============================================================================================================================
Ratio of net investment income to average
net assets 2.32%(c) 2.61% 3.15% 3.73%(d) 2.96% 3.62%(d)
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(e) 87% 77% 85% 39% 52% 69%
______________________________________________________________________________________________________________________________
==============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $91,986,805.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-113
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
----------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED
YEAR ENDED JULY 31, ENDED DECEMBER 31,
-------------------------------- JULY 31, ------------------
2003 2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46 $ 15.74
--------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36(a) 0.38(a) 0.41 0.25(a) 0.33(a) 0.50(a)
--------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.24 1.67 0.53 2.39 (0.73) (4.13)
================================================================================================================================
Total from investment operations 2.60 2.05 0.94 2.64 (0.40) (3.63)
================================================================================================================================
Less distributions:
Dividends from net investment income (0.34) (0.36) (0.42) (0.21) (0.44) (0.40)
--------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25)
================================================================================================================================
Total distributions (0.34) (0.36) (0.42) (0.21) (0.44) (0.65)
================================================================================================================================
Net asset value, end of period $ 17.52 $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 17.41% 15.35% 7.43% 25.13% (3.54)% (23.16)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $64,648 $37,733 $22,722 $20,306 $19,992 $32,921
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.37%(c) 2.41% 2.36% 2.37%(d) 2.35% 2.31%
--------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.37%(c) 2.41% 2.43% 2.70%(d) 2.37% 2.37%
================================================================================================================================
Ratio of net investment income to average net assets 2.32%(c) 2.61% 3.15% 3.73%(d) 2.96% 3.62%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 87% 77% 85% 39% 52% 69%
________________________________________________________________________________________________________________________________
================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $48,257,279.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-114
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Short Term Bond Fund and the Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM Short Term Bond Fund (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2003, and the related statement of operations, statement of changes in net assets and financial highlights for the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Short Term Bond Fund as of July 31, 2003, and the results of its operations, changes in its net assets and financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP September 10, 2003
FS-115
FINANCIALS
July 31, 2003
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
BONDS & NOTES-52.72%
AEROSPACE & DEFENSE-0.94%
Lockheed Martin Corp.,
Series A, Medium Term Notes, 8.66%,
11/30/06 $ 495,000 $ 569,646
-------------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes, 7.25%, 05/15/06 650,000 728,078
-------------------------------------------------------------------------
Raytheon Co., Sr. Unsec. Notes, 6.30%,
03/15/05 1,750,000 1,859,252
=========================================================================
3,156,976
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.46%
Bank of New York Institutional Capital Trust-
Series A, Bonds, 7.78%, 12/01/26 (Acquired
06/12/03; Cost $1,789,065)(a)(b) 1,500,000 1,539,615
=========================================================================
AUTOMOBILE MANUFACTURERS-0.61%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 2,025,000 2,052,722
=========================================================================
BROADCASTING & CABLE TV-7.18%
Clear Channel Communications, Inc.,
Sr. Unsec. Gtd. Notes, 8.00%, 11/01/08 2,000,000 2,252,500
-------------------------------------------------------------------------
Sr. Unsec. Notes, 7.88%, 06/15/05 3,590,000 3,939,379
-------------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Notes, 8.88%, 04/01/07 900,000 951,651
-------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06 1,000,000 1,190,000
-------------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 5,100,000 5,909,931
-------------------------------------------------------------------------
Cox Communications, Inc.-Class A, Unsec.
Notes, 7.50%, 08/15/04 2,495,000 2,638,438
-------------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 4.38%, 05/01/08
(Acquired 04/14/03; Cost $1,748,863)(a)(b) 1,750,000 1,773,432
-------------------------------------------------------------------------
TCI Communications, Inc.,
Medium Term Notes, 8.35%, 02/15/05 1,822,000 1,954,350
-------------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 08/01/05 575,000 631,827
-------------------------------------------------------------------------
Time Warner Inc., Unsec. Notes, 7.75%,
06/15/05 2,750,000 3,006,575
=========================================================================
24,248,083
=========================================================================
CONSUMER FINANCE-5.13%
Capital One Bank-Series 4, Sr. Global Notes,
6.50%, 07/30/04 3,100,000 3,220,125
-------------------------------------------------------------------------
Capital One Financial Corp., Sr. Unsec.
Notes, 7.25%, 12/01/03 800,000 808,760
-------------------------------------------------------------------------
7.25%, 05/01/06 3,000,000 3,183,750
-------------------------------------------------------------------------
8.75%, 02/01/07 1,000,000 1,087,350
-------------------------------------------------------------------------
CitiFinancial Credit Co., Unsec. Notes,
6.50%, 06/01/05 1,000,000 1,072,620
-------------------------------------------------------------------------
Ford Motor Credit Co., Notes, 7.50%, 06/15/04 1,200,000 1,249,236
-------------------------------------------------------------------------
Household Finance Corp.,
Medium Term Notes, 3.38%, 02/21/06 1,400,000 1,414,588
-------------------------------------------------------------------------
Sr. Unsec. Global Notes,
6.50%, 01/24/06 100,000 108,452
-------------------------------------------------------------------------
8.00%, 05/09/05 3,740,000 4,114,561
-------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$1,046,330)(a)(b) $ 1,000,000 $ 1,041,370
=========================================================================
17,300,812
=========================================================================
DIVERSIFIED BANKS-3.13%
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $776,335)(a)(b) 700,000 749,420
-------------------------------------------------------------------------
Bank One Corp., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/01/05 1,900,000 2,100,146
-------------------------------------------------------------------------
BankAmerica Institutional Capital-Series B,
Gtd. Bonds, 7.70%, 12/31/26 (Acquired
06/18/03; Cost $1,768,200)(a)(b) 1,500,000 1,550,535
-------------------------------------------------------------------------
Bankers Trust Corp., Unsec. Sub. Notes,
8.25%, 05/01/05 1,200,000 1,319,664
-------------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 1,500,000 1,600,725
-------------------------------------------------------------------------
Citicorp, Jr. Unsec. Sub. Notes, 6.38%,
01/15/06 100,000 106,645
-------------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Yankee Notes,
6.38%, 06/15/08 (Acquired 08/30/02; Cost
$53,673)(a)(b) 50,000 53,286
-------------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27 650,000 696,592
-------------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 900,000 1,056,474
-------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 250,000 276,470
-------------------------------------------------------------------------
U.S. Bancorp-Series N, Sr. Medium Term Notes,
2.75%, 03/30/06 500,000 502,190
-------------------------------------------------------------------------
Wells Fargo Financial, Inc., Global Notes,
6.13%, 02/15/06 500,000 545,480
=========================================================================
10,557,627
=========================================================================
DIVERSIFIED CAPITAL MARKETS-0.45%
Chase Manhattan Corp., Sub. Deb., 7.88%,
07/15/06 400,000 453,208
-------------------------------------------------------------------------
JPMorgan Chase Bank, Sub. Notes, 7.00%,
06/01/05 1,000,000 1,078,240
=========================================================================
1,531,448
=========================================================================
ELECTRIC UTILITIES-3.40%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 1,430,000 1,569,253
-------------------------------------------------------------------------
CenterPoint Energy, Inc., Notes, 5.88%,
06/01/08 (Acquired 05/21/03; Cost
$1,008,520)(a) 1,000,000 980,090
-------------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 2,015,000 2,104,788
-------------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 1,740,000 1,897,940
-------------------------------------------------------------------------
Niagara Mohawk Power Corp., First Mortgage
Bonds, 8.00%, 06/01/04(c) 100,000 104,678
-------------------------------------------------------------------------
Public Service Co. of New Mexico-Series A,
Sr. Unsec. Notes, 7.10%, 08/01/05 2,000,000 2,187,920
-------------------------------------------------------------------------
TXU Corp.-Series B, Sr. Unsec. Notes, 6.38%,
10/01/04(c) 2,250,000 2,366,595
-------------------------------------------------------------------------
|
FS-116
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
Wisconsin Energy Corp., Sr. Unsec. Unsub.
Notes, 5.50%, 12/01/08 $ 250,000 $ 267,273
=========================================================================
11,478,537
=========================================================================
GAS UTILITIES-0.31%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 1,000,000 1,041,790
=========================================================================
HOMEBUILDING-0.34%
Lennar Corp.-Series B, Class A, Sr. Unsec.
Gtd. Global Notes, 9.95%, 05/01/10 1,000,000 1,162,500
=========================================================================
HYPERMARKETS & SUPER CENTERS-0.20%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 600,000 666,804
=========================================================================
INTEGRATED OIL & GAS-0.52%
BP Canada Finance Co. (Canada), Unsec. Gtd.
Unsub. Global Notes, 3.38%, 10/31/07 1,000,000 993,800
-------------------------------------------------------------------------
Occidental Petroleum Corp., Sr. Unsec. Notes,
6.50%, 04/01/05 700,000 746,753
=========================================================================
1,740,553
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-6.16%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 3,427,000 3,840,022
-------------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 8.25%, 06/15/05 1,750,000 1,930,460
-------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 300,000 330,792
-------------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 700,000 791,259
-------------------------------------------------------------------------
SBC Communications Capital Corp.-Series D,
Medium Term Notes, 7.11%, 08/14/06 2,425,000 2,751,623
-------------------------------------------------------------------------
Sprint Capital Corp.,
Gtd. Global Notes, 5.88%, 05/01/04 1,400,000 1,433,376
-------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 3,040,000 3,215,651
-------------------------------------------------------------------------
7.13%, 01/30/06 15,000 16,235
-------------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes,
6.13%, 11/15/08 1,000,000 1,050,940
-------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 7.90%, 03/15/05 3,500,000 3,777,725
-------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07 1,500,000 1,666,875
=========================================================================
20,804,958
=========================================================================
INVESTMENT BANKING & BROKERAGE-2.31%
Bear Stearns Cos. Inc. (The), Sr. Unsec.
Global Notes, 3.00%, 03/30/06 1,900,000 1,914,060
-------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), Global
Bonds, 7.63%, 08/17/05 75,000 83,021
-------------------------------------------------------------------------
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03; Cost
$2,008,062)(a)(b) 1,800,000 1,973,880
-------------------------------------------------------------------------
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 125,000 143,869
-------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-(CONTINUED)
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 $ 700,000 $ 790,580
-------------------------------------------------------------------------
Merrill Lynch & Co., Inc.
Series B, Medium Term Notes,
4.54%, 03/08/05 250,000 259,595
-------------------------------------------------------------------------
7.08%, 10/03/05 690,000 756,944
-------------------------------------------------------------------------
Series E, Floating Rate Medium Term Euro
Notes, 1.36%, 06/28/04(d) 400,000 400,635
-------------------------------------------------------------------------
Morgan Stanley,
Sr. Global Notes, 7.75%, 06/15/05 1,050,000 1,157,247
-------------------------------------------------------------------------
Unsec. Notes, 6.30%, 01/15/06 300,000 324,516
=========================================================================
7,804,347
=========================================================================
LIFE & HEALTH INSURANCE-0.95%
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 500,000 550,325
-------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 2,340,000 2,646,868
=========================================================================
3,197,193
=========================================================================
MOVIES & ENTERTAINMENT-0.90%
AOL Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06 750,000 807,060
-------------------------------------------------------------------------
Viacom Inc., Sr. Unsec. Gtd. Notes, 7.15%,
05/20/05 2,060,000 2,241,877
=========================================================================
3,048,937
=========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.39%
Westar Energy, Inc., Sec. First Mortgage
Global Bonds, 7.88%, 05/01/07 1,200,000 1,323,000
=========================================================================
OIL & GAS DRILLING-0.66%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05 2,070,000 2,213,844
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.73%
Anadarko Petroleum Corp. (Canada), Unsec.
Yankee Deb., 7.38%, 05/15/06 50,000 56,015
-------------------------------------------------------------------------
Kerr-McGee Corp., Unsec. Gtd. Global Notes,
5.38%, 04/15/05 1,630,000 1,707,197
-------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp.,
Sr. Sub. Notes, 9.25%, 06/15/04 1,850,000 1,953,100
-------------------------------------------------------------------------
Unsec. Notes, 6.88%, 12/01/07 1,250,000 1,398,925
-------------------------------------------------------------------------
Nexen Inc. (Canada), Unsec. Unsub. Yankee
Notes, 7.13%, 02/04/04 700,000 716,646
=========================================================================
5,831,883
=========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.53%
Petroleos Mexicanos (Mexico), Unsec. Gtd.
Unsub. Global Notes, 6.50%, 02/01/05 1,700,000 1,795,625
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-6.10%
ASIF Global Financing XX, Sec. Notes, 2.65%,
01/17/06 (Acquired 01/08/03-07/09/03; Cost
$1,557,431)(a)(b) 1,545,000 1,555,923
-------------------------------------------------------------------------
|
FS-117
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
CIT Group Inc.,
Sr. Floating Rate Medium Term Global Notes,
2.35%, 11/25/03(d) $ 600,000 $ 601,032
-------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 2,000,000 2,197,340
-------------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$1,191,550)(a)(b) 1,000,000 1,082,790
-------------------------------------------------------------------------
General Electric Capital Corp.,
Series A, Medium Term Global Notes, 2.85%,
01/30/06 1,430,000 1,448,275
-------------------------------------------------------------------------
Sr. Medium Term Global Notes, 4.00%,
05/30/18 475,000 464,289
-------------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Notes, 4.50%, 07/15/06 1,600,000 1,604,768
-------------------------------------------------------------------------
Medium Term Notes,
4.15%, 02/07/05 750,000 758,437
-------------------------------------------------------------------------
6.38%, 01/30/04 1,460,000 1,492,208
-------------------------------------------------------------------------
International Lease Finance Corp.,
Global Notes, 2.95%, 05/23/06 1,110,000 1,109,722
-------------------------------------------------------------------------
Notes, 5.13%, 08/01/04 2,500,000 2,587,275
-------------------------------------------------------------------------
Lehman Brothers Holdings Inc., Sr. Notes,
8.75%, 03/15/05 175,000 192,661
-------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09 1,350,000 1,583,374
-------------------------------------------------------------------------
Sr. Unsec. Global Notes, 8.02%, 05/15/07 1,000,000 1,117,750
-------------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 2,500,000 2,775,700
=========================================================================
20,571,544
=========================================================================
PACKAGED FOODS & MEATS-0.39%
Kraft Foods Inc., Global Notes, 5.25%,
06/01/07 1,250,000 1,312,813
=========================================================================
PHARMACEUTICALS-0.22%
Lilly (Eli) & Co., Unsec. Unsub. Global
Notes, 2.90%, 03/15/08 750,000 732,413
=========================================================================
PUBLISHING-0.23%
News America Inc., Notes, 4.75%, 03/15/10
(Acquired 03/04/03; Cost $799,704)(a)(b) 800,000 793,024
=========================================================================
REAL ESTATE-1.57%
Camden Property Trust, Sr. Unsec. Notes,
7.00%, 11/15/03 1,585,000 1,609,029
-------------------------------------------------------------------------
EOP Operating L.P.,
Sr. Unsec. Notes, 6.50%, 06/15/04 1,650,000 1,706,447
-------------------------------------------------------------------------
Unsec. Notes, 8.38%, 03/15/06 1,750,000 1,976,188
=========================================================================
5,291,664
=========================================================================
REGIONAL BANKS-0.43%
Popular, Inc., Unsec. Sub. Notes, 6.75%,
12/15/05 1,000,000 1,056,580
-------------------------------------------------------------------------
Union Planters Bank, N.A., Unsec. Sub. Notes,
6.50%, 03/15/08 350,000 380,233
=========================================================================
1,436,813
=========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
SOVEREIGN DEBT-1.64%
Export-Import Bank of Korea (The) (South
Korea), Unsec. Putable Global Notes, 6.50%,
11/15/03 $ 2,000,000 $ 2,174,920
-------------------------------------------------------------------------
Hydro-Quebec (Canada)-Series B, Gtd. Medium
Term Yankee Notes, 6.52%, 02/23/06(c) 1,150,000 1,252,281
-------------------------------------------------------------------------
Japan Bank for International Coop. (Japan),
Unsec. Gtd. Euro Bonds, 6.50%, 10/06/05 75,000 81,562
-------------------------------------------------------------------------
United Mexican States (Mexico), Global Notes,
4.63%, 10/08/08 2,000,000 2,010,500
=========================================================================
5,519,263
=========================================================================
THRIFTS & MORTGAGE FINANCE-0.67%
Countrywide Home Loans, Inc.
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 1,175,000 1,256,616
-------------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 1,000,000 1,016,130
=========================================================================
2,272,746
=========================================================================
TOBACCO-0.73%
Altria Group, Inc., Notes,
6.80%, 12/01/03 1,950,000 1,971,938
-------------------------------------------------------------------------
7.13%, 10/01/04 480,000 486,600
=========================================================================
2,458,538
=========================================================================
TRUCKING-0.66%
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 2,000,000 2,245,680
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.78%
Cingular Wireless LLC, Sr. Unsec. Global
Notes, 5.63%, 12/15/06 1,805,000 1,966,602
-------------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 6,145,000 7,420,088
-------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 2,780,000 3,384,650
=========================================================================
12,771,340
=========================================================================
Total Bonds & Notes (Cost $177,763,318) 177,903,092
=========================================================================
ASSET-BACKED SECURITIES-1.66%
OTHER DIVERSIFIED FINANCIAL SERVICES-1.66%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
10/03/02; Cost $826,403)(a)(b) 763,139 823,297
-------------------------------------------------------------------------
First Industrial Realty Trust, Inc., Pass
Through Ctfs., 7.38%, 05/15/04 (Acquired
02/06/03; Cost $2,097,000)(a)(b) 2,000,000 2,072,220
-------------------------------------------------------------------------
Yorkshire Power (Cayman Islands)-Series
2000-1, Pass Through Ctfs., 8.25%, 02/15/05
(Acquired 06/19/03; Cost $2,725,725)(a)(b) 2,500,000 2,694,525
=========================================================================
Total Asset-Backed Securities (Cost
$5,578,867) 5,590,042
=========================================================================
|
FS-118
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-43.20%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-11.00%
Pass Through Ctfs.,
8.00%, 11/20/12 $ 1,696,989 $ 1,819,585
-------------------------------------------------------------------------
7.50%, 06/01/16 to 09/01/29 10,793,757 11,510,635
-------------------------------------------------------------------------
7.00%, 12/01/16 to 01/01/33 7,841,674 8,309,729
-------------------------------------------------------------------------
6.00%, 02/01/17 to 03/01/23 8,262,680 8,453,920
-------------------------------------------------------------------------
8.50%, 02/01/19 to 08/17/26 6,454,909 7,033,987
=========================================================================
37,127,856
=========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-19.41%
Pass Through Ctfs.,
7.50%, 02/01/15 to 01/01/21 4,849,086 5,193,738
-------------------------------------------------------------------------
7.00%, 04/01/15 to 02/01/33 30,217,670 32,028,680
-------------------------------------------------------------------------
6.50%, 11/01/16 to 07/01/31 5,050,941 5,315,356
-------------------------------------------------------------------------
8.00%, 09/01/17 to 12/01/32 20,088,296 21,669,786
-------------------------------------------------------------------------
8.50%, 11/01/24 1,197,362 1,305,101
=========================================================================
65,512,661
=========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-12.79%
Pass Through Ctfs.,
7.00%, 05/15/17 to 06/15/32 14,016,623 14,864,003
-------------------------------------------------------------------------
6.00%, 06/15/18 to 07/15/33 8,045,965 8,253,481
-------------------------------------------------------------------------
7.50%, 06/15/23 to 01/15/32 8,511,316 9,080,471
-------------------------------------------------------------------------
6.50%, 07/15/23 to 04/15/33 10,529,219 10,957,864
=========================================================================
43,155,819
=========================================================================
Total U.S. Government Agency Securities
(Cost $146,361,404) 145,796,336
=========================================================================
U.S. TREASURY NOTES-3.48%
2.13%, 10/31/04 $ 1,800,000 $ 1,817,154
-------------------------------------------------------------------------
1.50%, 07/31/05 10,000,000 9,942,200
=========================================================================
Total U.S. Treasury Notes (Cost
$11,761,838) 11,759,354
=========================================================================
SHARES
MONEY MARKET FUNDS-0.19%
STIC Liquid Assets Portfolio(e) 322,088 322,088
-------------------------------------------------------------------------
STIC Prime Portfolio(e) 322,088 322,088
=========================================================================
Total Money Market Funds (Cost $644,176) 644,176
=========================================================================
TOTAL INVESTMENTS-101.25% (Cost $342,109,603) 341,693,000
=========================================================================
OTHER ASSETS LESS LIABILITIES-(1.25%) (4,213,018)
=========================================================================
NET ASSETS-100.00% $337,479,982
_________________________________________________________________________
=========================================================================
|
Investment Abbreviations:
Ctfs. - Certificates Deb. - Debentures Gtd. - Guaranteed Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated |
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 07/31/03 was $18,683,407,
which represented 5.54% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(b) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 07/31/03 was $17,703,317 which represented
5.25% of the Fund's net assets.
(c) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Financial Security Assurance or MBIA
Insurance Corp.
(d) Interest rates are redetermined monthly. Rates shown are rates in effect on
07/31/03.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-119
July 31, 2003
ASSETS:
Investments, at market value (cost
$341,465,427) $341,048,824
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $644,176) 644,176
-----------------------------------------------------------
Receivables for:
Investments sold 16,702,613
-----------------------------------------------------------
Fund shares sold 4,823,998
-----------------------------------------------------------
Dividends and interest 3,737,584
-----------------------------------------------------------
Investment for deferred compensation plan 2,794
-----------------------------------------------------------
Other assets 56,180
===========================================================
Total assets 367,016,169
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 22,398,417
-----------------------------------------------------------
Fund shares reacquired 6,914,138
-----------------------------------------------------------
Dividends 90,885
-----------------------------------------------------------
Deferred compensation plan 2,794
-----------------------------------------------------------
Accrued distribution fees 73,985
-----------------------------------------------------------
Accrued trustees' fees 844
-----------------------------------------------------------
Accrued transfer agent fees 14,183
-----------------------------------------------------------
Accrued operating expenses 40,941
===========================================================
Total liabilities 29,536,187
===========================================================
Net assets applicable to shares outstanding $337,479,982
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $338,905,872
-----------------------------------------------------------
Undistributed net investment income (4,438)
-----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and futures contracts (1,004,849)
-----------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (416,603)
===========================================================
$337,479,982
___________________________________________________________
===========================================================
CLASS C:
Shares outstanding, $0.01 par value per share 33,687,921
===========================================================
Net asset value and offering price per share $ 10.02
___________________________________________________________
===========================================================
|
For the period August 30, 2002 (date operations commenced) through July 31, 2003
INVESTMENT INCOME:
Interest $3,648,941
-----------------------------------------------------------
Dividends from affiliated money market funds 70,725
===========================================================
Total investment income 3,719,666
===========================================================
EXPENSES:
Advisory fees 598,592
-----------------------------------------------------------
Administrative services fees 45,890
-----------------------------------------------------------
Custodian fees 30,473
-----------------------------------------------------------
Distribution fees 1,496,479
-----------------------------------------------------------
Transfer agent fees 92,949
-----------------------------------------------------------
Trustees' fees 10,066
-----------------------------------------------------------
Other 125,876
===========================================================
Total expenses 2,400,325
===========================================================
Less: Fees waived and expenses paid indirectly (603,201)
===========================================================
Net expenses 1,797,124
===========================================================
Net investment income 1,922,542
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 725,428
-----------------------------------------------------------
Futures contracts (2,962)
===========================================================
722,466
===========================================================
Change in net unrealized appreciation
(depreciation) of investment securities (416,603)
===========================================================
Net gain from investment securities and futures
contracts 305,863
===========================================================
Net increase in net assets resulting from
operations $2,228,405
___________________________________________________________
===========================================================
|
See Notes to Financial Statements.
FS-120
For the period August 30, 2002 (date operations commenced) through July 31, 2003
----------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,922,542
----------------------------------------------------------------------------
Net realized gain from investment securities and futures
contracts 722,466
----------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (416,603)
============================================================================
Net increase in net assets resulting from operations 2,228,405
============================================================================
Distributions to shareholders from net investment income (3,757,098)
----------------------------------------------------------------------------
Return of capital (68,668)
============================================================================
Decrease in net assets resulting from distributions (3,825,766)
============================================================================
Share transactions-net 339,077,343
============================================================================
Net increase in net assets 337,479,982
============================================================================
NET ASSETS:
Beginning of period --
============================================================================
End of period $337,479,982
____________________________________________________________________________
============================================================================
|
See Notes to Financial Statements.
FS-121
NOTES TO FINANCIAL STATEMENTS
July 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Short Term Bond Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers one class of shares. The Fund commenced operations on August 30, 2002. Matters affecting each portfolio will be voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income consistent with the preservation of capital. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures
FS-122
position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks also include to varying degrees, the risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.40% of the Fund's average daily net assets. AIM has contractually agreed to waive and/or reimburse expenses (excluding interest, taxes, dividends on short sales, fund merger and reorganization expenses, extraordinary items and increases in expenses due to expense offset arrangements, if any) of Class C shares to the extent necessary to limit the total annual fund operating expenses of Class C to 1.20%. To the extent that the annualized expense ratio does not exceed the contractual expense limitation, AIM will retain the ability to be reimbursed for such fee waivers or reimbursements prior to the end of the fiscal year. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the period August 30, 2002 (date operations commenced) through July 31, 2003, AIM waived fees of $761.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the period August 30, 2002 (date operations commenced) through July 31, 2003, AIM was paid $45,890 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the period August 30, 2002 (date operations commenced) through July 31, 2003, AFS retained $51,878 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") pursuant to which AIM Distributors serves as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class C shares (the "Plan"). The Fund, pursuant to the Plan, pays AIM Distributors compensation at the annual rate of 1.00% of the Fund's average daily net assets of Class C shares. Of these amounts, the Fund may pay a service fee up to 0.25% of the average daily net assets of the Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plan would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the Fund. AIM Distributors has contractually agreed to waive 0.40% of the Rule 12b-1 plan fees on Class C shares. Pursuant to the Plan, for the period August 30, 2002 (date operations commenced) through July 31, 2003 the Class C shares paid $897,887 after AIM Distributors waived plan fees of $598,592.
Contingent deferred sales charges ("CDSC") are not recorded as an expense of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the period August 30, 2002 (date operations commenced) to July 31, 2003, AIM Distributors retained $5,546 from Class C shares for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the period August 30, 2002 (date operations commenced) through July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $1,775 and reductions in custodian fees of $2,073 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $3,848.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the period August 30, 2002 (date operations commenced) through July 31, 2003, the Fund paid legal fees of $1,750 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net
FS-123
assets for the period. The committed line of credit facility expired May 20, 2003.
During the period August 30, 2002 (date operations commenced) through July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the period August 30, 2002 (date operations commenced) through July 31, 2003 was as follows:
AUGUST 30, 2002
(DATE OPERATIONS
COMMENCED) TO
JULY 31, 2003
----------------------------------------------------------
Distributions paid from ordinary
income $3,757,098
----------------------------------------------------------
Return of capital 68,668
==========================================================
Total distributions $3,825,766
__________________________________________________________
==========================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Unrealized appreciation (depreciation) -- investments $ (446,059) ----------------------------------------------------------- Temporary book/tax differences (4,438) ----------------------------------------------------------- Capital loss carryforward (20,292) ----------------------------------------------------------- Post-October capital loss deferral (955,101) ----------------------------------------------------------- Shares of beneficial interest 338,905,872 =========================================================== Total net assets $337,479,982 ___________________________________________________________ =========================================================== |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2011 $20,292
==========================================================
Total capital loss carryforward $20,292
__________________________________________________________
==========================================================
|
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the period August 30, 2002 (date operations commenced) through July 31, 2003 was $485,301,832 and $139,376,489, respectively.
The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of July 31, 2003 is as follows:
Aggregate unrealized appreciation of investment securities $ 2,345,827 ----------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (2,791,886) =========================================================== Net unrealized appreciation (depreciation) of investment securities $ (446,059) ___________________________________________________________ =========================================================== Cost of investments for tax purposes is $342,139,059. |
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of certain stock issuance costs, paydown gains (losses) and distributions in excess of income earnings and profits on July 31, 2003, undistributed net investment income was increased by $1,898,786, undistributed net realized gains (losses) decreased by $1,727,315 and shares of beneficial interest decreased by $171,471. This reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
The Fund currently offers Class C shares. Class C shares are sold at net asset value. Under some circumstances, Class C shares are subject to CDSC.
CHANGES IN SHARES OUTSTANDING
---------------------------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
COMMENCED) TO
JULY 31, 2003
----------------------------
SHARES AMOUNT
---------------------------------------------------------------
Sold 50,609,851 $ 509,493,749
---------------------------------------------------------------
Issued as reinvestment of
dividends 317,302 3,197,003
---------------------------------------------------------------
Reacquired (17,239,232) (173,613,409)
===============================================================
33,687,921 $ 339,077,343
_______________________________________________________________
===============================================================
|
FS-124
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding during the period August 30, 2002 (date operations commenced) through July 31, 2003.
CLASS C
----------------
AUGUST 30, 2002
(DATE OPERATIONS
COMMENCED) TO
JULY 31,
2003
-------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.01
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12(a)
-------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.14
===============================================================================
Total from investment operations 0.26
===============================================================================
Less distributions:
Dividends from net investment income (0.25)
-------------------------------------------------------------------------------
Return of capital (0.00)
===============================================================================
Total distributions (0.25)
===============================================================================
Net asset value, end of period $ 10.02
_______________________________________________________________________________
===============================================================================
Total return(b) 2.58%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $337,480
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets:
With fee waivers 1.20%(c)
-------------------------------------------------------------------------------
Without fee waivers 1.60%(c)
===============================================================================
Ratio of net investment income to average net assets 1.28%(c)
_______________________________________________________________________________
===============================================================================
Portfolio turnover rate(d) 88%
_______________________________________________________________________________
===============================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$162,563,918.
(d) Not annualized.
FS-125
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Total Return Bond Fund and the Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM Total Return Bond Fund (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2003, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Total Return Bond Fund as of July 31, 2003, the results of its operations for the year then ended, and the changes in its net assets and financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP September 10, 2003
FS-126
FINANCIALS
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
BONDS & NOTES-52.11%
AEROSPACE & DEFENSE-0.63%
Lockheed Martin Corp.,
Unsec. Gtd. Unsub. Notes, 7.25%, 05/15/06 $ 150,000 $ 168,018
-----------------------------------------------------------------------
Series A, Medium Term Notes, 8.66%,
11/30/06 225,000 258,930
-----------------------------------------------------------------------
Raytheon Co.,
Notes, 6.75%, 08/15/07 40,000 44,418
-----------------------------------------------------------------------
Sr. Unsec. Notes, 6.30%, 03/15/05 75,000 79,682
=======================================================================
551,048
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.37%
Bank of New York Co., Inc. (The), Sub. Medium
Term Notes, 7.17%, 03/24/28 750,000 115,500
-----------------------------------------------------------------------
Bank of New York Institutional Capital Trust-
Series A, Bonds, 7.78%, 12/01/26 (Acquired
06/12/03; Cost $238,542)(a)(b) 200,000 205,282
=======================================================================
320,782
=======================================================================
AUTOMOBILE MANUFACTURERS-0.64%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 550,000 557,529
=======================================================================
BROADCASTING & CABLE TV-4.77%
Clear Channel Communications, Inc.,
Sr. Unsec. Gtd. Notes, 8.00%, 11/01/08 500,000 563,125
-----------------------------------------------------------------------
Sr. Unsec. Notes, 7.88%, 06/15/05 175,000 192,031
-----------------------------------------------------------------------
Comcast Cable Communications, Inc., Unsec.
Unsub. Notes, 8.88%, 05/01/17 400,000 489,868
-----------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Notes, 8.88%, 04/01/07 150,000 158,608
-----------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06 200,000 238,000
-----------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 1,100,000 1,274,691
-----------------------------------------------------------------------
Cox Communications, Inc.,
Sr. Unsec. Putable Deb., 6.53%, 02/01/08 110,000 118,985
-----------------------------------------------------------------------
Unsec. Notes, 4.63%, 06/01/13 100,000 93,470
-----------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 4.38%, 05/01/08
(Acquired 04/14/03; Cost $249,838)(a)(b) 250,000 253,347
-----------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 300,000 343,455
-----------------------------------------------------------------------
TCI Communications, Inc., Medium Term Notes,
8.35%, 02/15/05 350,000 375,424
-----------------------------------------------------------------------
Time Warner Inc., Unsec. Notes, 7.75%,
06/15/05 50,000 54,665
=======================================================================
4,155,669
=======================================================================
CONSUMER FINANCE-3.96%
Capital One Bank-Series 4, Sr. Global Notes,
6.50%, 07/30/04 125,000 129,844
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
Capital One Financial Corp., Sr. Unsec.
Notes,
7.25%, 12/01/03 $ 150,000 $ 151,642
-----------------------------------------------------------------------
7.25%, 05/01/06 675,000 716,344
-----------------------------------------------------------------------
8.75%, 02/01/07 200,000 217,470
-----------------------------------------------------------------------
Ford Motor Credit Co.,
Notes, 7.50%, 06/15/04 75,000 78,077
-----------------------------------------------------------------------
Unsec. Global Notes,
6.70%, 07/16/04 270,000 280,155
-----------------------------------------------------------------------
6.88%, 02/01/06 235,000 247,927
-----------------------------------------------------------------------
Household Finance Corp.,
Global Notes, 6.38%, 11/27/12 200,000 211,220
-----------------------------------------------------------------------
Medium Term Notes, 3.38%, 02/21/06 50,000 50,521
-----------------------------------------------------------------------
Sr. Unsec. Global Notes,
6.50%, 01/24/06 100,000 108,452
-----------------------------------------------------------------------
7.63%, 05/17/32 345,000 387,307
-----------------------------------------------------------------------
8.00%, 05/09/05 700,000 770,105
-----------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$104,633)(a)(b) 100,000 104,137
=======================================================================
3,453,201
=======================================================================
DISTILLERS & VINTNERS-0.27%
Diageo PLC (United Kingdom), Sr. Unsec. Gtd.
Putable Notes, 7.45%, 04/15/05 200,000 236,904
=======================================================================
DIVERSIFIED BANKS-5.28%
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $83,179)(a)(b) 75,000 80,295
-----------------------------------------------------------------------
Bank of America Corp.-Series B, Putable Sub.
Medium Term Notes, 8.57%, 11/15/04 150,000 187,623
-----------------------------------------------------------------------
Bank One Corp., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/01/05 250,000 276,335
-----------------------------------------------------------------------
BankAmerica Capital II-Series 2, Jr. Unsec.
Gtd. Sub. Notes, 8.00%, 12/15/26 150,000 156,622
-----------------------------------------------------------------------
BankAmerica Institutional Capital-Series B,
Gtd. Bonds, 7.70%, 12/31/26 (Acquired
06/18/03; Cost $235,760)(a)(b) 200,000 206,738
-----------------------------------------------------------------------
Barnett Capital I, Gtd. Notes, 8.06%,
12/01/26 175,000 188,883
-----------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 400,000 426,860
-----------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$379,629)(a)(b) 300,000 323,826
-----------------------------------------------------------------------
Citicorp, Jr. Unsec. Sub. Notes, 6.38%,
01/15/06 100,000 106,645
-----------------------------------------------------------------------
Comerica Inc., Sub. Notes, 4.80%, 05/01/15 100,000 94,101
-----------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Global Notes, 5.20%, 05/21/13 350,000 331,905
-----------------------------------------------------------------------
Unsec. Global Notes, 6.88%, 03/15/12 200,000 213,560
-----------------------------------------------------------------------
|
FS-127
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Danske Bank A/S (Denmark), Sub. Yankee Notes,
6.38%, 06/15/08 (Acquired 08/30/02; Cost
107,346)(a)(b) $ 100,000 $ 106,572
-----------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27 160,000 171,469
-----------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 250,000 293,465
-----------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
1.25%, 06/29/49(c) 300,000 238,363
-----------------------------------------------------------------------
NBD Bank N.A., Unsec. Putable Sub. Deb.,
8.25%, 11/01/04 250,000 298,842
-----------------------------------------------------------------------
Royal Bank of Scotland Group PLC (United
Kingdom), Sub. Yankee Notes, 4.70%,
07/03/18 175,000 158,261
-----------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 100,000 110,588
-----------------------------------------------------------------------
Scotland International Finance No. 2 B.V.
(Netherlands), Sub. Notes, 4.25%, 05/23/13
(Acquired 05/20/03; Cost $199,500)(a)(b) 200,000 185,824
-----------------------------------------------------------------------
U.S. Bancorp-Series N, Sr. Medium Term Notes,
2.75%, 03/30/06 50,000 50,219
-----------------------------------------------------------------------
U.S. Bank, N.A., Sub. Global Notes, 4.80%,
04/15/15 300,000 283,644
-----------------------------------------------------------------------
Wells Fargo Financial, Inc., Global Notes,
6.13%, 02/15/06 100,000 109,096
=======================================================================
4,599,736
=======================================================================
DIVERSIFIED CAPITAL MARKETS-0.54%
Chase Manhattan Corp., Sub. Deb., 7.88%,
07/15/06 100,000 113,302
-----------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%, 10/29/49 300,000 361,263
=======================================================================
474,565
=======================================================================
ELECTRIC UTILITIES-4.64%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 50,000 54,869
-----------------------------------------------------------------------
American Electric Power Co., Inc., Sr. Unsec.
Unsub. Notes, 5.25%, 06/01/15 150,000 140,181
-----------------------------------------------------------------------
CenterPoint Energy, Inc.,
Bonds, 6.85%, 06/01/15 (Acquired 05/21/03;
Cost $499,790)(a) 500,000 471,855
-----------------------------------------------------------------------
Notes, 5.88%, 06/01/08 (Acquired 05/21/03;
Cost $100,852))(a) 100,000 98,009
-----------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 100,000 104,456
-----------------------------------------------------------------------
Duke Energy Corp.,
Bonds, 6.45%, 10/15/32 80,000 77,159
-----------------------------------------------------------------------
First Mortgage Bonds, 3.75%, 03/05/08
(Acquired 02/20/03; Cost $99,709)(a)(b) 100,000 99,772
-----------------------------------------------------------------------
Hydro-Quebec (Canada), Gtd. Floating Rate
Euro Notes, 1.31%, 09/29/49(c) 350,000 306,361
-----------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 650,000 709,000
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
MidAmerican Energy Holdings Co., Sr. Unsec.
Global Notes, 3.50%, 05/15/08 $ 350,000 $ 339,342
-----------------------------------------------------------------------
Niagara Mohawk Power Corp., First Mortgage
Bonds, 8.00%, 06/01/04(d) 210,000 219,824
-----------------------------------------------------------------------
Public Service Co. of Colorado, First
Mortgage Bonds, 4.88%, 03/01/13 (Acquired
03/07/03; Cost $139,796)(a)(b) 140,000 136,151
-----------------------------------------------------------------------
Public Service Co. of New Mexico-Series A,
Sr. Unsec. Notes, 7.10%, 08/01/05 270,000 295,369
-----------------------------------------------------------------------
South Carolina Electric & Gas Co., First
Mortgage Bonds, 5.30%, 05/15/33 150,000 132,696
-----------------------------------------------------------------------
Southern Power Co., Bonds, 4.88%, 07/15/15
(Acquired 07/01/03; Cost $179,528)(a)(b) 180,000 165,764
-----------------------------------------------------------------------
TXU Corp.-Series B, Sr. Unsec. Notes, 6.38%,
10/01/04(d) 100,000 105,182
-----------------------------------------------------------------------
Wisconsin Public Service Corp., Sr. Sec.
Notes, 4.88%, 12/01/12 500,000 494,960
-----------------------------------------------------------------------
Xcel Energy, Inc., Sr. Notes, 3.40%, 07/01/08
(Acquired 06/19/03; Cost $99,807)(a)(b) 100,000 95,374
=======================================================================
4,046,324
=======================================================================
ENVIRONMENTAL SERVICES-0.18%
Waste Management, Inc., Unsec. Putable Notes,
7.10%, 08/01/03 150,000 154,716
=======================================================================
GAS UTILITIES-0.63%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 200,000 208,358
-----------------------------------------------------------------------
Kinder Morgan, Inc., Sr. Unsec. Notes, 6.80%,
03/01/08 250,000 275,787
-----------------------------------------------------------------------
MCN Corp., First Mortgage Bonds, 5.70%,
03/15/33 75,000 69,562
=======================================================================
553,707
=======================================================================
HEALTH CARE FACILITIES-0.11%
HCA Inc., Notes, 6.25%, 02/15/13 100,000 94,580
=======================================================================
HOMEBUILDING-0.61%
M.D.C. Holdings, Inc., Sr. Unsec. Gtd. Notes,
5.50%, 05/15/13 400,000 377,092
-----------------------------------------------------------------------
Pulte Homes, Inc., Sr. Unsec. Notes, 6.38%,
05/15/33 175,000 157,850
=======================================================================
534,942
=======================================================================
HOUSEWARES & SPECIALTIES-0.41%
American Greetings Corp., Unsec. Putable
Notes, 6.10%, 08/01/08 350,000 360,062
=======================================================================
HYPERMARKETS & SUPER CENTERS-0.16%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 125,000 138,917
=======================================================================
INTEGRATED OIL & GAS-0.84%
Occidental Petroleum Corp.,
Sr. Unsec. Notes,
6.50%, 04/01/05 250,000 266,697
-----------------------------------------------------------------------
7.38%, 11/15/08 60,000 68,047
-----------------------------------------------------------------------
|
FS-128
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
INTEGRATED OIL & GAS-(CONTINUED)
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 $ 30,000 $ 32,896
-----------------------------------------------------------------------
TGT Pipeline LLC, Bonds, 5.20%, 06/01/18
(Acquired 05/22/03; Cost $398,968)(a)(b) 400,000 365,656
=======================================================================
733,296
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-5.11%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 100,000 112,052
-----------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 8.25%, 06/15/05 125,000 137,890
-----------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 10.00%, 03/01/31 250,000 314,053
-----------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 75,000 82,698
-----------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 150,000 169,556
-----------------------------------------------------------------------
SBC Communications Capital Corp.-Series D,
Medium Term Notes, 7.11%, 08/14/06 85,000 96,449
-----------------------------------------------------------------------
Sprint Capital Corp.,
Gtd. Global Notes, 5.88%, 05/01/04 300,000 307,152
-----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 750,000 793,335
-----------------------------------------------------------------------
7.13%, 01/30/06 50,000 54,116
-----------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes,
6.13%, 11/15/08 300,000 315,282
-----------------------------------------------------------------------
Unsec. Gtd. Global Notes,
7.90%, 03/15/05 550,000 593,642
-----------------------------------------------------------------------
8.75%, 03/15/32 300,000 331,350
-----------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07 500,000 555,625
-----------------------------------------------------------------------
Verizon Global Funding Corp., Sr. Unsec.
Unsub. Global Notes, 7.75%, 12/01/30 200,000 223,678
-----------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 350,000 363,807
=======================================================================
4,450,685
=======================================================================
INVESTMENT BANKING & BROKERAGE-1.95%
Bear Stearns Cos. Inc. (The), Sr. Unsec.
Global Notes, 3.00%, 03/30/06 20,000 20,148
-----------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), Global
Bonds, 7.63%, 08/17/05 150,000 166,043
-----------------------------------------------------------------------
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03; Cost
$167,339)(a)(b) 150,000 164,490
-----------------------------------------------------------------------
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 250,000 287,737
-----------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 150,000 169,410
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-(CONTINUED)
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes, 4.54%, 03/08/05 $ 250,000 $ 259,595
-----------------------------------------------------------------------
Morgan Stanley,
Sr. Global Notes, 7.75%, 06/15/05 375,000 413,303
-----------------------------------------------------------------------
Unsec. Notes, 6.30%, 01/15/06 200,000 216,344
=======================================================================
1,697,070
=======================================================================
LIFE & HEALTH INSURANCE-0.40%
John Hancock Global Funding II, Notes, 5.00%,
07/27/07 (Acquired 06/12/02; Cost
$99,945)(a)(b) 100,000 104,683
-----------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 120,000 132,078
-----------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 100,000 113,114
=======================================================================
349,875
=======================================================================
MOVIES & ENTERTAINMENT-0.80%
AOL Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06 400,000 430,432
-----------------------------------------------------------------------
Viacom Inc., Sr. Unsec. Gtd. Global Bonds,
5.50%, 05/15/33 300,000 265,755
=======================================================================
696,187
=======================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.44%
Westar Energy, Inc., Sec. First Mortgage
Global Bonds, 7.88%, 05/01/07 350,000 385,875
=======================================================================
MUNICIPALITIES-0.41%
Illinois (State of); Unlimited Tax Pension
Series 2003 GO, 5.10%, 06/01/33(e) 425,000 359,741
=======================================================================
OIL & GAS DRILLING-0.12%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05 100,000 106,949
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.01%
Anadarko Petroleum Corp. (Canada), Unsec.
Yankee Deb., 7.38%, 05/15/06 250,000 280,075
-----------------------------------------------------------------------
Burlington Resources Finance Co. (Canada),
Sr. Unsec. Gtd. Bonds, 7.20%, 08/15/31 150,000 165,915
-----------------------------------------------------------------------
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired 05/20/03; Cost
$154,842)(a)(b) 149,389 144,681
-----------------------------------------------------------------------
Kerr-McGee Corp., Unsec. Gtd. Global Notes,
5.38%, 04/15/05 150,000 157,104
-----------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Sr. Sub.
Notes, 9.25%, 06/15/04 125,000 131,966
=======================================================================
879,741
=======================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.18%
Petroleos Mexicanos (Mexico), Unsec. Gtd.
Unsub. Global Notes, 6.50%, 02/01/05 150,000 158,438
=======================================================================
|
FS-129
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-7.63%
American General Finance Corp.-Series H,
Medium Term Notes, 2.75%, 06/15/08 $ 150,000 $ 141,570
-----------------------------------------------------------------------
ASIF Global Financing XIX, Sec. Notes, 4.90%,
01/17/13 (Acquired 01/08/03; Cost
$199,374)(a)(b) 200,000 194,328
-----------------------------------------------------------------------
ASIF Global Financing XX, Sec. Notes, 2.65%,
01/17/06 (Acquired 01/08/03; Cost
$149,763)(a)(b) 150,000 151,061
-----------------------------------------------------------------------
Associates Corp. of North America, Sub. Deb.,
8.15%, 08/01/09 375,000 440,573
-----------------------------------------------------------------------
Auburn Hills Trust, Unsec. Gtd. Deb., 12.38%,
05/01/20 200,000 274,624
-----------------------------------------------------------------------
CIT Group Inc.,
Sr. Floating Rate Medium Term Global Notes,
2.35%, 11/25/03(f) 100,000 100,172
-----------------------------------------------------------------------
Sr. Global Notes, 7.13%, 10/15/04 40,000 42,488
-----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 175,000 192,267
-----------------------------------------------------------------------
Citigroup Capital II, Jr. Gtd. Sub. Bonds,
7.75%, 12/01/36 350,000 369,796
-----------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$178,733)(a)(b) 150,000 162,419
-----------------------------------------------------------------------
FMR Corp., Bonds, 7.57%, 06/15/29 (Acquired
05/01/02-07/25/02; Cost $218,028)(a)(b) 200,000 231,462
-----------------------------------------------------------------------
General Electric Capital Corp.,
Gtd. Sub. Notes, 8.13%, 05/15/12 215,000 254,188
-----------------------------------------------------------------------
Series A, Medium Term Global Notes,
2.85%, 01/30/06 25,000 25,320
-----------------------------------------------------------------------
5.00%, 06/15/07 200,000 211,550
-----------------------------------------------------------------------
6.00%, 06/15/12 100,000 105,042
-----------------------------------------------------------------------
6.80%, 11/01/05 400,000 438,528
-----------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Bonds, 8.00%, 11/01/31 150,000 146,475
-----------------------------------------------------------------------
Global Notes,
4.50%, 07/15/06 175,000 175,522
-----------------------------------------------------------------------
5.13%, 05/09/08 125,000 121,151
-----------------------------------------------------------------------
Medium Term Notes,
4.15%, 02/07/05 550,000 556,188
-----------------------------------------------------------------------
6.38%, 01/30/04 150,000 153,309
-----------------------------------------------------------------------
Heller Financial, Inc.-Class A,
Sr. Unsec. Global Notes, 8.00%, 06/15/05 400,000 441,768
-----------------------------------------------------------------------
Unsec. Global Notes, 7.38%, 11/01/09 60,000 68,897
-----------------------------------------------------------------------
International Lease Finance Corp.,
Global Notes, 2.95%, 05/23/06 100,000 99,975
-----------------------------------------------------------------------
Notes, 5.13%, 08/01/04 50,000 51,746
-----------------------------------------------------------------------
Lehman Brothers Holdings Inc., Sr. Notes,
8.75%, 03/15/05 250,000 275,230
-----------------------------------------------------------------------
NiSource Finance Corp., Bonds, 5.40%,
07/15/14 250,000 242,058
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Pemex Finance Ltd. (Cayman Islands)- Series
1999-2, Class A1, Global Bonds, 9.69%,
08/15/09 $ 100,000 $ 117,287
-----------------------------------------------------------------------
Pemex Project Funding Master Trust, Notes,
7.38%, 12/15/14 (Acquired 05/28/03; Cost
$275,348)(a)(b) 250,000 259,603
-----------------------------------------------------------------------
Regional Diversified Funding, Sr. Notes,
9.25%, 03/15/30 (Acquired 01/10/03; Cost
$165,305)(a)(b) 147,325 162,276
-----------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 400,000 444,112
=======================================================================
6,650,985
=======================================================================
PACKAGED FOODS & MEATS-0.34%
Kraft Foods Inc.,
Global Notes,
5.25%, 06/01/07 60,000 63,015
-----------------------------------------------------------------------
5.63%, 11/01/11 100,000 101,082
-----------------------------------------------------------------------
6.25%, 06/01/12 125,000 131,204
=======================================================================
295,301
=======================================================================
PHARMACEUTICALS-0.06%
Lilly (Eli) & Co., Unsec. Unsub. Global
Notes, 2.90%, 03/15/08 50,000 48,828
=======================================================================
PUBLISHING-0.78%
News America Holdings, Sr. Unsec. Gtd. Deb.,
7.70%, 10/30/25 200,000 218,280
-----------------------------------------------------------------------
News America Inc.,
Bonds, 6.55%, 03/15/33
(Acquired 03/04/03; Cost $199,578)(a)(b) 200,000 201,084
-----------------------------------------------------------------------
Notes, 4.75%, 03/15/10 (Acquired 03/04/03;
Cost $149,945)(a)(b) 150,000 148,692
-----------------------------------------------------------------------
Sr. Putable Deb., 6.75%, 01/09/10 100,000 107,962
=======================================================================
676,018
=======================================================================
REAL ESTATE-1.48%
EOP Operating L.P.,
Sr. Unsec. Notes,
6.50%, 06/15/04 110,000 113,763
-----------------------------------------------------------------------
7.25%, 06/15/28 100,000 102,588
-----------------------------------------------------------------------
Unsec. Gtd. Notes, 6.75%, 02/15/12 20,000 21,553
-----------------------------------------------------------------------
Unsec. Notes, 8.38%, 03/15/06 500,000 564,625
-----------------------------------------------------------------------
Simon Property Group, L.P., Notes, 5.45%,
03/15/13 (Acquired 03/13/03; Cost
$499,015)(a)(b) 500,000 488,545
=======================================================================
1,291,074
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.50%
Dominion Resources, Inc.-Series F, Sr. Unsec.
Putable Notes, 5.25%, 08/01/15 450,000 432,081
=======================================================================
|
FS-130
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
REGIONAL BANKS-1.00%
Greater Bay Bancorp, Sr. Notes, 5.25%,
03/31/08 (Acquired 03/19/03; Cost
$494,580)(a)(b) $ 500,000 $ 492,520
-----------------------------------------------------------------------
KeyBank N.A., Sr. Notes, 4.10%, 06/30/05 100,000 103,480
-----------------------------------------------------------------------
Union Planters Bank, N.A., Unsec. Sub. Notes,
6.50%, 03/15/08 250,000 271,595
=======================================================================
867,595
=======================================================================
SOVEREIGN DEBT-1.74%
Japan Bank for International Coop. (Japan),
Unsec. Gtd. Euro Bonds, 6.50%, 10/06/05 100,000 108,750
-----------------------------------------------------------------------
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13 60,000 69,378
-----------------------------------------------------------------------
United Mexican States (Mexico),
Global Notes,
4.63%, 10/08/08 300,000 301,575
-----------------------------------------------------------------------
6.63%, 03/03/15 150,000 150,188
-----------------------------------------------------------------------
7.50%, 04/08/33 700,000 688,625
-----------------------------------------------------------------------
Series A, Medium Term Global Notes,
6.38%, 01/16/13 200,000 201,800
=======================================================================
1,520,316
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.27%
Countrywide Home Loans, Inc.,
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 125,000 133,683
-----------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 100,000 101,613
=======================================================================
235,296
=======================================================================
TOBACCO-1.22%
Altria Group, Inc., Notes,
6.80%, 12/01/03 950,000 960,688
-----------------------------------------------------------------------
7.13%, 10/01/04 100,000 101,375
=======================================================================
1,062,063
=======================================================================
TRUCKING-0.52%
Roadway Corp., Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08 400,000 449,136
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.11%
AT&T Wireless Services Inc., Sr. Unsec.
Unsub. Global Notes, 8.75%, 03/01/31 300,000 348,096
-----------------------------------------------------------------------
Cingular Wireless LLC, Sr. Unsec. Global
Notes, 5.63%, 12/15/06 150,000 163,430
-----------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 700,000 845,250
-----------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 400,000 487,000
=======================================================================
1,843,776
=======================================================================
Total Bonds & Notes (Cost $45,898,225) 45,423,008
=======================================================================
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
ASSET-BACKED SECURITIES-1.02%
OTHER DIVERSIFIED FINANCIAL SERVICES-1.02%
Citicorp Lease-Series 1999-1,
Class A1, Pass Through Ctfs., 7.22%,
06/15/05 (Acquired 05/08/02-10/03/02; Cost
$295,332)(a)(b) $ 277,505 $ 299,381
-----------------------------------------------------------------------
Class A2, Pass Through Ctfs., 8.04%,
12/15/19 (Acquired 08/20/02; Cost
$166,614)(a)(b) 150,000 166,360
-----------------------------------------------------------------------
First Industrial Realty Trust, Inc., Pass
Through Ctfs., 7.38%, 05/15/04 (Acquired
02/06/03; Cost $104,850)(a)(b) 100,000 103,611
-----------------------------------------------------------------------
Yorkshire Power (Cayman Islands)-Series
2000-1, Pass Through Ctfs., 8.25%, 02/15/05
(Acquired 06/19/03; Cost $327,087)(a)(b) 300,000 323,343
=======================================================================
892,695
=======================================================================
Total Asset-Backed Securities (Cost
$883,575) 892,695
=======================================================================
U.S. GOVERNMENT AGENCY SECURITIES-36.58%
FEDERAL HOME LOAN BANK-1.41%
Unsec. Bonds,
4.88%, 04/16/04 to 05/15/07 650,000 684,685
-----------------------------------------------------------------------
5.70%, 03/03/09 500,000 542,060
=======================================================================
1,226,745
=======================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-8.59%
Pass Through Ctfs.,
6.00%, 08/01/14 to 10/01/32 3,732,040 3,804,046
-----------------------------------------------------------------------
5.50%, 05/01/16 619,622 631,695
-----------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32 1,108,148 1,142,949
-----------------------------------------------------------------------
7.00%, 06/01/16 to 06/01/32 508,488 533,795
-----------------------------------------------------------------------
7.50%, 04/01/17 to 03/01/32 796,350 846,877
-----------------------------------------------------------------------
Unsec. Notes,
4.88%, 03/15/07 500,000 530,995
=======================================================================
7,490,357
=======================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-20.76%
Deb.,
5.88%, 02/02/06 350,000 379,554
-----------------------------------------------------------------------
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 148,373 157,406
-----------------------------------------------------------------------
7.00%, 12/01/15 to 02/01/33 2,657,635 2,788,924
-----------------------------------------------------------------------
6.50%, 05/01/16 to 10/01/32 4,223,198 4,349,508
-----------------------------------------------------------------------
6.00%, 01/01/17 to 03/01/33 4,154,543 4,219,458
-----------------------------------------------------------------------
5.50%, 09/01/17 533,041 543,610
-----------------------------------------------------------------------
8.00%, 08/01/21 to 04/01/32 1,203,423 1,293,912
-----------------------------------------------------------------------
Pass Through Ctfs., TBA,(g)
5.00%, 08/01/18 1,542,000 1,542,649
-----------------------------------------------------------------------
5.50%, 08/01/33 818,000 808,919
-----------------------------------------------------------------------
|
FS-131
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-(CONTINUED)
Unsec. Bonds,
6.63%, 11/15/30 $ 45,000 $ 48,241
-----------------------------------------------------------------------
Unsec. Notes,
5.25%, 06/15/06 300,000 322,104
-----------------------------------------------------------------------
3.25%, 11/15/07 1,200,000 1,190,820
-----------------------------------------------------------------------
Unsec. Sub. Notes,
4.75%, 01/02/07 150,000 158,102
-----------------------------------------------------------------------
5.25%, 08/01/12 300,000 298,500
=======================================================================
18,101,707
=======================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-5.16%
Pass Through Ctfs.,
7.50%, 06/15/23 to 05/15/32 695,965 741,747
-----------------------------------------------------------------------
8.50%, 02/15/25 66,997 72,736
-----------------------------------------------------------------------
8.00%, 08/15/25 25,476 27,592
-----------------------------------------------------------------------
7.00%, 04/15/28 to 01/15/32 795,809 835,605
-----------------------------------------------------------------------
6.00%, 11/15/28 to 02/15/33 1,560,920 1,591,195
-----------------------------------------------------------------------
6.50%, 01/15/29 to 07/15/32 1,187,376 1,229,313
=======================================================================
4,498,188
=======================================================================
TENNESSEE VALLEY AUTHORITY-0.66%
Unsec. Bonds,
7.14%, 05/23/12 500,000 572,760
=======================================================================
Total U.S. Government Agency Securities
(Cost $32,025,968) 31,889,757
=======================================================================
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
U.S. TREASURY SECURITIES-11.86%
U.S. TREASURY NOTES-9.11%
2.13%, 10/31/04 $1,100,000 $ 1,110,483
-----------------------------------------------------------------------
1.50%, 07/31/05 1,000,000 994,220
-----------------------------------------------------------------------
6.50%, 10/15/06 100,000 112,234
-----------------------------------------------------------------------
4.75%, 11/15/08 1,700,000 1,805,723
-----------------------------------------------------------------------
5.00%, 02/15/11 1,000,000 1,056,090
-----------------------------------------------------------------------
3.88%, 02/15/13 3,000,000 2,862,180
=======================================================================
7,940,930
=======================================================================
U.S. TREASURY BONDS-2.75%
7.25%, 05/15/16 235,000 286,185
-----------------------------------------------------------------------
7.50%, 11/15/16 1,350,000 1,675,053
-----------------------------------------------------------------------
6.25%, 08/15/23 400,000 439,124
=======================================================================
2,400,362
=======================================================================
Total U.S. Treasury Securities (Cost
$10,618,805) 10,341,292
=======================================================================
SHARES
MONEY MARKET FUNDS-1.72%
STIC Liquid Assets Portfolio(h) 750,113 750,113
-----------------------------------------------------------------------
STIC Prime Portfolio(h) 750,113 750,113
=======================================================================
Total Money Market Funds (Cost
$1,500,226) 1,500,226
=======================================================================
TOTAL INVESTMENTS-103.29% (Cost $90,926,799) 90,046,978
=======================================================================
OTHER ASSETS LESS LIABILITIES-(3.29%) (2,871,700)
=======================================================================
NET ASSETS-100.00% $87,175,278
_______________________________________________________________________
=======================================================================
|
Investment Abbreviations:
Ctfs. - Certificates Deb. - Debentures GO - General Obligation Bonds Gtd. - Guaranteed Jr. - Junior Sec. - Secured Sr. - Senior Sub. - Subordinated TBA - To Be Announced Unsec. - Unsecured Unsub. - Unsubordinated |
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 07/31/03 was $6,697,141,
which represented 7.68% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered illiquid.
(b) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 07/31/03 was $6,127,277 which represented
7.03% of the Fund's net assets.
(c) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 07/31/03.
(d) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Financial Security Assurance or MBIA
Insurance Corp.
(e) Interest on this security is taxable income to the Fund.
(f) Interest rates are redetermined monthly. Rates shown are rates in effect on
07/31/03.
(g) Security purchased on forward commitment basis. These securities are subject
to dollar roll transactions. See Note 1 Section C.
(h) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-132
ASSETS:
Investments, at market value (cost
$89,426,573) $88,546,752
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $1,500,226) 1,500,226
-----------------------------------------------------------
Receivables for:
Investments sold 2,018,666
-----------------------------------------------------------
Dividends and interest 1,057,614
-----------------------------------------------------------
Fund shares sold 179,558
-----------------------------------------------------------
Due from advisor 18,620
-----------------------------------------------------------
Investment for deferred compensation plan 4,456
-----------------------------------------------------------
Other assets 14,881
===========================================================
Total assets 93,340,773
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 5,677,505
-----------------------------------------------------------
Fund shares reacquired 339,280
-----------------------------------------------------------
Dividends 22,523
-----------------------------------------------------------
Deferred compensation plan 4,456
-----------------------------------------------------------
Accrued distribution fees 55,881
-----------------------------------------------------------
Accrued trustees' fees 791
-----------------------------------------------------------
Accrued transfer agent fees 33,947
-----------------------------------------------------------
Accrued operating expenses 31,112
===========================================================
Total liabilities 6,165,495
===========================================================
Net assets applicable to shares outstanding $87,175,278
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $87,302,343
-----------------------------------------------------------
Undistributed net investment income (5,473)
-----------------------------------------------------------
Undistributed net realized gain from
investment securities and futures contracts 758,229
-----------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (879,821)
===========================================================
$87,175,278
___________________________________________________________
===========================================================
NET ASSETS:
Class A $30,336,007
___________________________________________________________
===========================================================
Class B $47,654,575
___________________________________________________________
===========================================================
Class C $ 9,184,696
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 2,930,167
___________________________________________________________
===========================================================
Class B 4,602,982
___________________________________________________________
===========================================================
Class C 887,086
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.35
-----------------------------------------------------------
Offering price per share:
(Net asset value of $10.35 divided by
95.25%) $ 10.87
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.35
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.35
___________________________________________________________
===========================================================
|
See Notes to Financial Statements.
FS-133
INVESTMENT INCOME:
Interest $ 2,469,189
-------------------------------------------------------------------------
Dividends from affiliated money market funds 29,251
=========================================================================
Total investment income 2,498,440
=========================================================================
EXPENSES:
Advisory fees 306,590
-------------------------------------------------------------------------
Administrative services fees 50,000
-------------------------------------------------------------------------
Custodian fees 30,361
-------------------------------------------------------------------------
Distribution fees -- Class A 73,324
-------------------------------------------------------------------------
Distribution fees -- Class B 335,706
-------------------------------------------------------------------------
Distribution fees -- Class C 67,977
-------------------------------------------------------------------------
Transfer agent fees 202,615
-------------------------------------------------------------------------
Trustees' fees 8,875
-------------------------------------------------------------------------
Registration and filing fees 62,945
-------------------------------------------------------------------------
Other 66,446
=========================================================================
Total expenses 1,204,839
=========================================================================
Less: Fees waived and expenses paid indirectly (288,467)
=========================================================================
Net expenses 916,372
=========================================================================
Net investment income 1,582,068
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 1,398,556
-------------------------------------------------------------------------
Futures contracts 46,592
=========================================================================
1,445,148
=========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (1,022,343)
=========================================================================
Net gain from investment securities and futures contracts 422,805
=========================================================================
Net increase in net assets resulting from operations $ 2,004,873
_________________________________________________________________________
=========================================================================
|
See Notes to Financial Statements.
FS-134
For the year ended July 31, 2003 and the period December 31, 2001 (Date operations commenced) to July 31, 2002
2003 2002
----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,582,068 $ 139,633
----------------------------------------------------------------------------------------
Net realized gain from investment securities and futures
contracts 1,445,148 87,097
----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (1,022,343) 142,522
========================================================================================
Net increase in net assets resulting from operations 2,004,873 369,252
========================================================================================
Distributions to shareholders from net investment income:
Class A (797,837) (77,172)
----------------------------------------------------------------------------------------
Class B (1,033,094) (73,438)
----------------------------------------------------------------------------------------
Class C (208,766) (27,624)
========================================================================================
Total distributions from net investment income (2,039,697) (178,234)
========================================================================================
Distributions to shareholders from net realized gains:
Class A (29,369) --
----------------------------------------------------------------------------------------
Class B (47,717) --
----------------------------------------------------------------------------------------
Class C (8,496) --
========================================================================================
Total distributions from net realized gains (85,582) --
========================================================================================
Decrease in net assets resulting from distributions (2,125,279) (178,234)
========================================================================================
Share transactions-net:
Class A 21,104,305 9,251,803
----------------------------------------------------------------------------------------
Class B 33,005,431 14,591,873
----------------------------------------------------------------------------------------
Class C 6,138,256 3,012,998
========================================================================================
Net increase in net assets resulting from share
transactions 60,247,992 26,856,674
========================================================================================
Net increase in net assets 60,127,586 27,047,692
========================================================================================
NET ASSETS:
Beginning of year 27,047,692 --
========================================================================================
End of year $87,175,278 $27,047,692
________________________________________________________________________________________
========================================================================================
|
See Notes to Financial Statements.
FS-135
NOTES TO FINANCIAL STATEMENTS
July 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Total Return Bond Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve maximum total return consistent with preservation of capital. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar security (same type, coupon and maturity) from the institution at a later date at an agreed upon price. The mortgage-backed securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on securities sold. Proceeds of the sale will be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. The Fund will segregate assets to cover its
FS-136
obligations under dollar roll transactions. The difference between the selling price and the future repurchase price is recorded as an adjustment to interest income.
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
F. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks also include to varying degrees, the risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities.
G. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $500 million of the Fund's average daily net assets, plus 0.45% on the next $500 million of the Fund's average daily net assets, plus 0.40% on the Fund's average daily net assets in excess of $1 billion. AIM Distributors has agreed to waive up to 0.10% of the Rule 12b-1 plan fees on Class A shares and AIM has contractually agreed to waive advisory fees and/or reimburse expenses for Class A, Class B and Class C shares to the extent necessary to limit total annual operating expenses of Class A shares to 1.25% and has voluntarily agreed to waive advisory fees and/or reimburse expenses of Class A, Class B and Class C shares to the extent necessary to limit total annual operating expenses of Class A shares to 1.00%. The expense limitations exclude interest, taxes, dividends on short sales, fund merger and reorganization expenses, extraordinary items and increases in expenses due to expense offset arrangements, if any. Voluntary fee waivers or reimbursements may be rescinded at any time without further notice to investors. During periods of voluntary fee waivers and reimbursements, to the extent that the annualized expense ratio does not exceed the contractual expense limit for the fiscal year, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended July 31, 2003, AIM waived fees of $266,097.
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, 2003, 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, 2003, AFS retained $112,730 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares. Of these amounts, the Fund may pay a service fee up to 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the Class A, Class B and Class C shares paid AIM Distributors $52,374, $335,706 and $67,977, respectively after AIM Distributors waived Class A plan fees of $20,950.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to
FS-137
remittance to the shareholder. During the year ended July 31, 2003, AIM Distributors retained $56,983 in front-end sales commissions from the sale of Class A shares and $0, $44 and $2,635 from Class A, Class B shares and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $1,189 and reductions in custodian fees of $231 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $1,420.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid $2,694 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. The Fund did not borrow or lend under the facility during the year ended July 31, 2003.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the year ended July 31, 2003 and the period December 31, 2001 (date operations commenced) through July 31, 2002 were as follows:
2003 2002
-------------------------------------------------------------
Distributions paid from ordinary
income $2,125,279 $178,234
_____________________________________________________________
=============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 758,523 ----------------------------------------------------------- Unrealized appreciation (depreciation) -- investments (880,115) ----------------------------------------------------------- Temporary book/tax differences (5,473) ----------------------------------------------------------- Shares of beneficial interest 87,302,343 =========================================================== Total net assets $87,175,278 ___________________________________________________________ =========================================================== |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $244,598,621 and $167,959,126, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $ 844,346
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,724,461)
===========================================================
Net unrealized appreciation (depreciation)
of investment securities $ (880,115)
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $90,927,093.
|
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of the utilization of a portion of the proceeds from redemptions as distributions for federal income tax purposes, stock issuance cost and paydown gains (losses) on July 31, 2003, undistributed net investment income was increased by $453,374, undistributed net realized gains decreased by $680,162 and shares of beneficial interest increased by $226,788. This reclassification had no effect on the net assets of the Fund.
FS-138
NOTE 9--SHARE INFORMATION
The Fund currently offers three classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED) TO
YEAR ENDED 2003 JULY 31, 2002
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,675,553 $ 38,439,296 992,436 $10,034,790
--------------------------------------------------------------------------------------------------------------------
Class B 4,564,339 47,687,420 1,538,451 15,590,664
--------------------------------------------------------------------------------------------------------------------
Class C 1,230,567 12,857,366 385,449 3,888,452
====================================================================================================================
Issued as reinvestment of dividends:
Class A 72,052 755,569 7,294 73,755
--------------------------------------------------------------------------------------------------------------------
Class B 88,787 931,209 6,117 61,932
--------------------------------------------------------------------------------------------------------------------
Class C 18,930 198,523 2,532 25,581
====================================================================================================================
Automatic conversion of Class B shares to Class A shares*:
Class A 79,038 832,366 -- --
--------------------------------------------------------------------------------------------------------------------
Class B (79,022) (832,366) -- --
====================================================================================================================
Reacquired:
Class A (1,811,444) (18,922,926) (84,762) (856,742)
--------------------------------------------------------------------------------------------------------------------
Class B (1,411,242) (14,780,832) (104,448) (1,060,723)
--------------------------------------------------------------------------------------------------------------------
Class C (661,171) (6,917,633) (89,221) (901,035)
====================================================================================================================
5,766,387 $ 60,247,992 2,653,848 $26,856,674
____________________________________________________________________________________________________________________
====================================================================================================================
|
* Prior to the year ended July 31, 2003, conversion of Class B shares to Class A shares were included in Class A shares sold and Class B shares reacquired.
FS-139
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
----------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
JULY 31, JULY 31,
2003 2002
------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.19 $10.00
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.32(a) 0.18(a)
------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.26 0.23
================================================================================================
Total from investment operations 0.58 0.41
================================================================================================
Less distributions:
Dividends from net investment income (0.40) (0.22)
------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) --
================================================================================================
Total distributions (0.42) (0.22)
================================================================================================
Net asset value, end of period $ 10.35 $10.19
________________________________________________________________________________________________
================================================================================================
Total return(b) 5.77% 4.09%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,336 $9,325
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.00%(c) 1.00%(d)
------------------------------------------------------------------------------------------------
Without fee waivers 1.54%(c) 3.21%(d)
================================================================================================
Ratio of net investment income to average net assets 3.07%(c) 3.10%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 284% 215%
________________________________________________________________________________________________
================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $20,949,696.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-140
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
----------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
JULY 31, JULY 31,
2003 2002
------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.19 $ 10.00
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24(a) 0.14(a)
------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.27 0.22
================================================================================================
Total from investment operations 0.51 0.36
================================================================================================
Less distributions:
Dividends from net investment income (0.33) (0.17)
------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) --
================================================================================================
Total distributions (0.35) (0.17)
================================================================================================
Net asset value, end of period $ 10.35 $ 10.19
________________________________________________________________________________________________
================================================================================================
Total return(b) 4.98% 3.65%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $47,655 $14,678
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c) 1.75%(d)
------------------------------------------------------------------------------------------------
Without fee waivers 2.19%(c) 3.86%(d)
================================================================================================
Ratio of net investment income to average net assets 2.32%(c) 2.35%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 284% 215%
________________________________________________________________________________________________
================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $33,570,591.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-141
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
----------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
JULY 31, JULY 31,
2003 2002
------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.19 $10.00
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24(a) 0.14(a)
------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.27 0.22
================================================================================================
Total from investment operations 0.51 0.36
================================================================================================
Less distributions:
Dividends from net investment income (0.33) (0.17)
------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) --
================================================================================================
Total distributions (0.35) (0.17)
================================================================================================
Net asset value, end of period $10.35 $10.19
________________________________________________________________________________________________
================================================================================================
Total return(b) 4.98% 3.65%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,185 $3,045
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c) 1.75%(d)
------------------------------------------------------------------------------------------------
Without fee waivers 2.19%(c) 3.86%(d)
================================================================================================
Ratio of net investment income to average net assets 2.32%(c) 2.35%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 284% 215%
________________________________________________________________________________________________
================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $6,797,674.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-142
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
BONDS & NOTES-90.16%
AEROSPACE & DEFENSE-1.63%
Armor Holdings, Inc., Sr. Sub. Notes, 8.25%,
08/15/13 (Acquired 08/06/03; Cost
$1,897,883)(a) $ 1,930,000 $ 2,123,000
---------------------------------------------------------------------------
BE Aerospace, Inc., Sr. Unsec. Notes, 8.50%,
10/01/10 (Acquired 10/02/03; Cost
$600,000)(a) 600,000 651,000
---------------------------------------------------------------------------
DRS Technologies, Inc., Sr. Sub. Notes,
6.88%, 11/01/13 (Acquired 10/16/03; Cost
$1,815,000)(a) 1,815,000 1,878,525
---------------------------------------------------------------------------
Hexcel Corp., Sr. Unsec. Sub. Notes, 9.75%,
01/15/09 10,790,000 11,356,475
---------------------------------------------------------------------------
L-3 Communications Corp., Sr. Sub. Notes,
6.13%, 01/15/14 (Acquired 12/16/03; Cost
$6,787,557)(a)(b) 6,915,000 6,915,000
---------------------------------------------------------------------------
Orbital Sciences Corp.-Series B, Sr. Global
Notes, 9.00%, 07/15/11 1,880,000 2,030,400
===========================================================================
24,954,400
===========================================================================
AIRLINES-1.80%
Continental Airlines, Inc., Notes, 8.00%,
12/15/05 4,575,000 4,460,625
---------------------------------------------------------------------------
Delta Air Lines, Inc.,
Unsec. Notes, 7.90%, 12/15/09 11,985,000 9,588,000
---------------------------------------------------------------------------
Series C, Medium Term Notes, 6.65%,
03/15/04 4,415,000 4,437,075
---------------------------------------------------------------------------
Northwest Airlines Inc.,
Sr. Unsec. Gtd. Notes, 8.88%, 06/01/06 5,095,000 4,840,250
---------------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes, 8.52%, 04/07/04 4,255,000 4,276,275
===========================================================================
27,602,225
===========================================================================
ALTERNATIVE CARRIERS-0.16%
Block Communications, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 9.25%, 04/15/09 2,250,000 2,458,125
===========================================================================
APPAREL RETAIL-0.17%
Mothers Work, Inc., Sr. Unsec. Gtd. Notes,
11.25%, 08/01/10 2,405,000 2,633,475
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.46%
Warnaco Inc., Sr. Notes, 8.88%, 06/15/13
(Acquired 06/05/03-07/07/03; Cost
$3,797,400)(a) 3,725,000 3,967,125
---------------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr. Unsec.
Gtd. Sub. Global Notes, 10.88%, 08/15/11 2,675,000 3,129,750
===========================================================================
7,096,875
===========================================================================
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
AUTO PARTS & EQUIPMENT-1.36%
Collins & Aikman Products Co., Sr. Unsec.
Gtd. Global Notes, 10.75%, 12/31/11 $ 1,145,000 $ 1,139,275
---------------------------------------------------------------------------
Dana Corp., Unsec. Global Notes, 10.13%,
03/15/10 1,800,000 2,079,000
---------------------------------------------------------------------------
Dura Operating Corp., Sr. Notes, 8.63%,
04/15/12 (Acquired 10/29/03; Cost
$1,850,000)(a) 1,850,000 1,988,750
---------------------------------------------------------------------------
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%, 03/15/07
(Acquired 03/20/97-09/24/99; Cost
$25,988,502)(a)(b)(c)(d) 26,310,000 65,775
---------------------------------------------------------------------------
Metaldyne Corp., Sr. Unsec. Gtd. Notes,
10.00%, 11/01/13 (Acquired 10/20/03; Cost
$2,270,000)(a) 2,270,000 2,349,450
---------------------------------------------------------------------------
Tenneco Automotive Inc.
Series B, Sr. Sec. Second Lien Global
Notes, 10.25%, 07/15/13 2,920,000 3,401,800
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 11.63%,
10/15/09 4,646,000 5,040,910
---------------------------------------------------------------------------
TRW Automotive Inc., Sr. Global Notes, 9.38%,
02/15/13 4,180,000 4,765,200
===========================================================================
20,830,160
===========================================================================
BROADCASTING & CABLE TV-11.77%
Adelphia Communications Corp.,
Sr. Unsec. Notes, 10.88%, 10/01/10
(Acquired 09/15/00-12/10/03; Cost
$17,934,068)(c) 21,785,000 21,948,387
---------------------------------------------------------------------------
9.50%, 03/01/05(c) 925,000 996,687
---------------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 9.88%, 03/01/07
(Acquired 08/21/00-12/19/00; Cost
$3,987,163)(c) 4,220,000 4,251,650
---------------------------------------------------------------------------
Allbritton Communications Co., Sr. Unsec.
Sub. Global Notes, 7.75%, 12/15/12 1,865,000 1,962,912
---------------------------------------------------------------------------
Avalon Cable LLC, Sr. Notes, 11.88%, 12/01/08 5,759,489 6,105,059
---------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp., Sr.
Unsec. Sub. Disc. Notes, 9.92%, 04/01/11(e) 9,515,000 8,373,200
---------------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 11.13%,
01/15/11 18,230,000 17,227,350
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.25%, 04/01/07 1,500,000 1,417,500
---------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr.
Unsec. Yankee Deb., 11.20%, 11/15/07 14,660,000 14,733,300
---------------------------------------------------------------------------
DIRECTV Holdings LLC/ DIRECTV Financing Co.,
Inc., Sr. Unsec. Gtd. Global Notes, 8.38%,
03/15/13 7,795,000 8,905,787
---------------------------------------------------------------------------
EchoStar DBS Corp., Sr. Unsec. Gtd. Global
Notes, 9.13%, 01/15/09 975,000 1,106,625
---------------------------------------------------------------------------
|
FS-143
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Granite Broadcasting Corp., Sr. Sec. Notes,
9.75%, 12/01/10 (Acquired
12/08/03-12/12/03; Cost $4,565,449)(a)(b) $ 4,620,000 $ 4,620,000
---------------------------------------------------------------------------
Knology, Inc., Sr. Unsec. PIK Notes, 12.00%,
11/30/09 (Acquired 01/06/98-01/07/04; Cost
$21,845,530)(a) 15,436,359 15,706,495
---------------------------------------------------------------------------
Mediacom Broadband LLC, Sr. Unsec. Gtd.
Global Notes, 11.00%, 07/15/13 7,410,000 8,262,150
---------------------------------------------------------------------------
Nextmedia Operating Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.75%, 07/01/11 1,930,000 2,195,375
---------------------------------------------------------------------------
Paxson Communications Corp.,
Sr. Unsec. Gtd. Disc. Sub. Global Notes,
12.25%, 01/15/09(e) 1,000,000 885,000
---------------------------------------------------------------------------
Pegasus Communications Corp.
Series B, Sr. Notes, 9.63%, 10/15/05 3,535,000 3,517,325
---------------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 12.50%,
08/01/07 11,960,000 12,139,400
---------------------------------------------------------------------------
Renaissance Media Group LLC, Sr. Unsec. Gtd.
Notes, 10.00%, 04/15/08 3,498,000 3,672,900
---------------------------------------------------------------------------
Salem Communications Holding Corp.-Series B,
Sr. Unsec. Gtd. Sub. Global Notes, 9.00%,
07/01/11 5,495,000 6,113,187
---------------------------------------------------------------------------
Spanish Broadcasting System, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 9.63%, 11/01/09 4,669,000 5,013,339
---------------------------------------------------------------------------
Telewest Communications PLC (Broadcasting-
Television, Radio & Cable), Sr. Unsec.
Global Deb., 11.00%, 10/01/07(c) 16,370,000 12,195,650
---------------------------------------------------------------------------
XM Satellite Radio Inc., Sr. Sec. Global
Notes, 12.00%, 06/15/10 16,135,000 18,474,575
---------------------------------------------------------------------------
Young Broadcasting Inc., Sr. Sub. Gtd. Global
Notes, 10.00%, 03/01/11 735,000 797,475
===========================================================================
180,621,328
===========================================================================
BUILDING PRODUCTS-0.38%
Building Materials Corp., Sr. Unsec. Gtd.
Notes, 8.00%, 12/01/08 5,800,000 5,771,000
===========================================================================
CASINOS & GAMING-1.27%
Caesars Entertainment, Inc., Sr. Unsec. Sub.
Global Notes, 8.13%, 05/15/11 3,615,000 4,121,100
---------------------------------------------------------------------------
Herbst Gaming, Inc.-Series B, Sr. Sec. Global
Notes, 10.75%, 09/01/08 4,745,000 5,397,437
---------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Global Notes, 8.00%, 04/01/12 910,000 1,003,275
---------------------------------------------------------------------------
Penn National Gaming, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Global Notes, 11.13%,
03/01/08 2,230,000 2,531,050
---------------------------------------------------------------------------
Poster Financial Group Inc., Sr. Sec. Notes,
8.75%, 12/01/11 (Acquired
11/18/03-11/19/03; Cost $1,873,125)(a) 1,850,000 1,947,125
---------------------------------------------------------------------------
Venetian Casino Resort, LLC, Sec. Gtd.
Mortgage Global Notes, 11.00%, 06/15/10 3,905,000 4,490,750
===========================================================================
19,490,737
===========================================================================
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
COMMODITY CHEMICALS-1.31%
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08 $11,000,000 $ 12,045,000
---------------------------------------------------------------------------
ISP Chemco Inc.-Series B, Sr. Unsec. Gtd.
Sub. Global Notes, 10.25%, 07/01/11 3,840,000 4,281,600
---------------------------------------------------------------------------
Lyondell Chemical Co.-Series B, Sr. Sec. Gtd.
Notes, 9.88%, 05/01/07 1,000,000 1,025,000
---------------------------------------------------------------------------
Methanex Corp. (Canada), Sr. Unsec. Notes,
8.75%, 08/15/12 2,420,000 2,740,650
===========================================================================
20,092,250
===========================================================================
COMMUNICATIONS EQUIPMENT-0.94%
Corning Inc., Unsec. Deb., 6.75%, 09/15/13 2,310,000 2,402,400
---------------------------------------------------------------------------
Lucent Technologies Inc.,
Unsec. Unsub. Global Deb., 6.45%, 03/15/29 7,515,000 6,368,962
---------------------------------------------------------------------------
Unsec. Unsub. Notes, 7.25%, 07/15/06 1,835,000 1,910,694
---------------------------------------------------------------------------
Nortel Network Ltd. (Canada), Sr. Global
Notes, 6.13%, 02/15/06 3,605,000 3,767,225
===========================================================================
14,449,281
===========================================================================
CONSTRUCTION & ENGINEERING-0.10%
Schuff Steel Co., Sr. Unsec. Gtd. Notes,
10.50%, 06/01/08 2,120,000 1,590,000
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.19%
Case New Holland Inc., Sr. Notes, 9.25%,
08/01/11 (Acquired 07/29/03-08/18/03; Cost
$5,632,776)(a) 5,695,000 6,492,300
---------------------------------------------------------------------------
Terex Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 07/15/11 9,185,000 10,195,350
---------------------------------------------------------------------------
Wabtec Corp., Sr. Unsec. Gtd. Global Notes,
6.88%, 07/31/13 1,545,000 1,653,150
===========================================================================
18,340,800
===========================================================================
CONSUMER FINANCE-0.32%
Dollar Financial Group, Inc., Sr. Gtd. Notes,
9.75%, 11/15/11 (Acquired 11/07/03; Cost
$4,615,000)(a) 4,615,000 4,914,975
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.11%
Iron Mountain Inc., Sr. Unsec. Gtd. Sub.
Notes, 6.63%, 01/01/16 1,660,000 1,622,650
===========================================================================
DEPARTMENT STORES-0.58%
JC Penney Co. Inc., Sr. Unsec. Notes, 8.00%,
03/01/10 7,760,000 8,885,200
===========================================================================
DISTILLERS & VINTNERS-0.09%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12 1,220,000 1,342,000
===========================================================================
|
FS-144
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
DIVERSIFIED CHEMICALS-0.10%
FMC Corp., Sr. Sec. Global Notes, 10.25%,
11/01/09 $ 1,295,000 $ 1,537,812
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.26%
Corrections Corp. of America, Sr. Notes,
7.50%, 05/01/11 1,000,000 1,057,500
---------------------------------------------------------------------------
Geo Group Inc. (The), Sr. Unsec. Global
Notes, 8.25%, 07/15/13 2,820,000 3,045,600
---------------------------------------------------------------------------
United Rentals (North America), Inc.,
Sr. Sub. Notes, 7.75%, 11/15/13 (Acquired
10/28/03; Cost $5,445,000)(a) 5,445,000 5,553,900
---------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Global Notes,
10.75%, 04/15/08 5,455,000 6,300,525
---------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Notes, 10.75%,
04/15/08 2,925,000 3,378,375
===========================================================================
19,335,900
===========================================================================
DIVERSIFIED METALS & MINING-0.12%
Massey Energy Co., Sr. Notes, 6.63%, 11/15/10
(Acquired 11/05/03; Cost $1,850,000)(a) 1,850,000 1,905,500
===========================================================================
DRUG RETAIL-0.76%
Rite Aid Corp., Sr. Global Notes, 9.25%,
06/01/13 10,610,000 11,671,000
===========================================================================
ELECTRIC UTILITIES-2.95%
Allegheny Energy Supply Co., LLC, Unsec.
Global Notes, 7.80%, 03/15/11 3,680,000 3,661,600
---------------------------------------------------------------------------
Alliant Energy Resources, Inc., Sr. Unsec.
Gtd. Conv. Global PHONES, 2.50%, 02/15/30 76,000 2,726,500
---------------------------------------------------------------------------
CMS Energy Corp., Sr. Notes, 7.75%, 08/01/10
(Acquired 07/09/03; Cost $1,376,419)(a) 1,395,000 1,471,725
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08 4,140,000 4,554,000
---------------------------------------------------------------------------
Dynegy Holdings Inc., Sr. Sec. Gtd. Second
Priority Notes, 10.13%, 07/15/13 (Acquired
08/01/03-08/21/03; Cost $8,084,832)(a) 8,130,000 9,197,062
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.75%, 02/15/12 1,935,000 1,964,025
---------------------------------------------------------------------------
LSP Energy L.P./LSP Batesville Funding Corp.-
Series C, Sr. Sec. Bonds, 7.16%, 01/15/14 3,922,750 3,966,018
---------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08 6,950,000 7,419,125
---------------------------------------------------------------------------
Niagara Mohawk Power Corp., First Mortgage
Bonds, 9.75%, 11/01/05 3,200,000 3,624,704
---------------------------------------------------------------------------
Orion Power Holdings, Inc., Sr. Unsec. Global
Notes, 12.00%, 05/01/10 2,905,000 3,660,300
---------------------------------------------------------------------------
PG&E Corp., Sr. Sec. Notes, 6.88%, 07/15/08
(Acquired 06/27/03; Cost $1,735,000)(a) 1,735,000 1,883,325
---------------------------------------------------------------------------
PSE&G Energy Holdings LLC, Unsec. Global
Notes, 7.75%, 04/16/07 1,000,000 1,075,000
===========================================================================
45,203,384
===========================================================================
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRICAL COMPONENTS & EQUIPMENT-1.12%
Midwest Generation LLC-Series B., Global Pass
Through Ctfs., 8.56%, 01/02/16 $12,890,000 $ 14,114,550
---------------------------------------------------------------------------
Thomas & Betts Corp., Sr. Unsec. Notes,
7.25%, 06/01/13 2,885,000 3,115,800
===========================================================================
17,230,350
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.03%
Communications & Power Industries, Inc., Sr.
Sub. Notes, 8.00%, 02/01/12 (Acquired
01/15/04; Cost $500,000)(a)(b) 500,000 517,500
===========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.51%
Flextronics International Ltd. (Singapore),
Sr. Sub. Global Notes, 6.50%, 05/15/13 2,000,000 2,090,000
---------------------------------------------------------------------------
Sanmina-SCI Corp., Sr. Sec. Gtd. Global
Notes, 10.38%, 01/15/10 4,830,000 5,699,400
===========================================================================
7,789,400
===========================================================================
ENVIRONMENTAL SERVICES-0.88%
Allied Waste North America, Inc., Sr. Notes,
7.88%, 04/15/13 1,390,000 1,522,050
---------------------------------------------------------------------------
Series B, Sr. Gtd. Global Notes, 8.88%,
04/01/08 850,000 954,125
---------------------------------------------------------------------------
Series B, Sr. Sec. Gtd. Sub. Global Notes,
8.50%, 12/01/08 8,620,000 9,675,950
---------------------------------------------------------------------------
Synagro Technologies, Inc., Sr. Unsec. Sub.
Global Notes, 9.50%, 04/01/09 1,280,000 1,420,800
===========================================================================
13,572,925
===========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.69%
IMC Global Inc., Sr. Notes, 10.88%, 08/01/13
(Acquired 07/18/03-08/20/03; Cost
$6,940,553)(a) 7,045,000 8,841,475
---------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Global Notes,
11.25%, 06/01/11 1,450,000 1,747,250
===========================================================================
10,588,725
===========================================================================
FOOD DISTRIBUTORS-0.10%
Pinnacle Foods Holding Corp., Sr. Sub. Notes,
8.25%, 12/01/13 (Acquired 11/20/03; Cost
$1,385,000)(a) 1,385,000 1,475,025
===========================================================================
FOOD RETAIL-0.84%
Ahold Finance USA, Inc., Sr. Unsec. Gtd.
Unsub. Notes, 8.25%, 07/15/10 4,630,000 5,116,150
---------------------------------------------------------------------------
Series 2001, Class A-1, Gtd. Pass Through
Ctfs., 7.82%, 01/02/20 7,371,962 7,703,700
===========================================================================
12,819,850
===========================================================================
|
FS-145
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
FOREST PRODUCTS-0.10%
Millar Western Forest Products Ltd. (Canada),
Sr. Notes, 7.75%, 11/15/13 (Acquired
11/20/03; Cost $1,385,000)(a) $ 1,385,000 $ 1,478,487
===========================================================================
GAS UTILITIES-0.47%
Northwest Pipelines Corp., Unsec. Deb. 6.63%,
12/01/07 1,500,000 1,582,500
---------------------------------------------------------------------------
SEMCO Energy, Inc.,
Sr. Global Notes, 7.75%, 05/15/13 1,890,000 2,032,544
---------------------------------------------------------------------------
Sr. Unsec. Global Notes, 7.13%, 05/15/08 1,885,000 1,988,675
---------------------------------------------------------------------------
Southern Natural Gas Co., Sr. Unsec. Global
Notes, 8.88%, 03/15/10 1,450,000 1,633,062
===========================================================================
7,236,781
===========================================================================
GENERAL MERCHANDISE STORES-0.71%
Couche-Tard US L.P./Couche-Tard Finance
Corp., Sr. Sub. Notes, 7.50%, 12/15/13
(Acquired 12/11/03; Cost $2,300,000(a)(b)) 2,300,000 2,472,500
---------------------------------------------------------------------------
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 10/15/07 8,100,000 8,424,000
===========================================================================
10,896,500
===========================================================================
HEALTH CARE DISTRIBUTORS-0.43%
AmerisourceBergen Corp., Sr. Unsec. Gtd.
Global Notes, 7.25%, 11/15/12 4,130,000 4,439,750
---------------------------------------------------------------------------
National Nephrology Associates, Inc., Sr.
Sub. Notes, 9.00%, 11/01/11 (Acquired
10/16/03; Cost $910,000)(a) 910,000 948,675
---------------------------------------------------------------------------
Rotech Healthcare Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 9.50%, 04/01/12 1,150,000 1,219,000
===========================================================================
6,607,425
===========================================================================
HEALTH CARE EQUIPMENT-0.67%
Medex, Inc., Sr. Sub. Notes, 8.88%, 05/15/13
(Acquired 05/14/03-08/05/03; Cost
$4,238,900)(a) 4,125,000 4,506,562
---------------------------------------------------------------------------
MedQuest Inc.-Series B, Sr. Unsec. Gtd. Sub.
Notes, 11.88%, 08/15/12 2,880,000 3,225,600
---------------------------------------------------------------------------
Vicar Operating, Inc., Sr. Unsec. Gtd. Notes,
9.88%, 12/01/09 2,300,000 2,547,250
===========================================================================
10,279,412
===========================================================================
HEALTH CARE FACILITIES-1.70%
Alderwoods Group, Inc., Sr. Unsec. Gtd.
Bonds, 12.25%, 01/02/09 2,140,000 2,407,500
---------------------------------------------------------------------------
Ardent Health Services, LLC, Sr. Sub. Notes,
10.00%, 08/15/13 (Acquired 08/07/03; Cost
$1,930,000)(a) 1,930,000 2,142,300
---------------------------------------------------------------------------
Genesis HealthCare Corp., Sr. Sub. Notes,
8.00%, 10/15/13 (Acquired 10/23/03; Cost
$1,815,000)(a) 1,815,000 1,923,900
---------------------------------------------------------------------------
Hanger Orthopedic Group, Inc., Sr. Unsec.
Gtd. Global Notes, 10.38%, 02/15/09 1,920,000 2,198,400
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
HEALTH CARE FACILITIES-(CONTINUED)
Triad Hospitals, Inc., Sr. Sub. Notes, 7.00%,
11/15/13 (Acquired 11/06/03; Cost
$9,200,000)(a) $ 9,200,000 $ 9,568,000
---------------------------------------------------------------------------
United Surgical Partners International, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes, 10.00%,
12/15/11 6,840,000 7,866,000
===========================================================================
26,106,100
===========================================================================
HEALTH CARE SERVICES-0.26%
Quintiles Transnational Corp., Sr. Sub.
Notes, 10.00%, 10/01/13 (Acquired 09/12/03;
Cost $3,750,000)(a) 3,750,000 3,993,750
===========================================================================
HEALTH CARE SUPPLIES-1.14%
Advanced Medical Optics, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 9.25%, 07/15/10 1,386,000 1,545,390
---------------------------------------------------------------------------
DJ Orthopedics LLC/DJ Orthopedics Capital
Corp., Sr. Unsec. Gtd. Sub. Notes, 12.63%,
06/15/09 5,765,000 6,399,150
---------------------------------------------------------------------------
Fisher Scientific International Inc., Sr.
Unsec. Sub. Global Notes, 8.13%, 05/01/12 8,790,000 9,504,187
===========================================================================
17,448,727
===========================================================================
HOME FURNISHINGS-0.12%
Interface, Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 9.50%, 02/01/14 (Acquired
01/27/04; Cost $1,840,000)(a)(b) 1,840,000 1,835,400
===========================================================================
HOMEBUILDING-1.20%
Beazer Homes USA, Inc., Sr. Unsec. Gtd.
Global Notes, 8.38%, 04/15/12 3,775,000 4,228,000
---------------------------------------------------------------------------
Schuler Homes, Inc. Sr. Unsec. Gtd. Sub.
Global Notes, 10.50%, 07/15/11 3,000,000 3,495,000
---------------------------------------------------------------------------
Technical Olympic USA, Inc., Sr. Unsec. Gtd.
Global Notes, 9.00%, 07/01/10 2,910,000 3,201,000
---------------------------------------------------------------------------
WCI Communities, Inc.,
Sr. Sub. Notes, 7.88%, 10/01/13 (Acquired
09/24/03; Cost $1,860,000)(a) 1,860,000 1,999,500
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes, 10.63%,
02/15/11 4,770,000 5,449,725
===========================================================================
18,373,225
===========================================================================
HOTELS, RESORTS & CRUISE LINES-3.24%
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%,
12/01/12 2,140,000 2,402,150
---------------------------------------------------------------------------
HMH Properties Inc.-Series B, Sr. Sec. Gtd.
Notes, 7.88%, 08/01/08 5,720,000 5,934,500
---------------------------------------------------------------------------
Intrawest Corp. (Canada),
Sr. Unsec. Gtd. Global Notes, 10.50%,
02/01/10 8,145,000 9,061,312
---------------------------------------------------------------------------
Sr. Unsec. Global Notes, 7.50%, 10/15/13 2,720,000 2,869,600
---------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr.
Unsec. Gtd. Sub. Global Notes, 8.88%,
08/15/11 4,780,000 5,222,150
---------------------------------------------------------------------------
|
FS-146
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-(CONTINUED)
La Quinta Properties, Inc., Sr. Global Notes,
8.88%, 03/15/11 $ 4,830,000 $ 5,409,600
---------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia), Sr.
Unsec. Notes, 8.00%, 05/15/10 2,845,000 3,143,725
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 8.75%,
02/02/11 7,470,000 8,627,850
---------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
Sr. Gtd. Global Notes, 7.88%, 05/01/12 6,235,000 6,983,200
===========================================================================
49,654,087
===========================================================================
HOUSEWARES & SPECIALTIES-0.20%
Jarden Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.75%, 05/01/12 2,814,000 3,116,505
===========================================================================
INDUSTRIAL CONGLOMERATES-0.44%
Tyco International Group S.A. (Luxembourg)
-Series A, Sr. Unsec. Gtd. Unsub. Conv.
Putable Deb., 2.75%, 01/15/08 (Acquired
01/07/03; Cost $2,334,000)(a) 2,334,000 2,996,272
---------------------------------------------------------------------------
-Series B, Sr. Unsec. Gtd. Unsub. Conv.
Putable Deb., 3.13%, 01/15/15 (Acquired
01/07/03; Cost $2,674,000)(a) 2,674,000 3,686,777
===========================================================================
6,683,049
===========================================================================
INDUSTRIAL MACHINERY-1.34%
Cabot Safety Corp., Sr. Sub. Notes, 12.50%,
07/15/05 5,630,000 5,714,450
---------------------------------------------------------------------------
Manitowoc Co., Inc. (The), Sr. Unsec. Gtd.
Sub. Global Notes, 10.50%, 08/01/12 5,720,000 6,549,400
---------------------------------------------------------------------------
Wolverine Tube, Inc., Sr. Notes, 7.38%,
08/01/08 (Acquired 04/24/03-10/20/03; Cost
$5,356,881)(a) 5,855,000 5,518,337
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.50%,
04/01/09 2,725,000 2,827,188
===========================================================================
20,609,375
===========================================================================
INTEGRATED OIL & GAS-1.60%
PDVSA Finance Ltd. (Cayman Islands), Global
Notes, 8.50%, 11/16/12 15,935,000 15,536,625
---------------------------------------------------------------------------
Petrobras International Finance Co. (Cayman
Islands), Sr. Unsec. Unsub. Global Notes,
9.13%, 07/02/13 8,365,000 9,076,025
===========================================================================
24,612,650
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-3.66%
FairPoint Communications, Inc.-Series B, Sr.
Unsec. Sub. Notes, 9.50%, 05/01/08 825,000 825,000
---------------------------------------------------------------------------
LCI International, Inc., Sr. Notes, 7.25%,
06/15/07 4,825,000 4,728,500
---------------------------------------------------------------------------
Madison River Capital LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10 6,010,000 6,580,950
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
NTELOS Inc., Sr. Unsec. Conv. Notes, 9.00%,
08/15/13 (Acquired 04/10/03; Cost
$4,950,000)(a)(b)(d) $ 4,950,000 $ 4,950,000
---------------------------------------------------------------------------
PTC International Finance II S.A.
(Luxembourg), Sr. Unsec. Gtd. Sub. Yankee
Notes, 11.25%, 12/01/09 1,065,000 1,163,513
---------------------------------------------------------------------------
Qwest Capital Funding, Inc.,
Unsec. Gtd. Global Notes,
7.00%, 08/03/09 13,160,000 12,732,300
---------------------------------------------------------------------------
7.25%, 02/15/11 18,440,000 17,840,700
---------------------------------------------------------------------------
Qwest Communications International Inc., Sr.
Floating Rate Notes,
4.63%, 02/15/09 (Acquired 01/30/04; Cost
3,680,000)(a)(g) 3,680,000 3,680,000
---------------------------------------------------------------------------
7.25%, 02/15/11 (Acquired 01/30/04; Cost
3,680,000)(a)(g) 3,680,000 3,654,994
===========================================================================
56,155,957
===========================================================================
LEISURE FACILITIES-0.68%
Six Flags, Inc., Sr. Notes, 9.63%, 06/01/14
(Acquired 12/02/03-12/10/03; Cost
$6,611,063)(a) 6,460,000 6,960,650
---------------------------------------------------------------------------
Universal City Development Partners, Sr.
Notes, 11.75%, 04/01/10 (Acquired 03/21/03;
Cost $2,866,186)(a) 2,900,000 3,447,375
===========================================================================
10,408,025
===========================================================================
LEISURE PRODUCTS-0.13%
Bombardier Recreational Products Inc.
(Canada), Sr. Sub. Notes, 8.38%, 12/15/13
(Acquired 12/11/03; Cost $1,845,000)(a)(b) 1,845,000 1,974,150
===========================================================================
LIFE & HEALTH INSURANCE-0.12%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $1,877,504)(a) 1,900,000 1,898,157
===========================================================================
MARINE-0.51%
Overseas Shipholding Group, Inc., Sr. Unsec.
Global Notes, 8.25%, 03/15/13 5,665,000 6,231,500
---------------------------------------------------------------------------
Stena A.B. (Sweden), Sr. Unsec. Global Notes,
9.63%, 12/01/12 1,415,000 1,623,713
===========================================================================
7,855,213
===========================================================================
METAL & GLASS CONTAINERS-3.52%
AEP Industries Inc., Sr. Unsec. Sub. Notes,
9.88%, 11/15/07 2,045,000 2,121,688
---------------------------------------------------------------------------
Anchor Glass Container Corp., Sr. Sec. Global
Notes, 11.00%, 02/15/13 6,490,000 7,658,200
---------------------------------------------------------------------------
BWAY Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 10.00%, 10/15/10 800,000 882,000
---------------------------------------------------------------------------
Constar International Inc., Sr. Sub. Notes,
11.00%, 12/01/12 2,020,000 1,828,100
---------------------------------------------------------------------------
|
FS-147
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
METAL & GLASS CONTAINERS-(CONTINUED)
Crown European Holdings S.A. (France),
Sr. Sec. Global Notes, 9.50%, 03/01/11 $ 7,545,000 $ 8,525,850
---------------------------------------------------------------------------
Sr. Sec. Global Notes, 10.88%, 03/01/13 1,000,000 1,180,000
---------------------------------------------------------------------------
Greif Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/01/12 4,775,000 5,264,438
---------------------------------------------------------------------------
Owens-Brockway Glass Container Inc.,
Sr. Sec. Gtd. Global Notes,
7.75%, 05/15/11 2,715,000 2,891,475
---------------------------------------------------------------------------
8.75%, 11/15/12 3,900,000 4,329,000
---------------------------------------------------------------------------
Owens-Brockway Glass Container Inc., Sr.
Unsec. Gtd. Global Notes, 8.25%, 05/15/13 4,150,000 4,523,500
---------------------------------------------------------------------------
Owens-Illinois, Inc., Sr. Unsec. Deb., 7.50%,
05/15/10 3,675,000 3,803,625
---------------------------------------------------------------------------
Plastipak Holdings Inc., Sr. Unsec. Gtd.
Global Notes, 10.75%, 09/01/11 4,870,000 5,478,750
---------------------------------------------------------------------------
Pliant Corp., Sr. Sec. Second Lien Global
Notes, 11.13%, 09/01/09 3,775,000 3,907,125
---------------------------------------------------------------------------
Stone Container Corp., Sr. Unsec. Global
Notes, 8.38%, 07/01/12 165,000 181,500
---------------------------------------------------------------------------
U.S. Can Corp., Sr. Sec. Notes 10.88%,
07/15/10 1,395,000 1,457,775
===========================================================================
54,033,026
===========================================================================
MOVIES & ENTERTAINMENT-0.48%
AMC Entertainment Inc., Sr. Unsec. Sub.
Notes, 9.88%, 02/01/12 4,000,000 4,440,000
---------------------------------------------------------------------------
River Rock Entertainment Authority, Sr.
Notes, 9.75%, 11/01/11 (Acquired 11/04/03;
Cost $1,825,044)(a) 1,850,000 2,044,250
---------------------------------------------------------------------------
Sun Media Corp. (Canada), Sr. Unsec. Gtd.
Global Notes, 7.63%, 02/15/13 825,000 895,125
===========================================================================
7,379,375
===========================================================================
MULTI-UTILITIES & UNREGULATED POWER-6.89%
AES Corp. (The),
Sr. Sec. Second Priority Notes, 8.75%,
05/15/13 (Acquired 05/01/03-08/12/03; Cost
$3,664,525)(a) 3,700,000 4,093,125
---------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 8.50%, 11/01/07 8,845,000 9,110,350
---------------------------------------------------------------------------
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19 8,676,973 9,631,441
---------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08 6,295,000 5,161,900
---------------------------------------------------------------------------
Calpine Corp.,
Sr. Sec. Notes, 8.75%, 07/15/13 (Acquired
07/10/03-11/07/03; Cost $6,752,525)(a) 6,810,000 6,588,675
---------------------------------------------------------------------------
Sr. Unsec. Conv. Putable Notes, 4.00%,
12/26/04 3,330,000 3,309,188
---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.25%, 08/15/05 13,470,000 13,133,250
---------------------------------------------------------------------------
El Paso Production Holding Co., Sr. Unsec.
Gtd. Global Notes, 7.75%, 06/01/13 10,960,000 10,905,200
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
MULTI-UTILITIES & UNREGULATED POWER-(CONTINUED)
Mirant Americas Generation, LLC, Sr. Unsec.
Notes, 7.63%, 05/01/06 (Acquired 05/01/03-
07/10/03; Cost $7,725,725)(b)(f) $ 9,685,000 $ 8,377,525
---------------------------------------------------------------------------
Northwest Pipelines Corp., Sr. Unsec. Gtd.
Global Notes, 8.13%, 03/01/10 630,000 693,788
---------------------------------------------------------------------------
NRG Energy, Inc., Sr. Sec. Second Priority
Notes, 8.00%, 12/15/13 (Acquired 12/17/03-
01/21/04; Cost $5,530,000)(a)(b) 5,350,000 5,564,000
---------------------------------------------------------------------------
Reliant Energy Mid-Atlantic Power Holdings,
LLC-Series B, Sr. Unsec. Pass Through
Ctfs., 9.24%, 07/02/17 2,956,853 3,385,596
---------------------------------------------------------------------------
Reliant Resources, Inc.,
Sec. Global Notes, 9.50%, 07/15/13 4,805,000 5,237,450
---------------------------------------------------------------------------
Sr. Sec. Global Notes, 9.25%, 07/15/10 4,805,000 5,201,413
---------------------------------------------------------------------------
Williams Cos., Inc. (The),
Sr. Notes, 7.13%, 09/01/11 9,580,000 10,106,900
---------------------------------------------------------------------------
Sr. Notes, 8.63%, 06/01/10 4,665,000 5,178,150
===========================================================================
105,677,951
===========================================================================
OFFICE ELECTRONICS-0.79%
Xerox Corp.,
Sr. Unsec. Notes, 7.13%, 06/15/10 3,650,000 3,932,875
---------------------------------------------------------------------------
7.63%, 06/15/13 7,545,000 8,148,600
===========================================================================
12,081,475
===========================================================================
OFFICE SERVICES & SUPPLIES-0.33%
IOS Capital, Inc., Sr. Unsec. Notes, 7.25%,
06/30/08 2,920,000 3,157,250
---------------------------------------------------------------------------
Moore North America Finance Inc., Sr. Notes,
7.88%, 01/15/11 1,650,000 1,864,500
===========================================================================
5,021,750
===========================================================================
OIL & GAS DRILLING-0.35%
Pride International, Inc., Sr. Unsec. Notes,
10.00%, 06/01/09 5,000,000 5,362,500
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.26%
Grant Prideco Escrow Corp., Sr. Unsec. Gtd.
Global Notes, 9.00%, 12/15/09 2,740,000 3,096,200
---------------------------------------------------------------------------
Grant Prideco, Inc.-Series B, Sr. Unsec. Gtd.
Global Notes, 9.63%, 12/01/07 1,475,000 1,696,250
---------------------------------------------------------------------------
GulfMark Offshore, Inc., Sr. Unsec. Gtd.
Notes, 8.75%, 06/01/08 3,600,000 3,717,000
---------------------------------------------------------------------------
Hanover Compressor Co.,
Sr. Notes, 8.63%, 12/15/10 1,845,000 1,983,375
---------------------------------------------------------------------------
Sub. Disc. Notes, 11.00%, 03/31/07(h) 1,850,000 1,406,000
---------------------------------------------------------------------------
SESI, LLC, Sr. Unsec. Gtd. Global Notes,
8.88%, 05/15/11 6,815,000 7,462,425
===========================================================================
19,361,250
===========================================================================
|
FS-148
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-0.12%
Vintage Petroleum, Inc., Sr. Unsec. Global
Notes, 8.25%, 05/01/12 $ 1,685,000 $ 1,878,775
===========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-2.02%
CITGO Petroleum Corp., Sr. Unsec. Global
Notes, 11.38%, 02/01/11 9,530,000 11,483,650
---------------------------------------------------------------------------
El Paso CGP Co., Unsec. Notes, 7.75%,
06/15/10 2,990,000 2,821,813
---------------------------------------------------------------------------
GulfTerra Energy Partners, L.P.,
Sr. Unsec. Global Notes, 6.25%, 06/01/10 2,805,000 2,938,238
---------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Sub. Global
Notes, 8.50%, 06/01/11 6,801,000 7,753,140
---------------------------------------------------------------------------
Premcor Refining Group Inc. (The),
Sr. Unsec. Global Notes,
7.50%, 06/15/15 3,740,000 4,034,525
---------------------------------------------------------------------------
9.50%, 02/01/13 1,665,000 1,950,131
===========================================================================
30,981,497
===========================================================================
PACKAGED FOODS & MEATS-1.04%
Burns Philip Capital Property Ltd./Burns
Philip Capital U.S., Inc., Sr. Unsec.
Notes, 9.50%, 11/15/10 (Acquired 08/21/03;
Cost $3,615,300)(a) 3,510,000 3,798,487
---------------------------------------------------------------------------
Del Monte Corp., Sr. Unsec. Sub. Global
Notes, 8.63%, 12/15/12 1,505,000 1,685,600
---------------------------------------------------------------------------
Dole Food Co., Inc., Sr. Unsec. Global Notes,
8.88%, 03/15/11 9,485,000 10,504,638
===========================================================================
15,988,725
===========================================================================
PAPER PACKAGING-0.26%
Jefferson Smurfit Corp., Sr. Unsec. Gtd.
Unsub. Global Notes, 7.50%, 06/01/13 3,775,000 3,982,625
===========================================================================
PAPER PRODUCTS-2.05%
Appleton Papers Inc.-Series B, Sr. Unsec.
Gtd. Sub. Global Notes, 12.50%, 12/15/08 1,490,000 1,698,600
---------------------------------------------------------------------------
Bowater Inc., Global Notes, 6.50%, 06/15/13 8,220,000 8,044,010
---------------------------------------------------------------------------
Cascades Inc. (Canada), Sr. Unsec. Global
Notes, 7.25%, 02/15/13 5,455,000 5,891,400
---------------------------------------------------------------------------
Georgia-Pacific Corp.,
Sr. Gtd. Global Notes, 7.38%, 07/15/08 3,850,000 4,138,750
---------------------------------------------------------------------------
Sr. Notes, 8.00%, 01/15/24 (Acquired
12/04/03; Cost $2,770,000)(a)(b) 2,770,000 2,866,950
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
8.88%, 02/01/10 5,320,000 6,091,400
---------------------------------------------------------------------------
9.38%, 02/01/13 1,625,000 1,860,625
---------------------------------------------------------------------------
Norske Skog Canada Ltd. (Canada)-Series D,
Sr. Unsec. Gtd. Global Notes, 8.63%,
06/15/11 800,000 848,000
===========================================================================
31,439,735
===========================================================================
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
PERSONAL PRODUCTS-0.94%
Central Garden & Pet Co., Sr. Unsec. Gtd.
Sub. Global Notes, 9.13%, 02/01/13 $ 1,440,000 $ 1,623,600
---------------------------------------------------------------------------
Elizabeth Arden, Inc., Sr. Unsec. Gtd. Sub.
Notes, 7.75%, 01/15/14 (Acquired 01/08/04;
Cost $6,450,000)(a)(b) 6,450,000 6,643,500
---------------------------------------------------------------------------
Herbalife International, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 11.75%, 07/15/10 5,270,000 6,139,550
===========================================================================
14,406,650
===========================================================================
PHARMACEUTICALS-1.42%
aaiPharma Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 11.00%, 04/01/10 7,950,000 9,102,750
---------------------------------------------------------------------------
Athena Neurosciences Finance, LLC., Sr.
Unsec. Gtd. Unsub. Notes, 7.25%, 02/21/08 10,105,000 9,801,850
---------------------------------------------------------------------------
Valeant Pharmaceuticals International, Sr.
Notes, 7.00%, 12/15/11 (Acquired 12/09/03;
Cost $2,781,100)(a)(b) 2,765,000 2,861,775
===========================================================================
21,766,375
===========================================================================
PUBLISHING-1.04%
Dex Media East LLC/Dex Media East Finance
Co., Sr. Unsec. Gtd. Global Notes, 9.88%,
11/15/09 1,175,000 1,339,500
---------------------------------------------------------------------------
Dex Media Inc., Disc. Notes, 9.00%, 11/15/13
(Acquired 11/03/03; Cost $1,781,498)(a)(e) 2,770,000 1,918,225
---------------------------------------------------------------------------
Medianews Group Inc., Sr. Sub. Notes, 6.88%,
10/01/13 (Acquired 11/20/03; Cost
$3,201,996)(a) 3,230,000 3,310,750
---------------------------------------------------------------------------
PRIMEDIA Inc., Sr. Notes, 8.00%, 05/15/13
(Acquired 05/08/03-08/18/03; Cost
$7,600,681)(a) 7,665,000 7,818,300
===========================================================================
Von Hoffmann Corp., Sr. Unsec. Gtd. Notes,
10.25%, 03/15/09 (Acquired 10/07/03; Cost
$1,518,875)(a) 1,450,000 1,566,000
===========================================================================
15,952,775
===========================================================================
RAILROADS-1.06%
Grupo Transportacion Ferroviaria Mexicana,
S.A. de C.V. (Mexico), Sr. Gtd. Yankee
Notes, 10.25%, 06/15/07 3,395,000 3,564,750
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Yankee Deb., 11.75%,
06/15/09 8,223,000 8,469,690
---------------------------------------------------------------------------
Kansas City Southern Railway, Sr. Unsec. Gtd.
Global Notes, 9.50%, 10/01/08 3,829,000 4,312,411
===========================================================================
16,346,851
===========================================================================
REAL ESTATE-1.22%
Host Marriott L.P.
Series G, Sr. Gtd. Global Notes, 9.25%,
10/01/07 5,400,000 6,061,500
---------------------------------------------------------------------------
Series I, Unsec. Gtd. Global Notes, 9.50%,
01/15/07 1,420,000 1,592,175
---------------------------------------------------------------------------
|
FS-149
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
REAL ESTATE-(CONTINUED)
iStar Financial Inc.,
Sr. Unsec. Notes,
6.50%, 12/15/13 $ 3,690,000 $ 3,828,375
---------------------------------------------------------------------------
8.75%, 08/15/08 615,000 705,713
---------------------------------------------------------------------------
MeriStar Hospitality Corp., Sr. Unsec. Gtd.
Global Notes, 9.13%, 01/15/11 4,570,000 4,889,900
---------------------------------------------------------------------------
Ventas Realty L.P./Ventas Capital Corp., Sr.
Unsec. Gtd. Global Notes, 8.75%, 05/01/09 1,525,000 1,700,375
===========================================================================
18,778,038
===========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.13%
LNR Property Corp., Sr. Sub. Notes, 7.25%,
10/15/13 (Acquired 10/15/03; Cost
$1,850,000)(a) 1,850,000 1,970,250
===========================================================================
REGIONAL BANKS-0.55%
Western Financial Bank, Unsec. Sub. Deb.,
8.88%, 08/01/07 95,000 97,375
---------------------------------------------------------------------------
9.63%, 05/15/12 7,225,000 8,308,750
===========================================================================
8,406,125
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.13%
Amkor Technology, Inc., Sr. Unsec. Global
Notes, 7.75%, 05/15/13 1,880,000 2,011,600
===========================================================================
SEMICONDUCTORS-0.36%
Viasystems Inc., Sr. Sub. Notes, 10.50%,
01/15/11 (Acquired 12/12/03-01/05/04; Cost
$5,146,163)(a)(b) 5,005,000 5,580,575
===========================================================================
SOFT DRINKS-0.06%
Cott Beverages Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 8.00%, 12/15/11 850,000 935,000
===========================================================================
SPECIALTY CHEMICALS-3.27%
Huntsman Advanced Materials LLC, Sr. Sec.
Second Lien Notes, 11.00%, 07/15/10
(Acquired 06/23/03; Cost $2,730,000)(a) 2,730,000 3,105,375
---------------------------------------------------------------------------
Huntsman International LLC, Sr. Unsec. Gtd.
Global Notes, 9.88%, 03/01/09 12,790,000 14,005,050
---------------------------------------------------------------------------
Huntsman LLC, Sr. Gtd. Notes, 11.63%,
10/15/10 (Acquired 09/16/03-12/03/03; Cost
$5,044,112)(a) 5,095,000 5,375,225
---------------------------------------------------------------------------
Millennium America Inc.,
Sr. Notes, 9.25%, 06/15/08 (Acquired
04/22/03-11/12/03; Cost $2,860,913)(a) 2,680,000 2,948,000
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 9.25%,
06/15/08 1,285,000 1,413,500
---------------------------------------------------------------------------
Nalco Finance Holdings Inc., Sr. Disc. Notes,
9.00%, 02/01/14 (Acquired 01/15/04; Cost
$5,318,658)(a)(b)(e) 8,280,000 5,299,200
---------------------------------------------------------------------------
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11 9,355,000 9,775,975
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
SPECIALTY CHEMICALS-(CONTINUED)
Resolution Performance Products LLC, Sec.
Notes, 8.00%, 12/15/09 (Acquired 12/17/03;
Cost $350,000)(a)(b) $ 350,000 $ 362,250
---------------------------------------------------------------------------
Rhodia S.A. (France), Sr. Notes, 7.63%,
06/01/10 (Acquired 05/20/03; Cost
$1,860,000)(a) 1,860,000 1,748,400
---------------------------------------------------------------------------
Westlake Chemical Corp., Sr. Unsec. Gtd.
Global Notes, 8.75%, 07/15/11 5,585,000 6,087,650
===========================================================================
50,120,625
===========================================================================
SPECIALTY STORES-0.68%
CSK Auto Inc., Sr. Gtd. Sub. Notes, 7.00%,
01/15/14 (Acquired 01/09/04; Cost
$2,300,000)(a)(b) 2,300,000 2,334,500
---------------------------------------------------------------------------
Petco Animal Supplies Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 10.75%, 11/01/11 4,740,000 5,664,300
---------------------------------------------------------------------------
Petro Stopping Centers L.P., Sr. Unsec.
Notes, 10.50%, 02/01/07 2,400,000 2,466,000
===========================================================================
10,464,800
===========================================================================
STEEL-0.79%
IPSCO, Inc. (Canada), Sr. Global Notes,
8.75%, 06/01/13 5,935,000 6,780,738
---------------------------------------------------------------------------
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 6,150,000 5,289,000
===========================================================================
12,069,738
===========================================================================
TRUCKING-0.38%
Laidlaw International Inc., Sr. Notes,
10.75%, 06/15/11 (Acquired 05/22/03-
11/20/03; Cost $5,487,752)(a) 5,045,000 5,801,750
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-7.30%
AirGate PCS, Inc., Sr. Sub. Disc. Notes,
13.50%, 10/01/09(e)(i) 9,975,000 9,426,375
---------------------------------------------------------------------------
Alamosa (Delaware), Inc., Sr. Unsec. Gtd.
Disc. Notes, 12.00%, 07/31/09(e) 5,113,000 4,678,395
---------------------------------------------------------------------------
American Tower Corp., Sr. Global Notes,
9.38%, 02/01/09 9,905,000 10,573,588
---------------------------------------------------------------------------
American Tower Escrow Corp., Unsec. Disc.
Global Notes, 8.00%, 08/01/08(h) 7,220,000 5,072,050
---------------------------------------------------------------------------
Centennial Communications Corp./Centennial
Cellular Operating Co.,
Sr. Notes, 8.13%, 02/01/14 (Acquired
01/16/04; Cost $1,750,000)(a)(b) 1,750,000 1,723,750
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.13%,
06/15/13 8,380,000 9,092,300
---------------------------------------------------------------------------
Crown Castle International Corp., Sr. Global
Notes, 9.38%, 08/01/11 4,500,000 4,995,000
---------------------------------------------------------------------------
Dobson Communications Corp., Sr. Global
Notes, 8.88%, 10/01/13 5,565,000 5,787,600
---------------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc.
Global Notes, 14.00%, 10/01/10 (Acquired
09/19/00-10/12/01; Cost
$2,606,889)(b)(e)(f) 5,150,000 1,545,000
---------------------------------------------------------------------------
|
FS-150
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
Innova S. de R.L. (Mexico), Notes, 9.38%,
09/19/13 (Acquired 09/12/03-12/02/03; Cost
$9,311,744)(a) $ 9,205,000 $ 9,872,363
---------------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%,
07/15/10 (Acquired 06/30/00-11/08/01; Cost
$3,623,101)(b)(e)(f) 6,335,000 1,678,775
---------------------------------------------------------------------------
IWO Holdings, Inc., Sr. Unsec. Gtd. Global
Notes, 14.00%, 01/15/11 10,740,000 2,309,100
---------------------------------------------------------------------------
Millicom International Cellular S.A.
(Luxembourg), Sr. Unsec. Notes, 10.00%,
12/01/13 (Acquired 11/19/03; Cost
$925,000)(a) 925,000 971,250
---------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Unsec.
Notes, 7.38%, 08/01/15 4,410,000 4,740,750
---------------------------------------------------------------------------
Nextel Partners, Inc., Sr. Global Notes,
8.13%, 07/01/11 3,710,000 3,914,050
---------------------------------------------------------------------------
NII Holdings Ltd. (Cayman Islands), Sr. Sec.
Disc. Euro Notes, 13.00%, 11/01/09(e) 1,012,189 1,047,616
---------------------------------------------------------------------------
Rural Cellular Corp., Sr. Unsec. Global
Notes, 9.88%, 02/01/10 6,505,000 6,927,825
---------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Global
Notes, 10.25%, 02/01/09 8,845,000 8,933,450
---------------------------------------------------------------------------
SBA Telecommunications Inc./SBA
Communications Corp., Sr. Disc. Notes,
9.75%, 12/15/11 (Acquired
12/08/03-01/30/04; Cost
$4,377,615)(a)(b)(e) 6,255,000 4,503,600
---------------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Unsec. Gtd.
Disc. Global Notes, 14.00%, 05/15/10(e) 3,102,000 2,892,615
---------------------------------------------------------------------------
US Unwired Inc.-Series B, Sr. Unsec. Gtd.
Sub. Disc. Notes, 13.38%, 11/01/09(e) 6,935,000 6,276,175
---------------------------------------------------------------------------
Western Wireless Corp., Sr. Unsec. Global
Notes, 9.25%, 07/15/13 4,650,000 5,045,250
===========================================================================
112,006,877
===========================================================================
Total Bonds & Notes (Cost $1,309,308,224) 1,383,372,540
===========================================================================
WARRANTS & OTHER EQUITY INTERESTS-5.75%
ALTERNATIVE CARRIERS-0.00%
KMC Telecom Holdings, Inc.-Wts.,
expiring 01/31/08(j) 35 9
---------------------------------------------------------------------------
WAM!NET Inc.-Wts., expiring 03/01/05(j) 17,100 171
===========================================================================
180
===========================================================================
BROADCASTING & CABLE TV-2.16%
CSC Holdings, Inc.-Series M, 11.13% Pfd 106,050 11,214,788
---------------------------------------------------------------------------
Knology, Inc.-Wts., expiring 10/22/07
(Acquired 03/12/98-02/01/00; Cost
$270)(a)(b)(d)(j) 47,295 0
---------------------------------------------------------------------------
Knology, Inc.(k) 64,931 694,763
---------------------------------------------------------------------------
NTL Inc.(k) 91,503 6,070,309
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
MARKET
SHARES VALUE
BROADCASTING & CABLE TV-(CONTINUED)
UnitedGlobalCom, Inc.
Class A(k) 1,442,463 $ 13,703,399
---------------------------------------------------------------------------
Rts.(j) 403,890 1,353,030
---------------------------------------------------------------------------
XM Satellite Radio Inc.-Wts.,
expiring 03/15/10(j) 3,750 206,250
===========================================================================
33,242,539
===========================================================================
COMMUNICATIONS EQUIPMENT-0.00%
Loral Space & Communications, Ltd.-Wts.,
expiring 12/26/06(j) 74,000 2,220
===========================================================================
CONSTRUCTION MATERIALS-0.00%
Dayton Superior Corp.-Wts., expiring 06/15/09
(Acquired 08/07/00-01/30/01; Cost
$10,000)(a)(b)(j) 10,780 11
===========================================================================
GENERAL MERCHANDISE STORES-0.01%
Travelcenters, of America, Inc.
-Wts., expiring 05/01/09 (Acquired
01/29/01; Cost $0)(a)(b)(j) 14,700 77,175
---------------------------------------------------------------------------
-Wts., expiring 05/01/09(j) 4,900 25,725
===========================================================================
102,900
===========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.
Series B, Pfd. Wts., expiring 11/15/09
(Acquired 06/13/00; Cost $0)(a)(b)(j) 21,155 0
---------------------------------------------------------------------------
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(a)(b)(j) 21,155 0
===========================================================================
0
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.64%
McLeodUSA Inc.-Wts., expiring 04/16/07(j) 117,164 97,246
---------------------------------------------------------------------------
NTELOS Inc.
(Acquired 09/10/03; Cost
$5,437,500)(a)(b)(d)(k) 246,764 5,330,103
---------------------------------------------------------------------------
Wts., expiring 08/15/10 (Acquired 07/21/00-
11/15/00; Cost $214,160)(a)(b)(j) 33,035 330
---------------------------------------------------------------------------
XO Communications, Inc.(k) 528,477 3,863,167
---------------------------------------------------------------------------
Series A, Wts., expiring 01/16/10(j) 68,148 238,518
---------------------------------------------------------------------------
Series B, Wts., expiring 01/16/10(j) 51,111 153,333
---------------------------------------------------------------------------
Series C, Wts., expiring 01/16/10(j) 51,111 122,666
===========================================================================
9,805,363
===========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.68%
AES Trust VII-$3.00 Conv. Pfd. 226,045 10,454,581
===========================================================================
PUBLISHING-0.69%
PRIMEDIA Inc.
Series D, 10.00% Pfd. 70,250 6,954,750
---------------------------------------------------------------------------
Series F, 9.20% Pfd. 37,800 3,600,450
===========================================================================
10,555,200
===========================================================================
|
FS-151
MARKET
SHARES VALUE
---------------------------------------------------------------------------
RAILROADS-0.07%
RailAmerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(a)(b)(j) 15,525 $ 1,042,038
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.50%
Alamosa Holdings, Inc.-Series B, Conv. Pfd.
$18.75 6,433 2,960,801
---------------------------------------------------------------------------
American Tower Corp.-Wts., expiring 08/01/08
(Acquired 01/22/03-04/29/03; Cost
$414,167)(a)(b)(j) 7,220 1,063,145
---------------------------------------------------------------------------
Horizon PCS, Inc.-Wts., expiring 10/01/10
(Acquired 05/02/01; Cost $0)(a)(b)(j) 29,480 295
---------------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 07/15/10 (Acquired
01/29/01; Cost $0)(a)(b)(j) 6,880 69
---------------------------------------------------------------------------
IWO Holdings Inc.-Wts., expiring 01/15/11
(Acquired 08/24/01; Cost $0)(a)(b)(j) 14,340 143
---------------------------------------------------------------------------
NII Holdings Inc.-Class B(k) 109,549 10,432,351
---------------------------------------------------------------------------
SpectraSite, Inc.(k) 233,224 8,535,998
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
MARKET
SHARES VALUE
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
UbiquiTel Inc.-Wts., expiring 04/15/10
(Acquired 08/10/00; Cost $0)(a)(b)(j) 27,680 $ 277
===========================================================================
22,993,079
===========================================================================
Total Warrants & Other Equity Interests
(Cost $64,655,499) 88,198,111
===========================================================================
MONEY MARKET FUNDS-2.98%
Liquid Assets Portfolio(l) 22,908,549 22,908,549
---------------------------------------------------------------------------
STIC Prime Portfolio(l) 22,908,549 22,908,549
===========================================================================
Total Money Market Funds (Cost
$45,817,098) 45,817,098
===========================================================================
TOTAL INVESTMENTS-98.89% (Cost
$1,419,780,821) 1,517,387,749
===========================================================================
OTHER ASSETS LESS LIABILITIES-1.11% 17,041,005
===========================================================================
NET ASSETS-100.00% $1,534,428,754
___________________________________________________________________________
===========================================================================
|
Investment Abbreviations:
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
PHONES - Participation Hybrid Option
Notes
PIK - Payment in Kind
Rts. - Rights
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
|
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/04 was $262,284,929,
which represented 17.09% of the Fund's net assets. Not considered to be
illiquid unless otherwise indicated.
(b) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 01/31/04 was $80,205,311 which represented
5.23% of the Fund's net assets.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(e) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(f) Defaulted security. Issuer has filed for protection under Chapter 11 of the
U.S. Bankruptcy Code.
(g) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 01/31/04.
(h) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(i) Consists of more than one class of securities traded together as a unit.
(j) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(k) Non-income producing security.
(l) The money market fund and the Fund are affiliated by having the same
advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-152
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$1,373,963,723) $ 1,471,570,651
------------------------------------------------------------
Investments in affiliated money market
funds (cost $45,817,098) 45,817,098
------------------------------------------------------------
Total investments (cost $1,419,780,821) 1,517,387,749
------------------------------------------------------------
Cash 2,621,811
------------------------------------------------------------
Receivables for:
Investments sold 29,018,109
------------------------------------------------------------
Fund shares sold 1,736,494
------------------------------------------------------------
Dividends and interest 27,751,660
------------------------------------------------------------
Investments matured (Note 8) 6,000
------------------------------------------------------------
Amount due from advisor 36,533
------------------------------------------------------------
Investment for deferred compensation and
retirement plans 208,204
------------------------------------------------------------
Other assets 147,401
============================================================
Total assets 1,578,913,961
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 23,517,078
------------------------------------------------------------
Fund shares reacquired 15,571,255
------------------------------------------------------------
Dividends 3,314,714
------------------------------------------------------------
Deferred compensation and retirement
plans 319,931
------------------------------------------------------------
Accrued distribution fees 708,439
------------------------------------------------------------
Accrued trustees' fees 1,263
------------------------------------------------------------
Accrued transfer agent fees 819,658
------------------------------------------------------------
Accrued operating expenses 232,869
============================================================
Total liabilities 44,485,207
============================================================
Net assets applicable to shares outstanding $ 1,534,428,754
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 3,344,906,282
------------------------------------------------------------
Undistributed net investment income (2,800,989)
------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (1,905,283,467)
------------------------------------------------------------
Unrealized appreciation of investment
securities 97,606,928
============================================================
$ 1,534,428,754
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 632,985,736
____________________________________________________________
============================================================
Class B $ 528,072,013
____________________________________________________________
============================================================
Class C $ 99,854,404
____________________________________________________________
============================================================
Investor Class $ 273,516,601
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 140,841,922
____________________________________________________________
============================================================
Class B 117,131,566
____________________________________________________________
============================================================
Class C 22,231,241
____________________________________________________________
============================================================
Investor Class 60,847,386
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 4.49
------------------------------------------------------------
Offering price per share:
(Net asset value of $4.49 divided by
95.25%) $ 4.71
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 4.51
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 4.49
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 4.50
____________________________________________________________
============================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-153
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest $ 59,806,256
--------------------------------------------------------------------------
Dividends 2,722,862
--------------------------------------------------------------------------
Dividends from affiliated money market funds 188,637
==========================================================================
Total investment income 62,717,755
==========================================================================
EXPENSES:
Advisory fees 3,541,354
--------------------------------------------------------------------------
Administrative services fees 171,766
--------------------------------------------------------------------------
Custodian fees 67,636
--------------------------------------------------------------------------
Distribution fees
Class A 773,902
--------------------------------------------------------------------------
Class B 2,653,477
--------------------------------------------------------------------------
Class C 433,377
--------------------------------------------------------------------------
Investor Class 170,437
--------------------------------------------------------------------------
Transfer agent fees 1,548,040
--------------------------------------------------------------------------
Trustees' fees 14,058
--------------------------------------------------------------------------
Other 388,293
==========================================================================
Total expenses 9,762,340
==========================================================================
Less: Fees waived and expense offset arrangements (25,074)
==========================================================================
Net expenses 9,737,266
==========================================================================
Net investment income 52,980,489
==========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 23,908,207
--------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 106,424,521
==========================================================================
Net gain from investment securities 130,332,728
==========================================================================
Net increase in net assets resulting from operations $183,313,217
__________________________________________________________________________
==========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-154
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 52,980,489 $ 95,342,128
----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 23,908,207 (164,599,730)
----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 106,424,521 278,571,487
==============================================================================================
Net increase in net assets resulting from operations 183,313,217 209,313,885
==============================================================================================
Distributions to shareholders from net investment income:
Class A (26,347,010) (48,175,551)
----------------------------------------------------------------------------------------------
Class B (20,624,803) (41,662,189)
----------------------------------------------------------------------------------------------
Class C (3,403,412) (4,898,704)
----------------------------------------------------------------------------------------------
Investor Class (6,095,393) --
==============================================================================================
Decrease in net assets resulting from distributions (56,470,618) (94,736,444)
==============================================================================================
Share transactions-net:
Class A 27,819,543 68,038,018
----------------------------------------------------------------------------------------------
Class B (49,817,912) 13,140,786
----------------------------------------------------------------------------------------------
Class C 19,948,441 16,219,386
----------------------------------------------------------------------------------------------
Investor Class 260,218,166 --
==============================================================================================
Net increase in net assets resulting from share
transactions 258,168,238 97,398,190
==============================================================================================
Net increase in net assets 385,010,837 211,975,631
==============================================================================================
NET ASSETS:
Beginning of period 1,149,417,917 937,442,286
==============================================================================================
End of period (including undistributed net investment
income (loss) of $(2,800,989) and $689,140 for 2004 and
2003, respectively) $1,534,428,754 $1,149,417,917
______________________________________________________________________________________________
==============================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-155
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures and exchange-traded funds.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if
FS-156
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. REDEMPTION FEES -- Effective November 24, 2003, the Fund instituted a 2% redemption fee on certain share classes that is to be retained by the Fund to offset transaction costs and other expenses associated with short-term redemptions and exchanges. The fee, subject to certain exceptions, is imposed on certain redemptions, including exchanges of shares held less than 30 days. The redemption fee is accounted for as an addition to paid-in-capital by the Fund and is allocated among the share classes based on the relative net assets of each class.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% on the first $200 million of the Fund's average daily net assets, plus 0.55% on the next $300 million of the Fund's average daily net assets, plus 0.50% on the next $500 million of the Fund's average daily net assets, plus 0.45% on the Fund's average daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the six months ended January 31, 2004, AIM waived fees of $4,489.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $171,766 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $625,123 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C and Investor Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Class A, Class B and Class C Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares. Of these amounts, 0.25% of the average daily net assets of the Class A, Class B or Class C shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges, that may be paid by any class of shares of the Fund. The Fund, pursuant to the Investor Class Plan, pays AIM Distributors for its actual expenses incurred pursuant to the Investor Class Plan for the period, up to a maximum annual rate of 0.25% of the average daily net assets of the Investor Class shares. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A, Class B, Class C and Investor Class shares paid $773,902, $2,653,477, $433,377 and $170,437, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the six months ended January 31, 2004, AIM Distributors retained $81,183 in front-end sales commissions from the sale of Class A shares and $528,051, $2,510 and $9,672 from Class A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees to invest daily available cash balances in affiliated money market funds. Each day the prior day's balance invested in the affiliated money market fund is redeemed in full and a new purchase amount is submitted to invest the current day's available cash. The table below shows the transactions in and earnings from investments in affiliated money market funds for the period ended January 31, 2004.
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/2003 AT COST SALES (DEPRECIATION) 01/31/2004 INCOME GAIN (LOSS)
----------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $ -- $ 175,815,959 $(152,907,410) $ -- $22,908,549 $94,745 $ --
----------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio -- 175,815,959 (152,907,410) -- $22,908,549 93,892 --
======================================================================================================================
$ -- $ 351,631,918 $(305,814,820) $ -- $45,817,098 $188,637 $ --
______________________________________________________________________________________________________________________
======================================================================================================================
|
FS-157
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts and custodian credits resulting from periodic overnight cash balances at the custodian. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $6,700 and reductions in custodian fees of $13,885 under expense offset arrangements, which resulted in a reduction of the Fund's total expenses of $20,585.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of
$4,498 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
------------------------------------------------------------
July 31, 2006 $ 115,531,161
------------------------------------------------------------
July 31, 2007 297,433,797
------------------------------------------------------------
July 31, 2008 303,063,104
------------------------------------------------------------
July 31, 2009 150,303,692
------------------------------------------------------------
July 31, 2010 473,407,401
------------------------------------------------------------
July 31, 2011 495,360,561
============================================================
Total capital loss carryforward $1,835,099,716
____________________________________________________________
============================================================
|
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $504,697,210 and $646,658,479, respectively.
Receivable for investments matured represents the estimated proceeds to the Fund by Candescent Technologies Corp. which is in default with respect to the principal payments on $600,000 par value, Senior Unsecured Guaranteed Subordinated Debentures, 8.00%, which was due May 1, 2003. This estimate was determined in accordance with the fair valuation procedures authorized by the Board of Trustees.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $ 99,553,304
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (54,231,140)
===========================================================
Net unrealized appreciation (depreciation) of
investment securities $ 45,322,164
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $1,472,065,585.
|
FS-158
NOTE 9--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares, Class B shares, Class C and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Investor Class shares are sold at net asset value. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 60,724,311 $ 251,259,827 163,631,121 $ 631,077,903
----------------------------------------------------------------------------------------------------------------------------
Class B 12,501,959 53,145,245 30,851,723 117,940,158
----------------------------------------------------------------------------------------------------------------------------
Class C 6,503,962 27,871,437 12,379,160 47,768,358
----------------------------------------------------------------------------------------------------------------------------
Investor Class(a) 2,207,228 9,650,657 -- --
============================================================================================================================
Issued as reinvestment of dividends:
Class A 3,868,577 16,683,474 7,455,053 28,454,055
----------------------------------------------------------------------------------------------------------------------------
Class B 2,503,290 10,831,845 5,176,658 19,722,338
----------------------------------------------------------------------------------------------------------------------------
Class C 545,095 2,358,560 768,448 2,934,254
----------------------------------------------------------------------------------------------------------------------------
Investor Class(a) 1,172,152 5,172,967 -- --
============================================================================================================================
Issued in connection with acquisitions:
Class A 3,472,810(b) 14,863,501(b) 8,999,611(c) 37,602,120(c)
----------------------------------------------------------------------------------------------------------------------------
Class B 625,758(b) 2,692,622(b) 10,480,525(c) 43,922,476(c)
----------------------------------------------------------------------------------------------------------------------------
Class C 3,933,894(b) 16,848,468(b) 1,949,995(c) 8,144,636(c)
----------------------------------------------------------------------------------------------------------------------------
Investor Class(a) 67,146,021(b) 287,723,965(b) -- --
============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 7,814,824 33,346,772 7,570,103 29,132,839
----------------------------------------------------------------------------------------------------------------------------
Class B (7,790,026) (33,346,772) (7,535,951) (29,132,839)
============================================================================================================================
Reacquired:
Class A (68,317,378) (288,334,031) (167,318,004) (658,228,899)
----------------------------------------------------------------------------------------------------------------------------
Class B (19,481,424) (83,140,852) (36,609,427) (139,311,347)
----------------------------------------------------------------------------------------------------------------------------
Class C (6,320,674) (27,130,024) (11,045,541) (42,627,862)
----------------------------------------------------------------------------------------------------------------------------
Investor Class(a) (9,678,015) (42,329,423) -- --
============================================================================================================================
61,432,364 $ 258,168,238(d) 26,753,474 $ 97,398,190
____________________________________________________________________________________________________________________________
============================================================================================================================
|
(a) Investor Class shares commenced sales on September 30, 2003.
(b) As of the opening of business on November 03, 2003, the Fund acquired all of
the net assets of INVESCO High Yield Fund pursuant to a plan of
reorganization approved by INVESCO High Yield Fund shareholders on October,
21 2003. The acquisition was accomplished by a tax-free exchange of
75,178,483 shares of the Fund for 83,984,532 shares of INVESCO High Yield
Fund outstanding as of the close of business October 31, 2003. INVESCO High
Yield Fund net assets at that date of $322,128,556 including $25,898,307 of
unrealized appreciation, were combined with those of the Fund. On the
acquisition date, INVESCO High Yield Fund had undistributed net investment
income (loss) of $(101,808) and undistributed net realized gain of
$(462,951,117). The aggregate net assets of the Fund immediately before the
acquisition were $1,216,112,386.
(c) As of the opening of business on June 23, 2003, the Fund acquired all of the
net assets of AIM High Yield Fund II pursuant to a plan of reorganization
approved by AIM High Yield Fund II shareholders on June 4, 2003. The
acquisition was accomplished by a tax-free exchange of 21,430,131 shares of
the Fund for 14,799,134 shares of AIM High Yield Fund II outstanding as of
the close of business June 20, 2003. AIM High Yield Fund II net assets at
that date of $89,669,232 including $(611,924) of unrealized appreciation
(depreciation), were combined with those of the Fund. On the acquisition
date, AIM High Yield Fund II had undistributed net investment income (loss)
of $(338,019) and undistributed net realized gain (loss) of $(73,445,461).
The aggregate net assets of the Fund immediately before the acquisition were
$1,256,561,728.
(d) Net of redemption fees of $1,632, $1,395, $226, and $522 for Class A, Class
B, Class C and Investor Class shares respectively, based on the relative net
assets of each class.
FS-159
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
-----------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.10 $ 3.70 $ 4.92 $ 7.00 $ 8.07 $ 8.77
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.37(a) 0.49(b) 0.68 0.47 0.85
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.40 0.40 (1.19) (2.03) (1.03) (0.66)
=================================================================================================================================
Total from investment operations 0.57 0.77 (0.70) (1.35) (0.56) 0.19
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.37) (0.52) (0.69) (0.49) (0.87)
---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income -- -- -- (0.01) -- --
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (0.03) (0.02) (0.02)
=================================================================================================================================
Total distributions (0.18) (0.37) (0.52) (0.73) (0.51) (0.89)
=================================================================================================================================
Redemption fees added to beneficial
interest 0.00 -- -- -- -- --
=================================================================================================================================
Net asset value, end of period $ 4.49 $ 4.10 $ 3.70 $ 4.92 $ 7.00 $ 8.07
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 14.24% 22.10% (15.36)% (19.98)% (7.12)% 2.21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $632,986 $547,092 $417,974 $683,845 $1,056,453 $1,364,502
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.08%(d) 1.16% 1.07% 0.99% 0.93%(e) 0.92%
=================================================================================================================================
Ratio of net investment income to
average net assets 8.06%(d) 9.64% 11.15%(b) 11.98% 10.79%(e) 10.06%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 42% 101% 59% 55% 23% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have remained the same and the ratio of net investment income to average
net assets would have been 11.22%. In accordance with the AICPA Audit
and Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$615,756,735.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-160
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-----------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.12 $ 3.71 $ 4.93 $ 7.01 $ 8.07 $ 8.76
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.34(a) 0.45(b) 0.64 0.44 0.79
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.40 0.41 (1.18) (2.03) (1.03) (0.66)
=================================================================================================================================
Total from investment operations 0.56 0.75 (0.73) (1.39) (0.59) 0.13
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.17) (0.34) (0.49) (0.65) (0.45) (0.80)
---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income -- -- -- (0.01) -- --
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (0.03) (0.02) (0.02)
=================================================================================================================================
Total distributions (0.17) (0.34) (0.49) (0.69) (0.47) (0.82)
=================================================================================================================================
Redemption fees added to beneficial
interest 0.00 -- -- -- -- --
=================================================================================================================================
Net asset value, end of period $ 4.51 $ 4.12 $ 3.71 $ 4.93 $ 7.01 $ 8.07
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 13.78% 21.44% (15.99)% (20.60)% (7.49)% 1.46%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $528,072 $530,239 $469,408 $756,704 $1,206,737 $1,559,864
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.83%(d) 1.91% 1.82% 1.75% 1.69%(e) 1.68%
=================================================================================================================================
Ratio of net investment income to
average net assets 7.31%(d) 8.89% 10.40%(b) 11.22% 10.03%(e) 9.30%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 42% 101% 59% 55% 23% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.46 and the ratio of net investment income to average net
assets would have been 10.47%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$527,811,262.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-161
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
--------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, --------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.10 $ 3.70 $ 4.92 $ 6.99 $ 8.05 $ 8.74
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.34(a) 0.45(b) 0.65 0.44 0.78
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.40 0.40 (1.18) (2.03) (1.03) (0.65)
=================================================================================================================================
Total from investment operations 0.56 0.74 (0.73) (1.38) (0.59) 0.13
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.17) (0.34) (0.49) (0.65) (0.45) (0.80)
---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income -- -- -- (0.01) -- --
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (0.03) (0.02) (0.02)
=================================================================================================================================
Total distributions (0.17) (0.34) (0.49) (0.69) (0.47) (0.82)
=================================================================================================================================
Redemption fees added to beneficial
interest 0.00 -- -- -- -- --
=================================================================================================================================
Net asset value, end of period $ 4.49 $ 4.10 $ 3.70 $ 4.92 $ 6.99 $ 8.05
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 13.85% 21.22% (16.02)% (20.52)% (7.51)% 1.46%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $99,854 $72,086 $50,060 $81,871 $110,297 $129,675
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.83%(d) 1.91% 1.82% 1.75% 1.69%(e) 1.68%
=================================================================================================================================
Ratio of net investment income to average
net assets 7.31%(d) 8.89% 10.40%(b) 11.22% 10.03%(e) 9.30%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 42% 101% 59% 55% 23% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.46 and the ratio of net investment income to average net
assets would have been 10.47%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$86,204,340.
(e) Annualized
(f) Not annualized for periods less than one year.
FS-162
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR CLASS
---------------------
SEPTEMBER 30, 2003
(DATE SALES
COMMENCED) TO
JANUARY 31, 2004
-----------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.20
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
-----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.31
===================================================================================
Total from investment operations 0.43
===================================================================================
Less dividends from net investment income (0.13)
===================================================================================
Redemption fees added to beneficial interest 0.00
===================================================================================
Net asset value, end of period $ 4.50
___________________________________________________________________________________
===================================================================================
Total return(b) 10.23%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $273,517
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets 1.06%(c)
===================================================================================
Ratio of net investment income to average net assets 8.06%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(d) 42%
___________________________________________________________________________________
===================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios annualized and are based on average daily net assets of
$202,861,768.
(d) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
FS-163
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-164
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BONDS &
NOTES-78.34%
AEROSPACE & DEFENSE-0.28%
Lockheed Martin Corp.-Series A, Medium
Term Notes, 8.66%, 11/30/06 $2,200,000 $ 2,515,062
===================================================================
ALTERNATIVE CARRIERS-0.39%
INTELSAT Ltd. (Bermuda), Sr. Notes,
6.50%, 11/01/13 (Acquired 10/31/03;
Cost $3,230,944)(a)(b) 3,225,000 3,442,010
===================================================================
APPAREL, ACCESSORIES & LUXURY
GOODS-0.01%
William Carter Co. (The)-Series B, Sr.
Unsec. Gtd. Sub. Global Notes, 10.88%,
08/15/11 62,000 72,540
===================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.40%
Bank of New York Institutional Capital
Trust-Series A, Bonds, 7.78%, 12/01/26
(Acquired 06/12/03; Cost
$3,786,854)(a)(b) 3,175,000 3,534,664
===================================================================
AUTO PARTS & EQUIPMENT-0.00%
Key Plastics Holdings, Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes, 10.25%,
03/15/07(b)(c)(d) 1,325,000 3,312
===================================================================
AUTOMOBILE MANUFACTURERS-0.22%
DaimlerChrysler N.A. Holding
Corp.-Series D, Gtd. Medium Term
Notes, 3.40%, 12/15/04 1,950,000 1,978,060
===================================================================
BROADCASTING & CABLE TV-8.03%
Adelphia Communications Corp.,
Sr. Unsec. Notes,
9.50%, 03/01/05(c) 900,000 969,750
-------------------------------------------------------------------
10.88%, 10/01/10(c) 3,600,000 3,627,000
-------------------------------------------------------------------
Series B, Sr. Unsec. Notes,
9.25%, 10/01/02(c) 850,000 841,500
-------------------------------------------------------------------
9.88%, 03/01/07(c) 140,000 141,050
-------------------------------------------------------------------
British Sky Broadcasting Group PLC
(United Kingdom), Unsec. Gtd. Global
Notes, 7.30%, 10/15/06 6,630,000 7,362,946
-------------------------------------------------------------------
Comcast Corp.
Class A, Sr. Sub. Deb., 10.63%,
07/15/12 3,175,000 4,248,531
-------------------------------------------------------------------
Sr. Unsec. Notes, 8.88%, 04/01/07 170,000 174,005
-------------------------------------------------------------------
Continental Cablevision, Inc., Sr.
Unsec. Deb., 9.50%, 08/01/13 4,550,000 5,265,988
-------------------------------------------------------------------
Cox Radio, Inc.-Class A, Sr. Unsec.
Notes, 6.63%, 02/15/06 1,500,000 1,616,730
-------------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec. Notes,
7.88%, 12/15/07 1,925,000 2,079,000
-------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Knology, Inc., Sr. Unsec. PIK Notes,
12.00%, 11/30/09 (Acquired
01/06/98-11/14/03; Cost $1,331,700)(a) $ 821,275 $ 835,647
-------------------------------------------------------------------
Liberty Media Corp., Global Notes,
3.50%, 09/25/06 5,655,000 5,693,737
-------------------------------------------------------------------
TCI Communications Financing III, Gtd.
Bonds, 9.65%, 03/31/27 11,450,000 14,136,857
-------------------------------------------------------------------
TCI Communications, Inc., Medium Term
Notes, 8.35%, 02/15/05 910,000 967,339
-------------------------------------------------------------------
Time Warner Cos. Inc.,
Sr. Unsec. Gtd. Deb.,
6.88%, 06/15/18 4,400,000 4,902,128
-------------------------------------------------------------------
7.25%, 10/15/17 3,420,000 3,929,717
-------------------------------------------------------------------
7.57%, 02/01/24 2,820,000 3,204,930
-------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 3,522,000 3,797,103
-------------------------------------------------------------------
Unsec. Deb., 9.15%, 02/01/23 5,550,000 7,165,549
===================================================================
70,959,507
===================================================================
CASINOS & GAMING-0.53%
Mohegan Tribal Gaming Authority, Sr.
Unsec. Gtd. Sub. Global Notes, 8.00%,
04/01/12 1,330,000 1,466,325
-------------------------------------------------------------------
Park Place Entertainment Corp., Sr.
Unsec. Global Notes, 7.00%, 04/15/13 1,775,000 1,952,500
-------------------------------------------------------------------
Penn National Gaming, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Global Notes, 11.13%,
03/01/08 1,075,000 1,220,125
===================================================================
4,638,950
===================================================================
COMMODITY CHEMICALS-0.18%
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08 1,440,000 1,576,800
===================================================================
CONSUMER FINANCE-5.96%
Associates Corp. of North America,
Sr. Global Deb., 6.95%, 11/01/18 2,455,000 2,879,617
-------------------------------------------------------------------
Sub. Deb., 8.15%, 08/01/09 632,000 766,332
-------------------------------------------------------------------
Capital One Bank, Sr. Global Notes,
8.25%, 06/15/05 2,310,000 2,489,117
-------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Unsec. Notes,
7.25%, 05/01/06 13,235,000 14,330,726
-------------------------------------------------------------------
8.75%, 02/01/07 5,006,000 5,686,165
-------------------------------------------------------------------
Ford Motor Credit Co.,
Unsec. Global Notes,
6.70%, 07/16/04 2,330,000 2,382,006
-------------------------------------------------------------------
6.88%, 02/01/06 7,450,000 7,947,511
-------------------------------------------------------------------
|
FS-165
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
General Motors Acceptance Corp.,
Global Notes, 4.50%, 07/15/06 $2,400,000 $ 2,465,472
-------------------------------------------------------------------
Medium Term Notes, 5.25%, 05/16/05 3,700,000 3,834,199
-------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%,
01/15/06 8,850,000 9,471,358
-------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$418,532)(a)(b) 400,000 408,460
===================================================================
52,660,963
===================================================================
DISTILLERS & VINTNERS-0.12%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%,
01/15/12 980,000 1,078,000
===================================================================
DIVERSIFIED BANKS-8.38%
Abbey National PLC (United Kingdom),
Sub. Yankee Notes, 7.35%(e) 3,210,000 3,573,789
-------------------------------------------------------------------
American Savings Bank, Notes, 6.63%,
02/15/06 (Acquired 03/05/03; Cost
$1,597,032)(a)(b) 1,440,000 1,540,152
-------------------------------------------------------------------
Bank of America Corp.-Series B, Putable
Sub. Medium Term Notes, 8.57%,
11/15/04 2,360,000 3,121,643
-------------------------------------------------------------------
BankBoston Corp., Gtd. Floating Rate
Notes, 1.78%, 06/08/28(g) 5,000,000 4,775,250
-------------------------------------------------------------------
Barclays Bank PLC (United Kingdom),
Bonds, 8.55% (Acquired 11/05/03; Cost
$9,845,120)(a)(b)(e) 8,000,000 9,905,760
-------------------------------------------------------------------
Barnett Capital I, Gtd. Bonds, 8.06%,
12/01/26 4,010,000 4,699,840
-------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 2,825,000 3,198,437
-------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes,
8.85%, 06/01/27 (Acquired 05/22/03;
Cost $6,036,101)(a)(b) 4,770,000 5,839,768
-------------------------------------------------------------------
Corestates Capital Trust I, Bonds,
8.00%, 12/15/26 (Acquired 06/18/03;
Cost $2,782,269)(a)(b) 2,335,000 2,688,659
-------------------------------------------------------------------
Corporacion Andina de Fomento
(Venezuela), Global Notes, 5.20%,
05/21/13 5,405,000 5,396,676
-------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Notes,
6.38%, 06/15/08 (Acquired 08/30/02;
Cost $912,441)(a)(b) 850,000 895,092
-------------------------------------------------------------------
First Empire Capital Trust I, Gtd.
Notes, 8.23%, 02/01/27 3,790,000 4,448,891
-------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 1,910,000 2,264,477
-------------------------------------------------------------------
HSBC Capital Funding L.P. (United
Kingdom), Gtd. Bonds, 4.61% (Acquired
11/05/03; Cost $3,869,958)(a)(b)(e) 4,150,000 3,944,160
-------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series
1, Unsec. Sub. Floating Rate Euro
Notes, 2.25%(e)(f) 2,250,000 1,907,390
-------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)-Series B, Unsec. Sub. Euro
Notes, 1.44%(e)(f) 3,240,000 2,729,538
-------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable
Sub. Deb., 8.25%, 11/01/04 3,710,000 4,780,817
-------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate
Notes, 1.74%, 06/01/28(g) 4,595,000 4,312,821
-------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
RBS Capital Trust I, Bonds, 4.71%(e) $4,160,000 $ 3,998,634
===================================================================
74,021,794
===================================================================
DIVERSIFIED CAPITAL MARKETS-1.34%
Chase Manhattan Corp., Sub. Debs.,
7.88%, 07/15/06 250,000 280,995
-------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd.
Global Bonds, 8.62%,(e) 9,260,000 11,550,739
===================================================================
11,831,734
===================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.40%
International Lease Finance Corp.,
Global Notes, 2.95%, 05/23/06 1,450,000 1,463,847
-------------------------------------------------------------------
United Rentals (North America),
Inc.-Series B, Sr. Unsec. Gtd. Notes,
10.75%, 04/15/08 1,775,000 2,050,125
===================================================================
3,513,972
===================================================================
ELECTRIC UTILITIES-6.11%
Alliant Energy Resources, Inc., Sr.
Unsec. Gtd. Conv. Global PHONES,
2.50%, 02/15/30 30,000 1,076,250
-------------------------------------------------------------------
AmerenEnergy Generating Co.-Series C,
Sr. Unsec. Global Notes, 7.75%,
11/01/05 975,000 1,064,846
-------------------------------------------------------------------
American Electric Power Co., Inc., Sr.
Unsec. Unsub. Notes, 5.25%, 06/01/15 4,090,000 4,075,480
-------------------------------------------------------------------
CenterPoint Energy, Inc.-Series B, Sr.
Global Notes 5.88%, 06/01/08 2,255,000 2,342,088
-------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 1,850,000 1,895,935
-------------------------------------------------------------------
Consolidated Edison Co. of New York,
Unsec. Deb., 7.75%, 06/01/26(h) 3,125,000 3,484,344
-------------------------------------------------------------------
Consumers Energy Co., First Mortgage
Bonds, 6.00%, 02/15/14 (Acquired
10/03/03; Cost $2,795,991)(a)(b) 2,735,000 2,892,372
-------------------------------------------------------------------
Dynegy Holdings Inc., Sr. Sec. Gtd.
Second Priority Notes, 10.13%,
07/15/13 (Acquired 08/01/03; Cost
$1,473,372)(a) 1,485,000 1,679,906
-------------------------------------------------------------------
Niagara Mohawk Power Corp., First
Mortgage Bonds, 9.75%, 11/01/05 3,150,000 3,568,068
-------------------------------------------------------------------
Pacific Gas & Electric Co.-Series 92D,
First Mortgage Bonds, 8.25%,
11/01/22(h) 2,223,000 2,284,132
-------------------------------------------------------------------
Potomac Edison Co., First Mortgage
Bonds, 8.00%, 12/01/22(h) 2,200,000 2,280,960
-------------------------------------------------------------------
Public Service Co. of New Mexico-Series
B, Sr. Unsec. Notes, 7.50%, 08/01/18 1,000,000 1,175,790
-------------------------------------------------------------------
Southern Power Co.-Series D, Sr. Unsec.
Global Notes, 4.88%, 07/15/15 2,945,000 2,815,037
-------------------------------------------------------------------
TXU US Holdings Co., First Mortgage
Bonds, 7.63%, 07/01/25(h) 348,000 354,428
-------------------------------------------------------------------
United Energy Distribution Holdings
Property Ltd. (Australia), Sr. Unsec.
Unsub. Notes, 4.70%, 04/15/11
(Acquired 11/12/03; Cost
$3,486,475)(a)(b) 3,490,000 3,559,695
-------------------------------------------------------------------
|
FS-166
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
WPD Holdings UK (United Kingdom), Jr.
Unsec. Unsub. Notes, 6.75%, 12/15/04
(Acquired 01/08/04; Cost
$4,477,013)(a)(b) $4,310,000 $ 4,434,343
-------------------------------------------------------------------
Yorkshire Power Finance (Cayman
Islands)-Series B, Sr. Unsec. Gtd.
Unsub. Global Notes, 6.50%, 02/25/08 14,050,000 15,003,573
===================================================================
53,987,247
===================================================================
ELECTRONIC MANUFACTURING SERVICES-0.15%
Flextronics International Ltd.
(Singapore), Sr. Sub. Global Notes,
6.50%, 05/15/13 1,250,000 1,306,250
===================================================================
ENVIRONMENTAL SERVICES-0.91%
Allied Waste North America, Inc., Sr.
Notes, 7.88%, 04/15/13 675,000 739,125
-------------------------------------------------------------------
Waste Management, Inc., Sr. Unsec.
Unsub. Notes, 7.38%, 08/01/10 6,300,000 7,323,939
===================================================================
8,063,064
===================================================================
FERTILIZERS & AGRICULTURAL
CHEMICALS-0.17%
IMC Global Inc.-Series B, Sr. Unsec.
Gtd. Global Notes, 11.25%, 06/01/11 1,225,000 1,476,125
===================================================================
FOOD RETAIL-0.29%
Kroger Co., Sr. Unsec. Gtd. Notes,
7.38%, 03/01/05 1,000,000 1,062,690
-------------------------------------------------------------------
Safeway Inc., Notes, 2.50%, 11/01/05 1,515,000 1,515,803
===================================================================
2,578,493
===================================================================
GAS UTILITIES-1.22%
CenterPoint Energy Resources Corp.,
Unsec. Deb., 6.50%, 02/01/08 4,750,000 5,085,112
-------------------------------------------------------------------
Kinder Morgan, Inc., Sr. Unsec. Notes,
6.80%, 03/01/08 4,175,000 4,622,184
-------------------------------------------------------------------
Suburban Propane Partners L.P./Suburban
Energy Finance Corp., Sr. Notes,
6.88%, 12/15/13 (Acquired 12/18/03;
Cost $1,000,000)(a)(b) 1,000,000 1,035,000
===================================================================
10,742,296
===================================================================
HEALTH CARE FACILITIES-1.64%
Hanger Orthopedic Group, Inc., Sr.
Unsec. Gtd. Global Notes, 10.38%,
02/15/09 2,670,000 3,057,150
-------------------------------------------------------------------
HCA Inc.,
Notes,
6.25%, 02/15/13 2,000,000 2,105,400
-------------------------------------------------------------------
7.00%, 07/01/07 4,755,000 5,212,764
-------------------------------------------------------------------
Sr. Sub. Notes, 6.91%, 06/15/05 3,885,000 4,101,861
===================================================================
14,477,175
===================================================================
HEALTH CARE SUPPLIES-0.21%
Advanced Medical Optics, Inc., Sr.
Unsec. Gtd. Sub. Global Notes, 9.25%,
07/15/10 844,000 941,060
-------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
HEALTH CARE SUPPLIES-(CONTINUED)
Fisher Scientific International Inc.,
Sr. Unsec. Sub. Global Notes, 8.13%,
05/01/12 $ 805,000 $ 870,406
===================================================================
1,811,466
===================================================================
HOMEBUILDING-1.59%
D.R. Horton, Inc., Sr. Unsec. Gtd.
Notes, 8.00%, 02/01/09 2,530,000 2,884,200
-------------------------------------------------------------------
Lennar Corp.-Series B, Class A, Sr.
Unsec. Gtd. Global Notes, 9.95%,
05/01/10 4,500,000 5,141,250
-------------------------------------------------------------------
M.D.C. Holdings, Inc., Sr. Unsec. Gtd.
Notes, 5.50%, 05/15/13 4,025,000 4,065,008
-------------------------------------------------------------------
WCI Communities, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 9.13%, 05/01/12 1,785,000 1,994,737
===================================================================
14,085,195
===================================================================
HOTELS, RESORTS & CRUISE LINES-0.31%
Hilton Hotels Corp., Sr. Unsec. Notes,
7.63%, 12/01/12 630,000 707,175
-------------------------------------------------------------------
Intrawest Corp. (Canada), Sr. Unsec.
Global Notes, 7.50%, 10/15/13 1,945,000 2,051,975
===================================================================
2,759,150
===================================================================
HOUSEWARES & SPECIALTIES-0.68%
American Greetings Corp., Unsec. Putable
Notes, 6.10%, 08/01/08 5,775,000 5,984,344
===================================================================
HYPERMARKETS & SUPER CENTERS-0.18%
Wal-Mart Stores, Inc., Unsec. Deb.,
8.50%, 09/15/24 1,450,000 1,565,464
===================================================================
INDUSTRIAL CONGLOMERATES-0.15%
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$1,307,772)(a)(b) 1,155,000 1,285,249
===================================================================
INTEGRATED OIL & GAS-1.45%
Husky Oil Ltd. (Canada),
Sr. Unsec. Yankee Notes, 7.13%,
11/15/06 3,600,000 3,915,900
-------------------------------------------------------------------
Yankee Bonds, 8.90%, 08/15/28 5,240,000 6,089,194
-------------------------------------------------------------------
Occidental Petroleum Corp., Sr. Unsec.
Notes, 6.50%, 04/01/05 650,000 686,043
-------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global
Notes, 7.45%, 07/15/05 1,950,000 2,101,769
===================================================================
12,792,906
===================================================================
INTEGRATED TELECOMMUNICATION
SERVICES-9.14%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%,
12/15/05 2,505,000 2,756,402
-------------------------------------------------------------------
Citizens Communications Co., Sr. Unsec.
Notes, 9.25%, 05/15/11 4,380,000 5,209,835
-------------------------------------------------------------------
Deutsche Telekom International Finance
B.V. (Netherlands), Unsec. Gtd. Unsub.
Global Bonds, 8.25%, 06/15/05 1,575,000 1,704,434
-------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 9.75%, 03/01/31 4,880,000 6,447,358
-------------------------------------------------------------------
|
FS-167
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
GTE Hawaiian Telephone Co., Inc.-Series
A, Unsec. Deb., 7.00%, 02/01/06 $1,040,000 $ 1,132,175
-------------------------------------------------------------------
New England Telephone & Telegraph Co.,
Sr. Unsec. Notes, 7.65%, 06/15/07 2,580,000 2,933,408
-------------------------------------------------------------------
Qwest Capital Funding, Inc.,
Unsec. Gtd. Global Notes,
7.00%, 08/03/09 1,810,000 1,751,175
-------------------------------------------------------------------
7.25%, 02/15/11 2,650,000 2,563,875
-------------------------------------------------------------------
Qwest Corp., Notes, 5.65%, 11/01/04 6,400,000 6,408,000
-------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 5,120,000 5,504,666
-------------------------------------------------------------------
7.13%, 01/30/06 6,500,000 7,057,310
-------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes,
6.13%, 11/15/08 4,075,000 4,379,199
-------------------------------------------------------------------
Unsec. Gtd. Global Notes,
7.90%, 03/15/05 1,200,000 1,284,264
-------------------------------------------------------------------
8.75%, 03/15/32 3,180,000 3,864,781
-------------------------------------------------------------------
Sprint Corp., Deb., 9.00%, 10/15/19 2,700,000 3,317,571
-------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07 6,105,000 6,854,267
-------------------------------------------------------------------
8.00%, 06/01/11 4,265,000 5,043,363
-------------------------------------------------------------------
Verizon Communications, Inc., Unsec.
Deb.,
6.94%, 04/15/28 3,570,000 3,784,486
-------------------------------------------------------------------
8.75%, 11/01/21 4,485,000 5,650,921
-------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A,
Global Notes, 5.65%, 11/15/11 2,950,000 3,127,266
===================================================================
80,774,756
===================================================================
INVESTMENT BANKING & BROKERAGE-0.37%
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03;
Cost $446,236)(a)(b) 400,000 432,396
-------------------------------------------------------------------
Lehman Brothers Inc., Sr. Sub. Deb.,
11.63%, 05/15/05 800,000 887,744
-------------------------------------------------------------------
Morgan Stanley, Unsec. Notes, 6.30%,
01/15/06 1,838,000 1,968,314
===================================================================
3,288,454
===================================================================
LIFE & HEALTH INSURANCE-2.10%
Americo Life Inc., Notes, 7.88%,
05/01/13 (Acquired 04/25/03; Cost
$4,545,536)(a) 4,600,000 4,595,538
-------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb.,
9.13%, 10/01/24 1,310,000 1,419,464
-------------------------------------------------------------------
Prudential Holdings, LLC-Series B,
Bonds, 7.25%, 12/18/23 (Acquired
01/22/04-01/29/04; Cost
$9,132,117)(a)(b)(h) 7,765,000 9,115,411
-------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
LIFE & HEALTH INSURANCE-(CONTINUED)
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 $1,650,000 $ 1,847,984
-------------------------------------------------------------------
Torchmark Corp., Notes, 7.88%, 05/15/23 1,325,000 1,569,940
===================================================================
18,548,337
===================================================================
METAL & GLASS CONTAINERS-0.69%
Anchor Glass Container Corp., Sr. Sec.
Global Notes, 11.00%, 02/15/13 1,820,000 2,147,600
-------------------------------------------------------------------
Crown European Holdings S.A. (France),
Sr. Sec. Second Lien Global Notes,
9.50%, 03/01/11 1,025,000 1,158,250
-------------------------------------------------------------------
Owens-Illinois, Inc., Sr. Unsec. Deb.,
7.50%, 05/15/10 2,720,000 2,815,200
===================================================================
6,121,050
===================================================================
MOVIES & ENTERTAINMENT-0.31%
Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06 2,585,000 2,777,634
===================================================================
MULTI-LINE INSURANCE-0.26%
MassMutual Global Funding II, Notes,
3.80%, 04/15/09 (Acquired 10/07/03;
Cost $2,296,941)(a)(b) 2,300,000 2,305,612
===================================================================
MULTI-UTILITIES & UNREGULATED
POWER-1.30%
AES Red Oak LLC-Series A, Sr. Sec.
Bonds, 8.54%, 11/30/19 2,182,463 2,422,534
-------------------------------------------------------------------
Calpine Canada Energy Finance ULC
(Canada), Sr. Unsec. Gtd. Notes,
8.50%, 05/01/08 2,370,000 1,943,400
-------------------------------------------------------------------
Duke Energy Corp., First Mortgage Bonds,
3.75%, 03/05/08 1,250,000 1,263,488
-------------------------------------------------------------------
Westar Energy, Inc.,
Sec. First Mortgage Global Bonds,
7.88%, 05/01/07 2,925,000 3,354,624
-------------------------------------------------------------------
Sr. Unsec. Notes, 7.13%, 08/01/09(h) 2,194,000 2,459,474
===================================================================
11,443,520
===================================================================
MUNICIPALITIES-1.07%
California (State of) Industry Urban
Development Agency; Project 3 Series
B2003 Tax Allocation Bonds, 6.10%,
05/01/24(h) 7,800,000 7,981,818
-------------------------------------------------------------------
Illinois (State of); Pension Unlimited
Tax Series 2003 GO, 5.10%, 06/01/33 1,600,000 1,502,048
===================================================================
9,483,866
===================================================================
OIL & GAS DRILLING-1.20%
R&B Falcon Corp.-Series B, Sr. Unsec.
Notes, 6.75%, 04/15/05 1,700,000 1,790,338
-------------------------------------------------------------------
Transocean Inc. (Cayman Islands),
Unsec. Global Notes, 6.95%, 04/15/08 3,555,000 3,995,891
-------------------------------------------------------------------
Sr. Unsec. Unsub. Global Deb., 8.00%,
04/15/27 3,970,000 4,832,681
===================================================================
10,618,910
===================================================================
|
FS-168
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-1.18%
Canadian Natural Resources Ltd.
(Canada), Unsec. Yankee Notes, 6.70%,
07/15/11 $ 275,000 $ 311,086
-------------------------------------------------------------------
Kern River Funding Corp., Sr. Gtd.
Notes, 4.89%, 04/30/18 (Acquired
04/28/03-05/20/03; Cost
$2,450,026)(a)(b) 2,428,750 2,427,293
-------------------------------------------------------------------
Newfield Exploration Co., Sr. Unsec.
Unsub. Notes, 7.63%, 03/01/11 6,845,000 7,700,625
===================================================================
10,439,004
===================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.95%
Petroleos Mexicanos (Mexico),
Sr. Unsec. Gtd. Yankee Bonds, 9.38%,
12/02/08 3,200,000 3,828,000
-------------------------------------------------------------------
Unsec. Gtd. Unsub. Global Notes,
6.50%, 02/01/05 2,450,000 2,557,188
-------------------------------------------------------------------
Plains All American Pipeline L.P./PAA
Finance Corp., Sr. Notes, 5.63%,
12/15/13 (Acquired 12/03/03; Cost
$1,934,840)(a)(b) 1,940,000 1,994,766
===================================================================
8,379,954
===================================================================
OTHER DIVERSIFIED FINANCIAL
SERVICES-4.48%
CIT Group Inc., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/16/05 1,750,000 1,897,018
-------------------------------------------------------------------
Citigroup Inc., Unsec. Sub. Global
Bonds, 6.00%, 10/31/33 1,695,000 1,727,612
-------------------------------------------------------------------
General Electric Capital Corp.,
Series A, Medium Term Global Notes,
5.88%, 02/15/12 5,750,000 6,226,790
-------------------------------------------------------------------
6.00%, 06/15/12 2,390,000 2,606,630
-------------------------------------------------------------------
Series A, Sr. Medium Term Global
Notes, 4.25%, 12/01/10 3,000,000 2,999,190
-------------------------------------------------------------------
Household Finance Corp.,
Medium Term Notes, 3.38%, 02/21/06 475,000 486,186
-------------------------------------------------------------------
Sr. Unsec. Global Notes, 6.50%,
01/24/06 1,450,000 1,567,624
-------------------------------------------------------------------
ING Capital Funding Trust III, Gtd.
Global Bonds, 8.44%,(e) 3,200,000 3,933,216
-------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Sr. Unsec. Global Notes, 8.02%,
05/15/07 1,750,000 1,933,943
-------------------------------------------------------------------
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09 2,800,000 3,291,736
-------------------------------------------------------------------
Pemex Project Funding Master Trust,
Unsec. Gtd. Unsub. Global Notes,
7.38%, 12/15/14 8,785,000 9,479,366
-------------------------------------------------------------------
8.63%, 02/01/22 1,000,000 1,103,750
-------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 01/10/03; Cost
$2,207,606)(a)(b) 1,967,493 2,309,345
===================================================================
39,562,406
===================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
PACKAGED FOODS & MEATS-0.04%
Del Monte Corp., Sr. Unsec. Sub. Global
Notes, 8.63%, 12/15/12 $ 335,000 $ 375,200
===================================================================
PAPER PRODUCTS-0.31%
Appleton Papers Inc.-Series B, Sr.
Unsec. Gtd. Sub. Global Notes, 12.50%,
12/15/08 790,000 900,600
-------------------------------------------------------------------
Georgia-Pacific Corp., Sr. Unsec. Gtd.
Global Notes, 9.38%, 02/01/13 1,625,000 1,860,625
===================================================================
2,761,225
===================================================================
PROPERTY & CASUALTY INSURANCE-0.18%
Oil Insurance Ltd.(Bermuda), Unsec. Sub.
Deb., 5.15%, 08/15/33 (Acquired
01/21/04; Cost $1,581,105)(a)(b) 1,525,000 1,544,246
===================================================================
PUBLISHING-0.66%
News America Holdings, Inc.,
Sr. Unsec. Gtd. Deb.,
7.75%, 01/20/24 1,630,000 1,928,306
-------------------------------------------------------------------
7.70%, 10/30/25 3,300,000 3,891,954
===================================================================
5,820,260
===================================================================
REAL ESTATE-1.24%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 3,000,000 3,358,200
-------------------------------------------------------------------
Host Marriott L.P.-Series I, Unsec. Gtd.
Global Notes, 9.50%, 01/15/07 3,740,000 4,193,475
-------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
8.75%, 08/15/08 1,155,000 1,325,363
-------------------------------------------------------------------
Ventas Realty L.P./Ventas Capital Corp.,
Sr. Unsec. Gtd. Global Notes, 8.75%,
05/01/09 1,825,000 2,034,875
===================================================================
10,911,913
===================================================================
REAL ESTATE MANAGEMENT &
DEVELOPMENT-0.29%
Dominion Resources, Inc.-Series F, Sr.
Unsec. Putable Notes, 5.25%, 08/01/15 2,575,000 2,570,211
===================================================================
REGIONAL BANKS-1.53%
Greater Bay Bancorp-Series B, Sr. Notes,
5.25%, 03/31/08 500,000 506,775
-------------------------------------------------------------------
GulfTerra Energy Partners, L.P.-Series
B, Sr. Unsec. Gtd. Sub. Global Notes,
8.50%, 06/01/10 1,509,000 1,746,668
-------------------------------------------------------------------
Santander Financial Issuances, Sec. Sub.
Euro Notes, 2.19%(d)(e)(f) 8,250,000 7,940,625
-------------------------------------------------------------------
Union Planters Corp., Notes, 4.38%,
12/01/10 3,300,000 3,327,291
===================================================================
13,521,359
===================================================================
REINSURANCE-0.81%
GE Global Insurance Holding Corp.,
Unsec. Notes,
7.00%, 02/15/26 1,860,000 2,048,009
-------------------------------------------------------------------
7.50%, 06/15/10 4,385,000 5,099,448
===================================================================
7,147,457
===================================================================
|
FS-169
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
RESTAURANTS-0.35%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 $2,850,000 $ 3,117,900
===================================================================
SOFT DRINKS-0.10%
Cott Beverages Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 8.00%, 12/15/11 770,000 847,000
===================================================================
SOVEREIGN DEBT-1.96%
United Mexican States (Mexico), Global
Notes,
4.63%, 10/08/08 1,600,000 1,614,000
-------------------------------------------------------------------
6.63%, 03/03/15 4,680,000 4,866,030
-------------------------------------------------------------------
7.50%, 04/08/33 10,360,000 10,813,250
===================================================================
17,293,280
===================================================================
THRIFTS & MORTGAGE FINANCE-1.11%
Bank United-Series A, Medium Term Notes,
8.00%, 03/15/09 3,365,000 3,957,408
-------------------------------------------------------------------
Countrywide Home Loans, Inc.,
Series J, Gtd. Medium Term Global
Notes, 5.50%, 08/01/06 800,000 855,008
-------------------------------------------------------------------
Series K, Medium Term Global Notes,
3.50%, 12/19/05 1,275,000 1,308,380
-------------------------------------------------------------------
Washington Mutual Finance Corp., Sr.
Unsec. Notes, 8.25%, 06/15/05 1,525,000 1,656,287
-------------------------------------------------------------------
Washington Mutual, Inc., Jr. Unsec. Sub.
Notes, 8.25%, 04/01/10 1,725,000 2,051,715
===================================================================
9,828,798
===================================================================
TOBACCO-0.79%
Altria Group, Inc.,
Notes,
7.00%, 11/04/13 2,755,000 2,997,495
-------------------------------------------------------------------
7.13%, 10/01/04 2,000,000 2,067,500
-------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06 1,805,000 1,911,874
===================================================================
6,976,869
===================================================================
TRUCKING-1.47%
Hertz Corp. (The)-Class A, Floating Rate
Global Notes, 1.71%, 08/13/04 4,530,000 4,530,000
-------------------------------------------------------------------
Roadway Corp., Sr. Unsec. Gtd. Global
Notes, 8.25%, 12/01/08 7,350,000 8,471,978
===================================================================
13,001,978
===================================================================
WIRELESS TELECOMMUNICATION
SERVICES-3.15%
Nextel Communications, Inc., Sr. Unsec.
Notes, 7.38%, 08/01/15 2,270,000 2,440,250
-------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 14,477,000 17,191,438
-------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.38%, 01/15/11 6,801,000 8,203,706
===================================================================
27,835,394
===================================================================
Total U.S. Dollar Denominated Bonds
& Notes (Cost $678,299,633) 692,038,385
===================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-8.81%(I)
AUSTRALIA-0.46%
New South Wales Treasury Corp.
(Sovereign Debt), Gtd. Euro Bonds,
8.00%, 03/01/08 AUD 5,000,000 $ 4,110,475
===================================================================
CANADA-1.25%
Canadian Government (Sovereign Debt),
Bonds,
6.00%, 06/01/08 CAD 5,520,000 4,577,857
-------------------------------------------------------------------
5.75%, 06/01/29 CAD 300,000 245,104
-------------------------------------------------------------------
Gtd. Bonds,
7.00%, 12/01/06 CAD 300,000 251,201
-------------------------------------------------------------------
7.25%, 06/01/07 CAD 1,900,000 1,619,091
-------------------------------------------------------------------
9.00%, 03/01/11 CAD 1,500,000 1,463,387
-------------------------------------------------------------------
Rogers Cablesystems Ltd. (Broadcasting &
Cable TV), Sr. Sec. Second Priority
Deb., 9.65%, 01/15/14 CAD 3,600,000 2,856,552
===================================================================
11,013,192
===================================================================
CAYMAN ISLANDS-0.48%
Sutton Bridge Financing Ltd. (Electric
Utilities)-REGS, Gtd. Euro Bonds,
8.63%, 06/30/22(a)
(Acquired 05/29/97-06/13/03; Cost
$3,685,511) GBP 2,258,739 4,231,916
===================================================================
GERMANY-4.50%
Bundesobligation (Sovereign Debt)-Series
140, Euro Bonds, 4.50%, 08/17/07 EUR 7,000,000 9,121,348
-------------------------------------------------------------------
Bundesrepublik Deutschland (Sovereign
Debt)
Euro Bonds,
4.50%, 07/04/09 EUR 4,500,000 5,867,362
-------------------------------------------------------------------
5.00%, 07/04/12 EUR 6,550,000 8,695,410
-------------------------------------------------------------------
Eurohypo A.G. (Thrifts & Mortgage
Finance)-
Sec. Euro Bonds, 4.50%, 01/21/13 EUR 6,000,000 7,589,558
-------------------------------------------------------------------
Landesbank Baden-Wuerttemberg
(Diversified Banks), Sec. Euro Bonds,
3.25%, 05/08/08 EUR 6,850,000 8,490,535
===================================================================
39,764,213
===================================================================
LUXEMBOURG-1.06%
International Bank for Reconstruction &
Development (The) (Diversified
Banks)-Series E, Sr. Unsec. Medium
Term Global Notes, 5.76%, 08/20/07(j)
NZD 17,100,000 9,356,009
===================================================================
UNITED KINGDOM-0.73%
United Kingdom (Treasury of) (Sovereign
Debt), Bonds, 7.25%, 12/07/07 GBP 3,250,000 6,457,563
===================================================================
UNITED STATES OF AMERICA-0.33%
Federal National Mortgage Association
(Sovereign Debt), Sr. Unsub. Global
Notes, 6.38%, 08/15/07 AUD 3,785,000 2,913,330
===================================================================
Total Non-U.S. Dollar Denominated
Bonds & Notes (Cost $66,348,179) 77,846,698
===================================================================
|
FS-170
INCOME FUND
MARKET
SHARES VALUE
-------------------------------------------------------------------
WARRANTS & OTHER EQUITY INTERESTS-0.23%
BROADCASTING & CABLE TV-0.01%
Knology, Inc.(l) 8,079 $ 86,445
-------------------------------------------------------------------
Knology, Inc.-Wts., expiring 10/22/07
(Acquired 03/12/98; Cost
$0)(a)(b)(d)(k) 4,800 0
-------------------------------------------------------------------
ONO Finance PLC (United Kingdom)-REG
S-Wts., expiring 01/05/09 (Acquired
07/30/99; Cost $0)(a)(b)(d)(k) 300 0
===================================================================
86,445
===================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.
Series B, Pfd. Wts., expiring 11/15/09
(Acquired 06/13/00; Cost $0)(a)(b)(k) 3,845 0
-------------------------------------------------------------------
Wts., expiring 11/15/09 (Acquired
06/13/00; Cost $0)(a)(b)(k) 3,845 0
===================================================================
0
===================================================================
INTEGRATED TELECOMMUNICATION
SERVICES-0.06%
McLeodUSA Inc.-Wts., expiring
04/16/07(k) 17,844 14,811
-------------------------------------------------------------------
NTELOS Inc.-Wts., expiring 08/15/10
(Acquired 07/21/00-11/15/00; Cost
$48,673)(a)(b)(k) 6,485 65
-------------------------------------------------------------------
XO Communications, Inc.(l) 59,635 435,932
-------------------------------------------------------------------
XO Communications, Inc.
Series A, Wts., expiring 01/16/10(k) 9,727 34,045
-------------------------------------------------------------------
Series B, Wts., expiring 01/16/10(k) 7,295 21,885
-------------------------------------------------------------------
Series C, Wts., expiring 01/16/10(k) 7,295 17,508
===================================================================
524,246
===================================================================
PHARMACEUTICALS-0.15%
Pfizer Inc. 35,569 $ 1,302,892
===================================================================
RAILROADS-0.01%
RailAmerica Inc.-Wts., expiring 08/15/10
(Acquired 10/01/00-10/05/00; Cost
$0)(a)(b)(k) 2,000 134,240
===================================================================
WIRELESS TELECOMMUNICATION
SERVICES-0.00%
IWO Holdings Inc.-Wts., expiring
01/15/11 (Acquired 08/24/01; Cost
$0)(a)(b)(k) 400 4
===================================================================
Total Warrants & Other Equity
Interests (Cost $1,484,938) 2,047,827
===================================================================
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
U.S. MORTGAGE BACKED SECURITIES-7.40%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-2.40%
Pass Through Ctfs.,
8.50%, 03/01/10 $ 149,274 $ 160,988
-------------------------------------------------------------------
7.00%, 06/01/15 to 06/01/32 188,218 200,590
-------------------------------------------------------------------
6.50%, 04/01/16 to 08/01/32 1,851,927 1,949,779
-------------------------------------------------------------------
5.50%, 09/01/16 to 02/01/30 9,270,533 9,470,921
-------------------------------------------------------------------
6.00%, 04/01/17 to 10/01/32 3,031,183 3,170,825
-------------------------------------------------------------------
7.50%, 09/01/29 to 06/01/30 1,013,604 1,089,200
-------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.00%, 02/01/30 5,000,000 5,186,158
===================================================================
21,228,461
===================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-3.90%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 751,168 803,788
-------------------------------------------------------------------
7.00%, 02/01/16 to 09/01/32 2,041,711 2,171,060
-------------------------------------------------------------------
6.50%, 09/01/16 to 11/01/31 1,965,044 2,069,699
-------------------------------------------------------------------
6.00%, 07/01/17 to 03/01/33 5,718,196 5,980,085
-------------------------------------------------------------------
5.00%, 10/01/17 to 11/01/18 4,371,554 4,477,593
-------------------------------------------------------------------
4.50%, 06/01/18 4,656,896 4,687,350
-------------------------------------------------------------------
5.50%, 06/01/18 to 12/01/33 7,385,331 7,545,145
-------------------------------------------------------------------
8.50%, 02/01/28 213,933 234,516
-------------------------------------------------------------------
8.00%, 10/01/30 to 04/01/32 1,136,455 1,227,847
-------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.50%, 02/01/34 5,000,000 5,242,188
===================================================================
34,439,271
===================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.10%
Pass Through Ctfs.,
5.00%, 02/15/18 346,420 355,729
-------------------------------------------------------------------
7.50%, 06/15/23 to 01/15/32 650,771 702,850
-------------------------------------------------------------------
8.50%, 11/15/24 223,999 246,884
-------------------------------------------------------------------
8.00%, 09/20/26 178,436 193,291
-------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32 1,377,448 1,438,337
-------------------------------------------------------------------
6.50%, 03/15/31 to 09/15/32 1,658,232 1,751,628
-------------------------------------------------------------------
7.00%, 04/15/31 to 08/15/31 114,423 122,064
-------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.50%, 02/01/30 1,250,000 1,317,969
-------------------------------------------------------------------
6.00%, 02/01/33 1,000,000 1,041,875
-------------------------------------------------------------------
5.50%, 02/01/34 2,500,000 2,549,219
===================================================================
9,719,846
===================================================================
Total U.S. Mortgage Backed
Securities (Cost $64,998,164) 65,387,578
===================================================================
|
FS-171
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------
U.S. TREASURY BONDS-1.24%
7.25%, 05/15/16 to 08/15/22 (Cost
$10,850,262) $8,575,000(m) $ 10,972,722
===================================================================
ASSET-BACKED SECURITIES-2.69%
OTHER DIVERSIFIED FINANCIAL
SERVICES-2.69%
Citicorp Lease-Series 1999-1, Class A1,
Pass Through Ctfs., 7.22%, 06/15/05
(Acquired 05/08/02-09/23/03; Cost
$5,569,291)(a)(b) 5,219,614 5,574,965
-------------------------------------------------------------------
Citicorp Lease-Series 1999-1, Class A2,
Pass Through Ctfs., 8.04%, 12/15/19
(Acquired 06/01/00-01/25/01; Cost
$5,212,171)(a)(b) 5,200,000 6,165,557
-------------------------------------------------------------------
First Industrial Realty Trust, Inc.,
PATS, 7.38%, 05/15/04 (Acquired
02/06/03; Cost $1,572,750)(a)(b) 1,500,000 1,522,290
-------------------------------------------------------------------
|
-------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Patron's Legacy-Series A, Ctfs., 5.65%,
01/17/17 $5,000,000 $ 5,047,000
-------------------------------------------------------------------
Yorkshire Power Finance (Cayman
Islands)-Series 2000-1, Pass Through
Ctfs., 8.25%, 02/15/05 (Acquired
06/19/03-11/12/03; Cost
$5,506,223)(a)(b) 5,145,000 5,441,558
===================================================================
Total Asset-Backed Securities (Cost
$22,860,435) 23,751,370
===================================================================
TOTAL INVESTMENTS-98.71% (Cost
$844,841,611) 872,044,580
===================================================================
OTHER ASSETS LESS LIABILITIES-1.29% 11,408,155
===================================================================
NET ASSETS-100.00% $883,452,735
___________________________________________________________________
===================================================================
|
Investment Abbreviations:
AUD - Australian Dollar CAD - Canadian Dollars Conv. - Convertible Ctfs. - Certificates Deb. - Debentures Disc. - Discounted EUR - Euro GBP - British Pound Sterling GO - General Obligation Bonds Gtd. - Guaranteed Jr. - Junior NZD - New Zealand Dollar PATS - Pass Through Asset Trust Pfd. - Preferred PHONES - Participation Hybrid Option Notes PIK - Payment in Kind REGS - Regulation S Sec. - Secured Sr. - Senior Sub. - Subordinated TBA - To Be Announced Unsec. - Unsecured Unsub. - Unsubordinated Wts. - Warrants |
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/04 was $95,716,139,
which represented 10.83% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(b) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 01/31/04 was $84,376,444 which represented
9.55% of the Fund's net assets.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(e) Perpetual bond with no specified maturity date.
(f) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 01/31/04.
(g) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 01/31/04.
(h) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., Financial Security
Assurance Inc., or MBIA Insurance Corp.
(i) Foreign denominated security. Par value is denominated in currency
indicated.
(j) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(k) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(l) Non-income producing security.
(m) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1 section H and Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-172
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$844,841,611) $ 872,044,580
------------------------------------------------------------
Foreign currencies, at value (cost $666,514) 747,190
------------------------------------------------------------
Cash 10,961,213
------------------------------------------------------------
Receivables for:
Investments sold 40,785,798
------------------------------------------------------------
Fund shares sold 555,662
------------------------------------------------------------
Dividends and interest 13,231,396
------------------------------------------------------------
Foreign currency contracts outstanding 485,506
------------------------------------------------------------
Amount due from advisor 14,416
------------------------------------------------------------
Investments matured (Note 10) 26,000
------------------------------------------------------------
Investment for deferred compensation and
retirement plans 183,783
------------------------------------------------------------
Other assets 82,252
============================================================
Total assets 939,117,796
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 51,182,927
------------------------------------------------------------
Fund shares reacquired 2,743,500
------------------------------------------------------------
Dividends 877,403
------------------------------------------------------------
Deferred compensation and retirement plans 228,313
------------------------------------------------------------
Variation margin 56,016
------------------------------------------------------------
Accrued distribution fees 360,846
------------------------------------------------------------
Accrued trustees' fees 807
------------------------------------------------------------
Accrued transfer agent fees 215,249
============================================================
Total liabilities 55,665,061
============================================================
Net assets applicable to shares outstanding $ 883,452,735
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,050,347,486
------------------------------------------------------------
Undistributed net investment income (5,864,112)
------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and foreign currency contracts (188,415,178)
------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, foreign
currency contracts and futures contracts 27,384,539
============================================================
$ 883,452,735
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 415,160,672
____________________________________________________________
============================================================
Class B $ 232,842,034
____________________________________________________________
============================================================
Class C $ 40,295,515
____________________________________________________________
============================================================
Class R $ 893,216
____________________________________________________________
============================================================
Investor Class $ 194,261,298
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 61,832,607
____________________________________________________________
============================================================
Class B 34,637,295
____________________________________________________________
============================================================
Class C 6,011,307
____________________________________________________________
============================================================
Class R 133,226
____________________________________________________________
============================================================
Investor Class 28,889,021
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 6.71
------------------------------------------------------------
Offering price per share:
(Net asset value of $6.71 divided by
95.25%) $ 7.04
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 6.72
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 6.70
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 6.70
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 6.72
____________________________________________________________
============================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-173
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest $21,870,900
-------------------------------------------------------------------------
Dividends 28,883
-------------------------------------------------------------------------
Dividends from affiliated money market funds 14,880
=========================================================================
Total investment income 21,914,663
=========================================================================
EXPENSES:
Advisory fees 1,661,966
-------------------------------------------------------------------------
Administrative services fees 113,105
-------------------------------------------------------------------------
Custodian fees 43,851
-------------------------------------------------------------------------
Distribution fees:
Class A 540,677
-------------------------------------------------------------------------
Class B 1,229,619
-------------------------------------------------------------------------
Class C 205,231
-------------------------------------------------------------------------
Class R 1,787
-------------------------------------------------------------------------
Investor Class 125,244
-------------------------------------------------------------------------
Transfer agent fees 812,723
-------------------------------------------------------------------------
Trustees' fees 9,091
-------------------------------------------------------------------------
Other 225,369
=========================================================================
Total expenses 4,968,663
=========================================================================
Less: Fees waived and expense offset arrangements (4,711)
=========================================================================
Net expenses 4,963,952
=========================================================================
Net investment income 16,950,711
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY CONTRACTS
AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 12,109,376
-------------------------------------------------------------------------
Foreign currencies 84,080
-------------------------------------------------------------------------
Foreign currency contracts (2,895,399)
=========================================================================
9,298,057
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 23,795,352
-------------------------------------------------------------------------
Foreign currencies 116,445
-------------------------------------------------------------------------
Foreign currency contracts 485,506
-------------------------------------------------------------------------
Futures contracts (430,105)
=========================================================================
23,967,198
=========================================================================
Net gain from investment securities, foreign currencies,
foreign currency contracts and futures contracts 33,265,255
=========================================================================
Net increase in net assets resulting from operations $50,215,966
_________________________________________________________________________
=========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-174
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $16,950,711 $ 27,179,987
------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, foreign currency contracts and futures
contracts 9,298,057 11,078,771
------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, foreign currency
contracts and futures contracts 23,967,198 7,481,319
==========================================================================================
Net increase in net assets resulting from operations 50,215,966 45,740,077
==========================================================================================
Distributions to shareholders from net investment income:
Class A (14,090,682) (17,704,359)
------------------------------------------------------------------------------------------
Class B (7,109,486) (11,405,320)
------------------------------------------------------------------------------------------
Class C (1,193,487) (1,943,514)
------------------------------------------------------------------------------------------
Class R (22,610) (20,018)
------------------------------------------------------------------------------------------
Investor Class (3,491,069) --
==========================================================================================
Decrease in net assets resulting from distributions (25,907,334) (31,073,211)
==========================================================================================
Share transactions-net:
Class A (44,422,751) 159,552,030
------------------------------------------------------------------------------------------
Class B (31,209,228) 31,760,268
------------------------------------------------------------------------------------------
Class C (2,830,403) 2,667,067
------------------------------------------------------------------------------------------
Class R 362,061 489,222
------------------------------------------------------------------------------------------
Investor Class 191,654,430 --
==========================================================================================
Net increase in net assets resulting from share
transactions 113,554,109 194,468,587
==========================================================================================
Net increase in net assets 137,862,741 209,135,453
==========================================================================================
NET ASSETS:
Beginning of period 745,589,994 536,454,541
==========================================================================================
End of period (including undistributed net investment
income of $(5,864,112) and $3,092,511 for 2004 and 2003,
respectively) $883,452,735 $745,589,994
__________________________________________________________________________________________
==========================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-175
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Income Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income consistent with reasonable concern for safety of principal. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures and exchange-traded funds.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
FS-176
C. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar security (same type, coupon and maturity) from the institution at an agreed upon price. The mortgage-backed securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on securities sold. Proceeds of the sale may be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. The difference between the selling price and the future repurchase price is recorded as realized gain (loss). At the time the Fund enters into the dollar roll, it will segregate liquid assets having a dollar value equal to the repurchase price.
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from, (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts.
I. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $200 million of the Fund's average daily net assets, plus 0.40% on the next $300 million of the Fund's average daily net assets, plus 0.35% on the next $500 million of the Fund's average daily net assets, plus 0.30% on the Fund's average daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive advisory fees of the Fund
FS-177
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES (CONTINUED)
in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the six months ended January 31, 2004, AIM waived fees of $638.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $113,105 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $424,448 for such services.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C, Class R and Investor Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C, Class R and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, 0.25% of the average daily net assets of the Class A, Class B, Class C, Class R or Investor Class shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A, Class B, Class C, Class R and Investor Class shares paid $540,677, $1,229,619, $205,231, $1,787 and $125,244, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During six months ended January 31, 2004, AIM Distributors retained $55,585 in front-end sales commissions from the sale of Class A shares and $9,965, $2,517, $135 and $0 from Class A, Class B, Class C and Class R shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order by the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees to invest daily available cash balances in affiliated money market funds. Each day the prior day's balance invested in the affiliated money market fund is redeemed in full and a new purchase amount is submitted to invest the current day's available cash. The table below shows the transactions in and earnings from investments in affiliated money market funds for the period ended January 31, 2004.
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/2003 AT COST FROM SALES (DEPRECIATION) 01/31/2004 INCOME GAIN (LOSS)
--------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $1,498,983 $ 70,661,611 $ (72,160,594) $ -- $ -- $ 7,578 $ --
--------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 1,498,983 70,661,611 (72,160,594) -- -- 7,302 --
================================================================================================================================
Total $2,997,966 $141,323,222 $(144,321,188) $ -- $ -- $14,880 $ --
________________________________________________________________________________________________________________________________
================================================================================================================================
|
FS-178
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $4,073 under expense offset arrangements, which resulted in a reduction of the Fund's total expenses of $4,073.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $3,536 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 7--FOREIGN CURRENCY CONTRACTS
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
-----------------------------------------------------------------------------------------
CONTRACT TO UNREALIZED
SETTLEMENT ------------------------ APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
-----------------------------------------------------------------------------------------
04/20/04 AUD 8,900,000 $ 6,772,900 $ 6,730,518 $ 42,382
-----------------------------------------------------------------------------------------
04/16/04 CAD 14,350,000 11,019,405 10,798,971 220,434
-----------------------------------------------------------------------------------------
03/09/04 EUR 11,000,000 13,937,380 13,711,871 225,509
-----------------------------------------------------------------------------------------
04/20/04 NZD 12,900,000 8,604,300 8,607,119 (2,819)
=========================================================================================
47,150,000 $40,333,985 $39,848,479 $485,506
_________________________________________________________________________________________
=========================================================================================
|
NOTE 8--FUTURES CONTRACTS
On January 31, 2004, $400,000 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts. Open futures contracts as of January 31, 2004 were as follows:
OPEN FUTURES CONTRACTS AT PERIOD END
------------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ MARKET APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
------------------------------------------------------------------------------
2 Year U.S. Treasury
Note 61 Mar-04/Short $13,084,500 $(106,224)
------------------------------------------------------------------------------
5 Year U.S. Treasury
Note 175 Mar-04/Short 19,657,422 (323,881)
==============================================================================
$32,741,922 $(430,105)
______________________________________________________________________________
==============================================================================
|
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2005 $ 7,885,742
----------------------------------------------------------
July 31, 2006 16,650,825
----------------------------------------------------------
July 31, 2007 21,165,364
----------------------------------------------------------
July 31, 2008 37,943,008
----------------------------------------------------------
July 31, 2009 20,424,947
----------------------------------------------------------
July 31, 2010 50,580,143
----------------------------------------------------------
July 31, 2011 40,489,926
==========================================================
Total capital loss carryforward $195,139,955
__________________________________________________________
==========================================================
|
FS-179
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $601,092,377 and $740,404,312, respectively.
Receivable for investments matured represents the estimated proceeds to the Fund by Candescent Technologies Corp. which is in default with respect to the principal payments on $2,600,000 par value, Senior Unsecured Guaranteed Subordinated Debentures, 8.00%, which was due May 1, 2003. This estimate was determined in accordance with the fair valuation procedures authorized by the Board of Trustees.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
---------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $22,890,440
---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (7,355,567)
===========================================================================
Net unrealized appreciation of investment securities $15,534,873
___________________________________________________________________________
===========================================================================
Cost of investments for tax purposes is $856,509,707.
|
FS-180
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares, Class B shares, Class C shares, Class R shares and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Class R shares and Investor Class shares are sold at net asset value. Under some circumstances, Class A shares and Class R shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,781,116 $ 44,916,478 34,974,482 $ 227,557,387
--------------------------------------------------------------------------------------------------------------------------
Class B 2,113,660 14,007,985 6,568,344 42,470,135
--------------------------------------------------------------------------------------------------------------------------
Class C 693,992 4,587,869 2,457,437 15,917,589
--------------------------------------------------------------------------------------------------------------------------
Class R 80,190 528,184 221,537 1,433,022
--------------------------------------------------------------------------------------------------------------------------
Investor Class* 1,772,553 11,790,599 -- --
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,634,413 10,868,010 2,135,445 13,818,002
--------------------------------------------------------------------------------------------------------------------------
Class B 779,614 5,189,256 1,263,215 8,179,269
--------------------------------------------------------------------------------------------------------------------------
Class C 141,865 941,849 228,277 1,474,885
--------------------------------------------------------------------------------------------------------------------------
Class R 3,409 22,662 3,045 19,965
--------------------------------------------------------------------------------------------------------------------------
Investor Class* 472,527 3,158,876 -- --
==========================================================================================================================
Issued in connection with acquisitions:
Class A 768,863 5,095,481** 27,342,473 187,057,737***
--------------------------------------------------------------------------------------------------------------------------
Class B 93,808 622,323** 8,116,484 55,594,742***
--------------------------------------------------------------------------------------------------------------------------
Class C 265,700 1,758,132** 1,021,582 6,979,000***
--------------------------------------------------------------------------------------------------------------------------
Investor Class* 33,350,556 221,411,294** -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,340,601 8,904,212 1,200,781 7,816,358
--------------------------------------------------------------------------------------------------------------------------
Class B (1,338,688) (8,904,212) (1,198,212) (7,816,358)
==========================================================================================================================
Reacquired:
Class A (17,241,092) (114,206,932) (42,574,877) (276,697,454)
--------------------------------------------------------------------------------------------------------------------------
Class B (6,358,016) (42,124,580) (10,303,838) (66,667,520)
--------------------------------------------------------------------------------------------------------------------------
Class C (1,532,843) (10,118,253) (3,361,539) (21,704,407)
--------------------------------------------------------------------------------------------------------------------------
Class R (28,693) (188,785) (147,810) (963,765)
--------------------------------------------------------------------------------------------------------------------------
Investor Class* (6,706,615) (44,706,339) -- --
==========================================================================================================================
17,086,920 $ 113,554,109 27,946,826 $ 194,468,587
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
* Investor Class shares commenced sales on September 30, 2003.
** As of the open of business on November 3, 2003, the Fund acquired all of the
net assets of INVESCO Select Income Fund pursuant to a plan of
reorganization approved by the INVESCO Select Income Fund shareholders on
October 28, 2003. The acquisition was accomplished by a tax-free exchange of
34,478,927 shares of the Fund for 42,791,496 shares of INVESCO Select Income
Fund outstanding as of the close of business October 31, 2003. INVESCO
Select Income Fund's net assets at that date of $228,887,230 including
$3,699,693 of unrealized appreciation, were combined with those of the Fund.
On the acquisition date, INVESCO Select Income Fund had undistributed net
investment income (loss) of $(151,470) and undistributed net realized gain
(loss) of $(129,053,501). The aggregate net assets of the Fund immediately
before the acquisition were $714,702,935.
*** As of the open of business on June 23, 2003, the Fund acquired all the net
assets of AIM Global Income Fund and AIM Strategic Income Fund pursuant to a
plan of reorganization approved by AIM Global Income Fund and AIM Strategic
Income Fund shareholders on June 4, 2003. The acquisition was accomplished
by a tax-free exchange of 36,480,538 shares of the Fund for 15,981,096
shares of AIM Global Income Fund outstanding and 12,468,897 shares of AIM
Strategic Income Fund outstanding as of the close of business on June 20,
2003. AIM Global Income Fund's net assets at that date of $146,381,616
including $12,323,096 of unrealized appreciation and AIM Strategic Income
Fund's net assets at that date of $103,249,865 including $4,131,358 of
unrealized appreciation, were combined with those of the Fund. The aggregate
net assets of the Fund immediately before the acquisition were $551,945,514.
Included in net assets of the acquired fund is undistributed net investment
income (loss) of $(886,025) and undistributed net realized gain (loss) of
$(30,590,083) for AIM Global Income Fund and undistributed net investment
income (loss) of $(55,417) and undistributed net realized gain (loss) of
$(133,270,496) for AIM Strategic Income Fund.
FS-181
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
-------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ----------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.51 $ 6.20 $ 6.91 $ 7.14 $ 7.59 $ 8.38
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(a) 0.34(a) 0.44(a)(b) 0.53 0.34 0.57
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.27 0.35 (0.70) (0.23) (0.47) (0.81)
=================================================================================================================================
Total from investment operations 0.42 0.69 (0.26) 0.30 (0.13) (0.24)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.22) (0.38) (0.43) (0.51) (0.25) (0.55)
=================================================================================================================================
Returns of capital -- -- (0.02) (0.02) (0.07) --
=================================================================================================================================
Total distributions (0.22) (0.38) (0.45) (0.53) (0.32) (0.55)
=================================================================================================================================
Net asset value, end of period $ 6.71 $ 6.51 $ 6.20 $ 6.91 $ 7.14 $ 7.59
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 6.49% 11.36% (4.05)% 4.42% (1.70)% (2.92)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $415,161 $446,526 $281,966 $346,967 $346,482 $393,414
=================================================================================================================================
Ratio of expenses to average net assets 0.95%(d) 1.02% 0.96% 0.95% 0.97%(e) 0.91%
=================================================================================================================================
Ratio of net investment income to average
net assets 4.39%(d) 5.19% 6.57%(b) 7.57% 8.03%(e) 7.11%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 82% 141% 70% 83% 43% 78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.45 and the ratio of net investment income to average
net assets would have been 6.76%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$430,190,539.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-182
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ----------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.52 $ 6.21 $ 6.92 $ 7.14 $ 7.58 $ 8.37
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12(a) 0.29(a) 0.39(a)(b) 0.48 0.31 0.50
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.27 0.35 (0.70) (0.23) (0.47) (0.80)
=================================================================================================================================
Total from investment operations 0.39 0.64 (0.31) 0.25 (0.16) (0.30)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.33) (0.38) (0.45) (0.21) (0.49)
---------------------------------------------------------------------------------------------------------------------------------
Returns of capital -- -- (0.02) (0.02) (0.07) --
=================================================================================================================================
Total distributions (0.19) (0.33) (0.40) (0.47) (0.28) (0.49)
=================================================================================================================================
Net asset value, end of period $ 6.72 $ 6.52 $ 6.21 $ 6.92 $ 7.14 $ 7.58
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 6.10% 10.53% (4.76)% 3.67% (2.09)% (3.72)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $232,842 $256,642 $216,710 $237,118 $213,926 $244,713
=================================================================================================================================
Ratio of expenses to average net assets 1.70%(d) 1.77% 1.71% 1.71% 1.73%(e) 1.66%
=================================================================================================================================
Ratio of net investment income to average
net assets 3.64%(d) 4.44% 5.82%(b) 6.81% 7.28%(e) 6.36%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 82% 141% 70% 83% 43% 78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.40 and the ratio of net investment income to average
net assets would have been 6.01%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$244,587,222.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-183
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
----------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, -------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.51 $ 6.19 $ 6.91 $ 7.13 $ 7.57 $ 8.36
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12(a) 0.29(a) 0.39(a)(b) 0.48 0.31 0.50
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.26 0.36 (0.71) (0.23) (0.47) (0.80)
=================================================================================================================================
Total from investment operations 0.38 0.65 (0.32) 0.25 (0.16) (0.30)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.33) (0.38) (0.45) (0.21) (0.49)
---------------------------------------------------------------------------------------------------------------------------------
Returns of capital -- -- (0.02) (0.02) (0.07) --
=================================================================================================================================
Total distributions (0.19) (0.33) (0.40) (0.47) (0.28) (0.49)
=================================================================================================================================
Net asset value, end of period $ 6.70 $ 6.51 $ 6.19 $ 6.91 $ 7.13 $ 7.57
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.95% 10.73% (4.92)% 3.68% (2.09)% (3.71)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $40,296 $41,912 $37,769 $44,216 $26,821 $28,202
=================================================================================================================================
Ratio of expenses to average net assets 1.70%(d) 1.77% 1.71% 1.71% 1.73%(e) 1.66%
=================================================================================================================================
Ratio of net investment income to average net
assets 3.64%(d) 4.44% 5.82%(b) 6.81% 7.28%(e) 6.36%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 82% 141% 70% 83% 43% 78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.40 and the ratio of net investment income to average
net assets would have been 6.01%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$40,823,137.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-184
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS R
---------------------------------------------
JUNE 2, 2002
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
-----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.51 $ 6.20 $ 6.53
-----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14(a) 0.32(a) 0.06(a)(b)
-----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.26 0.35 (0.32)
===========================================================================================================
Total from investment operations 0.40 0.67 (0.26)
===========================================================================================================
Less distributions:
Dividends from net investment income (0.21) (0.36) (0.05)
-----------------------------------------------------------------------------------------------------------
Returns of capital -- -- (0.02)
===========================================================================================================
Total distributions (0.21) (0.36) (0.07)
===========================================================================================================
Net asset value, end of period $ 6.70 $ 6.51 $ 6.20
___________________________________________________________________________________________________________
===========================================================================================================
Total return(c) 6.20% 11.08% (4.01)%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 893 $ 509 $ 10
===========================================================================================================
Ratio of expenses to average net assets 1.20%(d) 1.27% 1.21%(e)
===========================================================================================================
Ratio of net investment income to average net assets 4.14%(d) 4.94% 6.32%(b)(e)
___________________________________________________________________________________________________________
===========================================================================================================
Portfolio turnover rate(f) 82% 141% 70%
___________________________________________________________________________________________________________
===========================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.07 and the ratio of net investment income to average
net assets would have been 6.51%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $710,832.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-185
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR CLASS
------------------
SEPTEMBER 30, 2003
(DATE SALES
COMMENCED) TO
JANUARY 31,
2004
----------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.71
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10(a)
----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.07
==================================================================================
Total from investment operations 0.17
==================================================================================
Less distributions from net investment income (0.16)
==================================================================================
Net asset value, end of period $ 6.72
__________________________________________________________________________________
==================================================================================
Total return(b) 2.53%
__________________________________________________________________________________
==================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $194,261
==================================================================================
Ratio of expenses to average net assets 0.95%(c)
==================================================================================
Ratio of net investment income to average net assets 4.39%(c)
__________________________________________________________________________________
==================================================================================
Portfolio turnover rate(d) 82%
__________________________________________________________________________________
==================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$149,070,377.
(d) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
FS-186
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-187
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-101.96%
FEDERAL FARM CREDIT BANK-2.75%
Bonds,
6.00%, 06/11/08 to 03/07/11 $19,000,000 $ 21,160,300
---------------------------------------------------------------------------
Medium Term Notes,
5.75%, 12/07/28 10,000,000 10,382,700
===========================================================================
31,543,000
===========================================================================
FEDERAL HOME LOAN BANK-2.56%
Unsec. Bonds,
7.36%, 07/01/04 2,800,000 2,872,380
---------------------------------------------------------------------------
6.50%, 11/15/05 2,000,000 2,160,880
---------------------------------------------------------------------------
7.25%, 02/15/07 5,500,000 6,237,440
---------------------------------------------------------------------------
4.88%, 05/15/07 16,000,000 17,057,440
---------------------------------------------------------------------------
5.48%, 01/08/09 1,000,000 1,089,590
===========================================================================
29,417,730
===========================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-19.36%
Pass Through Ctfs.,
9.00%, 12/01/05 to 04/01/25 617,469 675,103
---------------------------------------------------------------------------
8.00%, 07/01/06 to 11/17/30 3,563,887 3,894,252
---------------------------------------------------------------------------
8.50%, 07/01/07 to 10/01/29 4,459,143 4,840,607
---------------------------------------------------------------------------
7.00%, 11/01/10 to 02/01/33 20,960,497 22,303,231
---------------------------------------------------------------------------
6.50%, 02/01/11 to 09/01/32 34,429,700 36,371,185
---------------------------------------------------------------------------
10.00%, 11/01/11 to 04/01/20 1,930,975 2,168,317
---------------------------------------------------------------------------
12.00%, 02/01/13 3,589 4,071
---------------------------------------------------------------------------
6.00%, 06/01/17 to 05/01/33 20,004,359 20,770,606
---------------------------------------------------------------------------
5.00%, 11/01/18 12,431,375 12,729,003
---------------------------------------------------------------------------
10.50%, 08/01/19 to 01/01/21 339,148 381,021
---------------------------------------------------------------------------
9.50%, 11/01/20 to 04/01/25 1,454,573 1,624,654
---------------------------------------------------------------------------
7.50%, 09/01/29 to 09/01/30 17,268,402 18,556,302
---------------------------------------------------------------------------
Pass Through Ctfs., TBA,
4.50%, 02/01/15(a) 12,000,000 12,036,824
---------------------------------------------------------------------------
Unsec. Global Bonds,
4.00%, 10/29/07 48,000,000 48,800,160
---------------------------------------------------------------------------
Unsec. Medium Term Notes,
6.00%, 06/27/17 5,000,000 5,176,400
---------------------------------------------------------------------------
Unsec. Notes,
5.00%, 07/30/09 31,200,000 31,713,864
===========================================================================
222,045,600
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-58.38%
Pass Through Ctfs.,
8.50%, 01/01/07 to 04/01/30 $17,858,116 $ 19,692,605
---------------------------------------------------------------------------
7.50%, 07/01/10 to 06/01/31 9,663,967 10,380,364
---------------------------------------------------------------------------
7.00%, 05/01/11 to 05/01/33 46,447,574 49,555,411
---------------------------------------------------------------------------
8.00%, 02/01/12 to 04/01/32 48,822,115 52,642,104
---------------------------------------------------------------------------
6.50%, 05/01/13 to 05/01/33 97,440,464 103,235,683
---------------------------------------------------------------------------
6.00%, 10/01/13 to 11/01/33 196,538,732 205,191,694
---------------------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 304,157 340,726
---------------------------------------------------------------------------
5.00%, 01/01/17 to 11/01/18 22,432,734 22,862,275
---------------------------------------------------------------------------
5.50%, 09/01/17 to 12/01/33 94,813,005 97,335,554
---------------------------------------------------------------------------
4.50%, 05/01/18 to 06/01/18 27,356,639 27,535,535
---------------------------------------------------------------------------
10.00%, 12/20/19 to 12/20/21 2,040,323 2,296,053
---------------------------------------------------------------------------
10.32%, 04/20/25 612,549 698,191
---------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 03/01/34(a) 20,384,000 20,222,361
---------------------------------------------------------------------------
Series B, Unsec. Medium Term Notes,
6.47%, 09/25/12 10,550,000 12,107,813
---------------------------------------------------------------------------
6.88%, 09/10/12 to 09/24/12 24,765,000 27,469,735
---------------------------------------------------------------------------
Unsec. Global Notes,
6.00%, 01/18/12 17,500,000 18,152,050
===========================================================================
669,718,154
===========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-13.66%
Pass Through Ctfs.,
6.00%, 10/15/08 to 08/15/33 20,335,652 21,260,030
---------------------------------------------------------------------------
6.50%, 10/15/08 to 07/15/33 76,816,174 81,187,279
---------------------------------------------------------------------------
7.00%, 10/15/08 to 06/15/33 11,315,998 12,153,736
---------------------------------------------------------------------------
9.00%, 10/15/08 to 04/15/21 241,243 268,270
---------------------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 1,036,741 1,157,860
---------------------------------------------------------------------------
10.00%, 11/15/09 to 07/15/24 2,397,335 2,702,893
---------------------------------------------------------------------------
11.00%, 12/15/09 to 10/15/15 20,157 22,689
---------------------------------------------------------------------------
12.50%, 11/15/10 16,933 19,453
---------------------------------------------------------------------------
13.00%, 01/15/11 to 12/15/14 95,432 111,776
---------------------------------------------------------------------------
13.50%, 04/15/11 to 04/15/15 121,603 141,496
---------------------------------------------------------------------------
12.00%, 02/15/13 to 07/15/15 113,821 131,551
---------------------------------------------------------------------------
10.50%, 02/15/16 13,527 15,358
---------------------------------------------------------------------------
5.00%, 11/15/17 to 02/15/18 31,069,536 31,913,753
---------------------------------------------------------------------------
8.00%, 01/15/22 to 06/15/27 4,415,387 4,824,405
---------------------------------------------------------------------------
7.50%, 03/15/26 to 08/15/28 722,672 777,145
===========================================================================
156,687,694
===========================================================================
|
FS-188
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY-2.18%
Series G, Sec. Gtd. Notes,
6.67%, 09/15/09 $ 7,700,000 $ 8,845,991
---------------------------------------------------------------------------
Series J, Sec. Gtd. Notes,
7.65%, 05/15/06 7,000,000 7,845,390
---------------------------------------------------------------------------
Series UU, Sec. Gtd. Notes,
7.95%, 11/01/06 8,000,000 8,366,720
===========================================================================
25,058,101
===========================================================================
TENNESSEE VALLEY AUTHORITY-3.07%
Global, Putable Bonds,
4.88%, 12/15/06 10,000,000 10,734,000
---------------------------------------------------------------------------
Series G, Global Bonds,
5.38%, 11/13/08 22,600,000 24,504,276
===========================================================================
35,238,276
===========================================================================
Total U.S. Government Agency Securities
(Cost $1,157,217,938) 1,169,708,555
---------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
U.S. TREASURY SECURITIES-7.18%
U.S. TREASURY NOTES-5.16%
1.63%, 01/31/05 $ 8,400,000 $ 8,434,104
---------------------------------------------------------------------------
6.75%, 05/15/05 1,300,000 1,388,361
---------------------------------------------------------------------------
4.63%, 05/15/06 19,800,000 20,972,556
---------------------------------------------------------------------------
12.75%, 11/15/10 11,700,000 13,943,124
---------------------------------------------------------------------------
4.00%, 11/15/12 7,500,000 7,498,800
---------------------------------------------------------------------------
4.25%, 08/15/13 6,900,000 6,980,868
===========================================================================
59,217,813
===========================================================================
U.S. TREASURY BONDS-1.70%
7.50%, 11/15/16 to 11/15/24 14,950,000 19,574,049
===========================================================================
U.S. TREASURY STRIPS-0.32%
6.79%, 11/15/18(b) 7,750,000 3,653,428
===========================================================================
Total U.S. Treasury Securities (Cost
$78,851,553) 82,445,290
===========================================================================
SHARES
MONEY MARKET FUNDS-3.96%
Government & Agency Portfolio (Cost
$45,397,793)(c) 45,397,793 45,397,793
===========================================================================
TOTAL INVESTMENTS-113.10% (Cost
$1,281,467,284) 1,297,551,638
===========================================================================
OTHER ASSETS LESS LIABILITIES-(13.10%) (150,333,523)
===========================================================================
NET ASSETS-100.00% $1,147,218,115
___________________________________________________________________________
===========================================================================
|
Investment Abbreviations:
Ctfs - Certificates Gtd. - Guaranteed Sec. - Secured STRIPS - Separately Traded Registered Interest and Principal Security TBA - To Be Announced 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 D.
(b) STRIPS are traded on a discount basis. In such cases, the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-189
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$1,236,069,491) $1,252,153,845
------------------------------------------------------------
Investments in affiliated money market funds
(cost $45,397,793) 45,397,793
============================================================
Total investments (cost $1,281,467,284) 1,297,551,638
============================================================
Cash 396,240
------------------------------------------------------------
Receivables for:
Fund shares sold 904,053
------------------------------------------------------------
Dividends and interest 9,382,177
------------------------------------------------------------
Principal paydowns 66,084
------------------------------------------------------------
Amount due from advisor 11,216
------------------------------------------------------------
Investment for deferred compensation and
retirement plans 96,993
------------------------------------------------------------
Other assets 180,871
============================================================
Total assets 1,308,589,272
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Accrued interest expense 14,913
------------------------------------------------------------
Investments purchased 32,539,176
------------------------------------------------------------
Fund shares reacquired 5,336,580
------------------------------------------------------------
Dividends 594,081
------------------------------------------------------------
Reverse repurchase agreements 121,902,126
------------------------------------------------------------
Deferred compensation and retirement plans 130,579
------------------------------------------------------------
Accrued distribution fees 606,403
------------------------------------------------------------
Accrued trustees' fees 1,199
------------------------------------------------------------
Accrued transfer agent fees 189,578
------------------------------------------------------------
Accrued operating expenses 56,522
============================================================
Total liabilities 161,371,157
============================================================
Net assets applicable to shares outstanding $1,147,218,115
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,180,003,864
------------------------------------------------------------
Undistributed net investment income (10,133,960)
------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (38,736,143)
------------------------------------------------------------
Unrealized appreciation of investment
securities 16,084,354
============================================================
$1,147,218,115
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 478,876,056
____________________________________________________________
============================================================
Class B $ 473,240,677
____________________________________________________________
============================================================
Class C $ 101,958,580
____________________________________________________________
============================================================
Class R $ 3,554,302
____________________________________________________________
============================================================
Investor Class $ 89,588,500
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 51,938,772
____________________________________________________________
============================================================
Class B 51,169,655
____________________________________________________________
============================================================
Class C 11,066,502
____________________________________________________________
============================================================
Class R 385,292
____________________________________________________________
============================================================
Investor Class 9,711,727
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.22
------------------------------------------------------------
Offering price per share:
(Net asset value of $9.22 divided
by 95.25%) $ 9.68
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.25
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.21
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.22
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 9.22
____________________________________________________________
============================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-190
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest $24,606,180
-------------------------------------------------------------------------
Dividends from affiliated money market funds 261,340
=========================================================================
Total investment income 24,867,520
=========================================================================
EXPENSES:
Advisory fees 2,321,020
-------------------------------------------------------------------------
Administrative services fees 160,214
-------------------------------------------------------------------------
Custodian fees 47,676
-------------------------------------------------------------------------
Distribution fees
Class A 646,340
-------------------------------------------------------------------------
Class B 2,781,143
-------------------------------------------------------------------------
Class C 582,762
-------------------------------------------------------------------------
Class R 8,622
-------------------------------------------------------------------------
Investor Class 32,083
-------------------------------------------------------------------------
Interest 300,267
-------------------------------------------------------------------------
Transfer agent fees 1,074,545
-------------------------------------------------------------------------
Trustees' fees 10,642
-------------------------------------------------------------------------
Other 321,072
=========================================================================
Total expenses 8,286,386
=========================================================================
Less: Fees waived and expense offset arrangements (13,442)
=========================================================================
Net expenses 8,272,944
=========================================================================
Net investment income 16,594,576
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (2,627,508)
-------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 21,422,219
=========================================================================
Net gain from investment securities 18,794,711
=========================================================================
Net increase in net assets resulting from operations $35,389,287
_________________________________________________________________________
=========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-191
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 16,594,576 $ 44,215,132
----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (2,627,508) 16,683,688
----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 21,422,219 (27,772,540)
==============================================================================================
Net increase in net assets resulting from operations 35,389,287 33,126,280
==============================================================================================
Distributions to shareholders from net investment income:
Class A (12,529,001) (26,079,182)
----------------------------------------------------------------------------------------------
Class B (11,413,317) (26,326,300)
----------------------------------------------------------------------------------------------
Class C (2,400,601) (5,528,766)
----------------------------------------------------------------------------------------------
Class R (79,635) (50,065)
----------------------------------------------------------------------------------------------
Investor Class (880,825) --
==============================================================================================
Total distributions from net investment income (27,303,379) (57,984,313)
==============================================================================================
Share transactions-net:
Class A (163,567,928) 177,560,836
----------------------------------------------------------------------------------------------
Class B (184,917,289) 51,686,953
----------------------------------------------------------------------------------------------
Class C (36,034,804) 12,514,743
----------------------------------------------------------------------------------------------
Class R (518,678) 4,114,325
----------------------------------------------------------------------------------------------
Investor Class 89,594,528 --
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (295,444,171) 245,876,857
==============================================================================================
Net increase (decrease) in net assets (287,358,263) 221,018,824
==============================================================================================
NET ASSETS:
Beginning of period 1,434,576,378 1,213,557,554
==============================================================================================
End of period (including undistributed net investment
income of $(10,133,960) and $574,843 for 2004 and 2003,
respectively) $1,147,218,115 $1,434,576,378
______________________________________________________________________________________________
==============================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-192
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Intermediate Government Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income 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. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
B. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements. 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. Eligible securities for collateral are U.S. Government Securities, U.S. Government Agency Securities and/or Investment Grade Debt Securities. Collateral consisting of U.S. Government Securities and U.S. Government Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. Collateral consisting of Investment Grade Debt Securities is marked to market daily to ensure its market value is at least 105% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates ("Joint repurchase agreements"). 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.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
D. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar security (same type,
FS-193
coupon and maturity) from the institution at an agreed upon price. The mortgage-backed securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on securities sold. Proceeds of the sale may be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. The difference between the selling price and the future repurchase price is recorded as realized gain (loss). At the time the Fund enters into the dollar roll, it will segregate liquid assets having a dollar value equal to the repurchase price.
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed transaction costs.
E. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
F. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
G. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $200 million of the Fund's average daily net assets, plus 0.40% on the next $300 million of the Fund's average daily net assets, plus 0.35% on the next $500 million of the Fund's average daily net assets, plus 0.30% on the Fund's average daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the six months ended January 31, 2004, AIM waived fees of $6,985.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $160,214 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $601,273, for such services.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C, Class R and Investor Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C, Class R and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Class A, Class B, Class C and Class R Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.50% of the average daily net assets of Class R shares. Of these amounts, 0.25% of the average daily net assets of the Class A, Class B, Class C or Class R shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. The Fund, pursuant to the Investor Class Plan, pays AIM Distributors for its actual expenses incurred pursuant to the Investor Class Plan for the period, up to a maximum annual rate of 0.25% of the average daily net assets of the Investor Class shares. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A, Class B, Class C, Class R and Investor Class shares paid $646,340, $2,781,143, $582,762, $8,622 and $32,083 respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During six months ended January 31, 2004, AIM Distributors retained $79,239 in front-end sales commissions from the sale of Class A shares and $243,142, $5,582, $25,300 from Class A, Class B, Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
FS-194
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees to invest daily available cash balances in affiliated money market funds. Each day the prior day's balance invested in the affiliated money market fund is redeemed in full and a new purchase amount is submitted to invest the current day's available cash. The table below shows the transactions in and earnings from investments in affiliated money market funds for the period ended January 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED REALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND GAIN
FUND 07/31/2003 AT COST FROM SALES (DEPRECIATION) 01/31/2004 INCOME (LOSS)
-----------------------------------------------------------------------------------------------------------------------------
STIC Government &
Agency Portfolio $132,830,068 $720,454,455 $(807,886,730) $-- $45,397,793 $261,340 $--
_____________________________________________________________________________________________________________________________
=============================================================================================================================
|
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $6,457 under an expense offset arrangement, which resulted in a reduction of the Fund's total expenses of $6,457.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $4,793 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may enter into reverse repurchase agreements. Reverse repurchase agreements involve the sale of securities held by the Fund, with an agreement that the Fund will repurchase such securities at an agreed upon price and date. The Fund will use the proceeds of a reverse repurchase agreement (which are considered to be borrowings under the 1940 Act) to purchase other permitted securities either maturing, or under an agreement to resell, at a date simultaneous with or prior to the expiration of the reverse repurchase agreement. The agreements are collateralized by the underlying securities and are carried at the amount at which the securities subsequently will be repurchased as specified in the agreements. The maximum amount outstanding during the six months ended January 31, 2004 was $142,310,078 while amounts outstanding averaged $55,500,230 per day with a weighted average interest rate of 1.08%.
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the
NOTE 6--BORROWINGS (CONTINUED)
INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund did not borrow or lend under the facility during the six months ended January 31, 2004.
Effective June 26, 2003, the Fund became a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the six months ended January 31, 2004, the Fund did not borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
FS-195
NOTE 7--TAX INFORMATION (CONTINUED)
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2007 $20,298,822
----------------------------------------------------------
July 31, 2008 9,400,360
==========================================================
Total capital loss carryforward $29,699,182
__________________________________________________________
==========================================================
|
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $1,622,092,745 and $1,801,140,301, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $18,704,458
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (2,684,349)
===========================================================
Net unrealized appreciation of investment
securities $16,020,109
___________________________________________________________
===========================================================
Cost of investments for tax purpose is $1,281,531,529.
|
NOTE 9--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares, Class B shares, Class C shares, Class R shares and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Class R shares and Investor Class shares are sold at net asset value. Under some circumstances, Class A shares and Class R shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
---------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 23,894,872 $ 218,388,684 220,216,980 $ 2,079,496,949
-----------------------------------------------------------------------------------------------------------------------------
Class B 2,153,618 19,846,182 39,224,867 371,793,547
-----------------------------------------------------------------------------------------------------------------------------
Class C 1,332,289 12,234,222 15,772,023 148,860,238
-----------------------------------------------------------------------------------------------------------------------------
Class R 237,530 2,178,191 640,841 6,006,843
-----------------------------------------------------------------------------------------------------------------------------
Investor Class* 305,439 2,808,706 -- --
=============================================================================================================================
Issued as reinvestment of dividends:
Class A 1,174,555 10,803,618 2,298,707 21,695,397
-----------------------------------------------------------------------------------------------------------------------------
Class B 994,584 9,177,275 2,246,868 21,273,356
-----------------------------------------------------------------------------------------------------------------------------
Class C 201,222 1,848,676 462,683 4,365,869
-----------------------------------------------------------------------------------------------------------------------------
Class R 7,576 69,718 5,158 48,588
-----------------------------------------------------------------------------------------------------------------------------
Investor Class* 90,610 834,620 -- --
=============================================================================================================================
Issued in connection with acquisitions:**
Class A 517,741 4,773,211 -- --
-----------------------------------------------------------------------------------------------------------------------------
Class B 115,186 1,065,926 -- --
-----------------------------------------------------------------------------------------------------------------------------
Class C 271,140 2,498,508 -- --
-----------------------------------------------------------------------------------------------------------------------------
Investor Class* 10,784,102 99,480,732 -- --
=============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 2,307,015 21,359,371 2,912,619 27,474,869
-----------------------------------------------------------------------------------------------------------------------------
Class B (2,299,636) (21,359,371) (2,902,708) (27,474,869)
=============================================================================================================================
Reacquired:
Class A (45,761,546) (418,892,812) (206,614,068) (1,951,106,379)
-----------------------------------------------------------------------------------------------------------------------------
Class B (21,054,695) (193,647,301) (33,209,518) (313,905,081)
-----------------------------------------------------------------------------------------------------------------------------
Class C (5,738,130) (52,616,210) (14,941,292) (140,711,364)
-----------------------------------------------------------------------------------------------------------------------------
Class R (302,757) (2,766,587) (206,681) (1,941,106)
-----------------------------------------------------------------------------------------------------------------------------
Investor Class* (1,468,424) (13,529,530) -- --
=============================================================================================================================
(32,237,709) $(295,444,171) 25,906,479 $ 245,876,857
_____________________________________________________________________________________________________________________________
=============================================================================================================================
|
* Investor Class shares commenced sales on September 30, 2003. ** As of the open of business on November 24, 2003, the Fund acquired all the net assets of INVESCO U.S. Government Securities Fund pursuant to a plan of reorganization approved by INVESCO U.S. Government Securities Fund shareholders on October 28, 2003. The acquisition was accomplished by a tax-free exchange of 11,688,169 shares of the Fund for 14,502,725 shares of INVESCO U.S. Government Securities Fund outstanding as of the close of business on November 21, 2003. INVESCO U.S. Government Securities Fund's net assets at that date of $107,818,377 including $(775,060) of unrealized appreciation (depreciation), were combined with those of the Fund. On the acquisition date, INVESCO U.S. Government Securities Fund had undistributed net investments income (loss) of $(221,061) and undistributed net realized gain (loss) of $(196,008). The aggregate net assets of the Fund immediately before the acquisition were $11,119,380,636.
FS-196
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
----------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, -------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.15 $ 9.28 $ 9.08 $ 8.77 $ 8.80 $ 9.58
-------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14 0.33(a) 0.43(b) 0.50(a) 0.34 0.60
-------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.15 (0.04) 0.23 0.35 (0.03) (0.78)
===============================================================================================================================
Total from investment operations 0.29 0.29 0.66 0.85 0.31 (0.18)
===============================================================================================================================
Less dividends from net investment income (0.22) (0.42) (0.46) (0.54) (0.34) (0.60)
===============================================================================================================================
Net asset value, end of period $ 9.22 $ 9.15 $ 9.28 $ 9.08 $ 8.77 $ 8.80
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 3.24% 3.03% 7.39% 9.91% 3.55% (1.87)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $478,876 $639,002 $473,104 $302,391 $221,636 $238,957
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 0.94%(d) 0.90% 0.94% 1.32% 1.25%(e) 1.08%
===============================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 0.89%(d) 0.89% 0.90% 0.93% 0.98%(e) 0.89%
===============================================================================================================================
Ratio of net investment income to average
net assets 3.11%(d) 3.47% 4.58%(b) 5.61% 6.61%(e) 6.60%
===============================================================================================================================
Ratio of interest expense to average net
assets 0.05%(d) 0.01% 0.04% 0.39% 0.27%(e) 0.19%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 134% 275% 146% 194% 65% 141%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydowns gains and losses adjustments to investment income, the
investment income per share would have been $0.47 and the ratio of net
investment income to average net assets would have been 5.09%. In
accordance with the AICPA Audit and Accounting Guide for investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$514,262,217.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-197
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
----------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, -------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.18 $ 9.31 $ 9.11 $ 8.79 $ 8.82 $ 9.59
-------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10 0.26(a) 0.37(b) 0.44(a) 0.30 0.53
-------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.16 (0.04) 0.22 0.35 (0.04) (0.77)
===============================================================================================================================
Total from investment operations 0.26 0.22 0.59 0.79 0.26 (0.24)
===============================================================================================================================
Less dividends from net investment income (0.19) (0.35) (0.39) (0.47) (0.29) (0.53)
===============================================================================================================================
Net asset value, end of period $ 9.25 $ 9.18 $ 9.31 $ 9.11 $ 8.79 $ 8.82
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 2.86% 2.30% 6.58% 9.17% 3.05% (2.56)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $473,241 $654,305 $613,306 $269,677 $177,032 $228,832
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 1.69%(d) 1.65% 1.69% 2.08% 2.01%(e) 1.85%
===============================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 1.64%(d) 1.64% 1.65% 1.69% 1.74%(e) 1.66%
===============================================================================================================================
Ratio of net investment income to average
net assets 2.36%(d) 2.72% 3.83%(b) 4.85% 5.85%(e) 5.83%
===============================================================================================================================
Ratio of interest expense to average net
assets 0.05%(d) 0.01% 0.04% 0.39% 0.27%(e) 0.19%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 134% 275% 146% 194% 65% 141%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydowns gains and losses adjustments to investment income, the
investment income per share would have been $0.40 and the ratio of net
investment income to average net assets would have been 4.35%. In
accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect the change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$553,206,604.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-198
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
---------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.15 $ 9.27 $ 9.08 $ 8.77 $ 8.79 $ 9.56
-------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10 0.26(a) 0.37(b) 0.44(a) 0.30 0.53
-------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.15 (0.03) 0.21 0.34 (0.03) (0.77)
===============================================================================================================================
Total from investment operations 0.25 0.23 0.58 0.78 0.27 (0.24)
===============================================================================================================================
Less dividends from net investment income (0.19) (0.35) (0.39) (0.47) (0.29) (0.53)
===============================================================================================================================
Net asset value, end of period $ 9.21 $ 9.15 $ 9.27 $ 9.08 $ 8.77 $ 8.79
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 2.76% 2.42% 6.48% 9.08% 3.18% (2.57)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $101,959 $137,213 $127,114 $59,915 $34,206 $39,011
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 1.69%(d) 1.65% 1.69% 2.08% 2.01%(e) 1.85%
===============================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 1.64%(d) 1.64% 1.65% 1.69% 1.74%(e) 1.66%
===============================================================================================================================
Ratio of net investment income to average
net assets 2.36%(d) 2.72% 3.83%(b) 4.85% 5.85%(e) 5.83%
===============================================================================================================================
Ratio of interest expense to average net
assets 0.05%(d) 0.01% 0.04% 0.39% 0.27%(e) 0.19%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 134% 275% 146% 194% 65% 141%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydowns gains and losses adjustments to investment income, the
investment income per share would have been $0.40 and the ratio of net
investment income to average net assets would have been 4.35%. In
accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$115,919,011.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-199
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS R
--------------------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED)
JANUARY 31, JULY 31, TO JULY 31,
2004 2003 2002
----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.16 $ 9.27 $9.13
----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13 0.30(a) 0.07(b)
----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.14 (0.02) 0.14
==========================================================================================================
Total from investment operations 0.27 0.28 0.21
==========================================================================================================
Less dividends from net investment income (0.21) (0.39) (0.07)
==========================================================================================================
Net asset value, end of period $ 9.22 $ 9.16 $9.27
__________________________________________________________________________________________________________
==========================================================================================================
Total return(c) 3.01% 2.99% 2.34%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,554 $4,057 $ 34
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets (including interest
expense) 1.19%(d) 1.15% 1.19%(e)
==========================================================================================================
Ratio of expenses to average net assets (excluding interest
expense) 1.14%(d) 1.14% 1.15%(e)
==========================================================================================================
Ratio of net investment income to average net assets 2.86%(d) 3.22% 4.33%(b)(e)
==========================================================================================================
Ratio of interest expense to average net assets 0.05%(d) 0.01% 0.04%(e)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(f) 134% 275% 146%
__________________________________________________________________________________________________________
==========================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydowns gains and losses adjustments to investment income, the
investment income per share would have been remained the same and the
ratio of net investment income to average net assets would have been
4.85%. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are based on average daily net assets of $3,429,916.
(e) Annualized
(f) Not annualized for periods less than one year.
FS-200
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR
CLASS
-------------
SEPTEMBER 30,
2003
(DATE SALES
COMMENCED) TO
JANUARY 31,
2004
-----------------------------------------------------------------------------
Net asset value, beginning of period $ 9.30
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
=============================================================================
Net losses on securities (both realized and unrealized) (0.05)
=============================================================================
Total from investment operations 0.07
=============================================================================
Less dividends from net investment income (0.15)
=============================================================================
Net asset value, end of period $ 9.22
_____________________________________________________________________________
=============================================================================
Total return 0.80%
_____________________________________________________________________________
=============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $89,589
_____________________________________________________________________________
=============================================================================
Ratio of expenses to average net assets (including interest
expense) 0.87%(d)
=============================================================================
Ratio of expenses to average net assets (excluding interest
expense) 0.82%(d)
=============================================================================
Ratio of net investment income to average net assets 3.18%(d)
=============================================================================
Ratio of interest expense to average net assets 0.05%(d)
_____________________________________________________________________________
=============================================================================
Portfolio turnover rate(e) 134%
_____________________________________________________________________________
=============================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydowns gains and losses adjustments to investment income, the
investment income per share would have been remained the same and the
ratio of net investment income to average net assets would have been
4.85%. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$53,036,484.
(e) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all
FS-201
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-202
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PAR
MATURITY (000) VALUE
--------------------------------------------------------------------------------
U.S. TREASURY NOTES--99.91%
1.50% 02/28/05 $43,000 $ 43,114,380
--------------------------------------------------------------------------------
1.63% 03/31/05 43,200 43,355,088
--------------------------------------------------------------------------------
1.63% 04/30/05 43,600 43,743,008
--------------------------------------------------------------------------------
1.25% 05/31/05 43,600 43,511,492
--------------------------------------------------------------------------------
1.13% 06/30/05 43,600 43,409,468
--------------------------------------------------------------------------------
1.50% 07/31/05 43,600 43,593,024
--------------------------------------------------------------------------------
2.00% 08/31/05 43,600 43,886,016
--------------------------------------------------------------------------------
1.63% 09/30/05 43,600 43,613,516
--------------------------------------------------------------------------------
1.63% 10/31/05 43,600 43,579,508
--------------------------------------------------------------------------------
1.88% 11/30/05 43,600 43,702,024
--------------------------------------------------------------------------------
1.88% 12/31/05 43,500 43,574,820
--------------------------------------------------------------------------------
1.88% 01/31/06 43,000 43,050,439
________________________________________________________________________________
================================================================================
TOTAL INVESTMENTS (Cost $520,947,203)--99.91% 522,132,783
________________________________________________________________________________
================================================================================
OTHER ASSETS LESS LIABILITIES--0.09% 480,191
________________________________________________________________________________
================================================================================
NET ASSETS--100.00% $522,612,974
________________________________________________________________________________
================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-203
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$520,947,203) $522,132,783
-----------------------------------------------------------
Receivables for:
Investments sold 43,664,411
-----------------------------------------------------------
Fund shares sold 592,855
-----------------------------------------------------------
Interest 2,514,932
-----------------------------------------------------------
Investment for deferred compensation and
retirement plans 66,842
-----------------------------------------------------------
Other assets 79,380
===========================================================
Total assets 569,051,203
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 43,038,883
-----------------------------------------------------------
Fund shares reacquired 2,948,778
-----------------------------------------------------------
Amount due custodian bank 74,046
-----------------------------------------------------------
Dividends 83,449
-----------------------------------------------------------
Deferred compensation and retirement plans 90,473
-----------------------------------------------------------
Accrued distribution fees 76,788
-----------------------------------------------------------
Accrued trustees' fees 880
-----------------------------------------------------------
Accrued transfer agent fees 124,932
===========================================================
Total liabilities 46,438,229
===========================================================
Net assets applicable to shares outstanding $522,612,974
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $520,458,538
-----------------------------------------------------------
Undistributed net investment income 45
-----------------------------------------------------------
Undistributed net realized gain from
investment securities 968,811
-----------------------------------------------------------
Unrealized appreciation of investment
securities 1,185,580
===========================================================
$522,612,974
___________________________________________________________
===========================================================
NET ASSETS:
Class A $453,431,204
___________________________________________________________
===========================================================
Class A3 $ 65,396,027
___________________________________________________________
===========================================================
Institutional Class $ 3,785,743
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 43,893,855
___________________________________________________________
===========================================================
Class A3 6,332,473
___________________________________________________________
===========================================================
Institutional Class 366,546
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.33
-----------------------------------------------------------
Offering price per share:
(Net asset value of $10.33 divided
by 99.00%) $ 10.43
___________________________________________________________
===========================================================
Class A3:
Net asset value and offering price per
share $ 10.33
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 10.33
___________________________________________________________
===========================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-204
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest $5,033,918
========================================================================
EXPENSES:
Advisory fees 587,419
------------------------------------------------------------------------
Administrative services fees 79,215
------------------------------------------------------------------------
Custodian fees 13,249
------------------------------------------------------------------------
Distribution fees:
Class A 387,916
------------------------------------------------------------------------
Class A3 136,717
------------------------------------------------------------------------
Transfer agent fees (Class A & Class A3) 402,971
------------------------------------------------------------------------
Transfer agent fees (Institutional Class) 946
------------------------------------------------------------------------
Trustees' fees 8,490
------------------------------------------------------------------------
Other 139,296
========================================================================
Total expenses 1,756,219
========================================================================
Less: Fees waived and expense offset arrangements (3,227)
========================================================================
Net expenses 1,752,992
========================================================================
Net investment income 3,280,926
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 2,173,297
------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (45,608)
========================================================================
Net gain from investment securities 2,127,689
========================================================================
Net increase in net assets resulting from operations $5,408,615
________________________________________________________________________
========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-205
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
--------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,280,926 $ 13,330,583
--------------------------------------------------------------------------------------------
Net realized gain from investment securities 2,173,297 11,624,560
--------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (45,608) (9,284,613)
============================================================================================
Net increase in net assets resulting from operations 5,408,615 15,670,530
============================================================================================
Distributions to shareholders from net investment income:
Class A (2,892,689) (12,750,428)
--------------------------------------------------------------------------------------------
Class A3 (359,794) (517,649)
--------------------------------------------------------------------------------------------
Institutional Class (28,398) (62,506)
============================================================================================
Total distributions from net investment income (3,280,881) (13,330,583)
============================================================================================
Distributions to shareholders from net realized gains:
Class A (7,809,831) (7,010,203)
--------------------------------------------------------------------------------------------
Class A3 (1,227,629) (129,528)
--------------------------------------------------------------------------------------------
Institutional Class (65,668) (24,193)
============================================================================================
Total distributions from net realized gains (9,103,128) (7,163,924)
============================================================================================
Decrease in net assets resulting from distributions (12,384,009) (20,494,507)
============================================================================================
Share transactions-net:
Class A (118,578,306) (113,847,783)
--------------------------------------------------------------------------------------------
Class A3 (28,072,407) 94,792,404
--------------------------------------------------------------------------------------------
Institutional Class (76,350) 966,624
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (146,727,063) (18,088,755)
============================================================================================
Net increase (decrease) in net assets (153,702,457) (22,912,732)
============================================================================================
NET ASSETS:
Beginning of period 676,315,431 699,228,163
============================================================================================
End of period (including undistributed net investment
income of $45 and $0 for 2004 and 2003, respectively) $522,612,974 $ 676,315,431
____________________________________________________________________________________________
============================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-206
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management company consisting of nine separate series portfolios each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently consists of multiple classes of shares. Matters affecting each portfolio or class 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 of 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. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in their financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- 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 and commercial paper are valued at amortized cost which approximates market value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.20% on the first $500 million of the Fund's average daily net assets, plus 0.175% on the Fund's average daily net assets in excess of $500 million.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $79,215 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. For the Institutional Class, the transfer agent has contractually agreed to reimburse class specific transfer agent fees to the extent necessary to limit transfer agent fees to 0.10% of the average net assets. During the six months ended January 31, 2004, AISI retained $160,400 for such services and reimbursed no fees for the Institutional Class shares.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A shares, Class A3 shares and the Institutional Class shares of the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A and Class A3 shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
FS-207
Distributors compensation at the annual rate of 0.15% of the Fund's average daily net assets of Class A shares and 0.35% of the average daily net assets of Class A3 shares. Of these amounts, up to 0.15% of the average daily net assets of Class A shares and up to 0.25% of the average daily net assets of Class A3 shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plan would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A and Class A3 shares paid $387,916 and $136,717, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During six months ended January 31, 2004, AIM Distributors retained $9,817 in front-end sales commissions from the sale of Class A shares and $1,961 from Class A shares, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $3,227 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $3,227.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $3,511 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $298,857,156 and $456,640,313, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $1,271,165
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (97,696)
===========================================================
Net unrealized appreciation of investment
securities $1,173,469
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $520,959,314.
|
FS-208
NOTE 8--SHARE INFORMATION
The Fund currently consists of three different classes of shares: Class A shares, Class A3 shares and the Institutional Class shares. Class A shares are sold with a front-end sales charge. Class A3 shares and the Institutional Class shares are sold at net asset value. Under some circumstances, Class A shares are subject to CDSC. As of the close of business on October 30, 2002, Class A shares were closed to new investors.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,057,890 $ 21,486,323 25,805,338 $ 271,953,993
--------------------------------------------------------------------------------------------------------------------------
Class A3* 2,813,590 29,399,594 12,760,368 134,005,850
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 94,988 993,092 220,446 2,316,869
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 847,563 8,772,597 1,610,631 16,920,387
--------------------------------------------------------------------------------------------------------------------------
Class A3* 136,189 1,408,662 55,441 581,385
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 5,650 58,329 425 4,464
==========================================================================================================================
Reacquired:
Class A (14,248,486) (148,837,226) (38,275,556) (402,722,163)
--------------------------------------------------------------------------------------------------------------------------
Class A3* (5,643,014) (58,880,663) (3,790,101) (39,794,831)
--------------------------------------------------------------------------------------------------------------------------
Institutional Class (108,178) (1,127,771) (128,741) (1,354,709)
==========================================================================================================================
(14,043,808) $(146,727,063) (1,741,749) $ (18,088,755)
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
* Class A3 shares commenced sales on October 31, 2002.
FS-209
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY 31,
JANUARY 31, --------------------------------------------------------------
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.46 $ 10.53 $ 10.26 $ 9.96 $ 10.03 $ 10.07
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06 0.19 0.33(a) 0.52(b) 0.51 0.47
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.04 0.03 0.27 0.31 (0.07) (0.04)
=================================================================================================================================
Total from investment operations 0.10 0.22 0.60 0.83 0.44 0.43
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.06) (0.19) (0.33) (0.53) (0.51) (0.47)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.17) (0.10) -- -- -- --
=================================================================================================================================
Total distributions (0.23) (0.29) (0.33) (0.53) (0.51) (0.47)
=================================================================================================================================
Net asset value, end of period $ 10.33 $ 10.46 $ 10.53 $ 10.26 $ 9.96 $ 10.03
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.95% 2.18% 5.89% 8.53% 4.50% 4.32%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $453,431 $577,993 $696,259 $507,799 $300,058 $390,018
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.56%(d) 0.53% 0.48% 0.56% 0.54% 0.54%
=================================================================================================================================
Ratio of net investment income to average net
assets 1.12%(d) 1.85% 3.12%(a) 5.15% 5.07% 4.61%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 50% 124% 149% 137% 122% 184%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.34 and the ratio of net investment income to average net
assets would have been 3.29%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$514,402,995.
(e) Not annualized for periods less than one year.
FS-210
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS A3
----------------------------------
OCTOBER 31, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2004 2003
------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.46 $ 10.59
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.13
------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.04 (0.04)
================================================================================================
Total from investment operations 0.09 0.09
================================================================================================
Less distributions:
Dividends from net investment income (0.05) (0.12)
------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.17) (0.10)
================================================================================================
Total distributions (0.22) (0.22)
================================================================================================
Net asset value, end of period $ 10.33 $ 10.46
________________________________________________________________________________________________
================================================================================================
Total return(a) 0.85% 0.88%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $65,396 $94,409
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets 0.76%(b) 0.73%(c)
================================================================================================
Ratio of net investment income to average net assets 0.92%(b) 1.65%(c)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(d) 50% 124%
________________________________________________________________________________________________
================================================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$77,699,491.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-211
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
INSTITUTIONAL CLASS
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY 31,
JANUARY 31, --------------------------------------------------------
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.46 $10.53 $10.26 $ 9.96 $10.03 $ 10.07
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.22 0.34(a) 0.54(b) 0.54 0.49
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.04 0.03 0.27 0.31 (0.07) (0.04)
=================================================================================================================================
Total from investment operations 0.11 0.25 0.61 0.85 0.47 0.45
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.07) (0.22) (0.34) (0.55) (0.54) (0.49)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.17) (0.10) -- -- -- --
=================================================================================================================================
Total distributions (0.24) (0.32) (0.34) (0.55) (0.54) (0.49)
=================================================================================================================================
Net asset value, end of period $10.33 $10.46 $10.53 $10.26 $ 9.96 $ 10.03
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.08% 2.42% 6.05% 8.80% 4.78% 4.55%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,786 $3,913 $2,970 $1,812 $2,455 $17,131
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.32%(d) 0.30% 0.34% 0.33%(e) 0.29% 0.31%
=================================================================================================================================
Ratio of net investment income to average net assets 1.36%(d) 2.08% 3.26%(a) 5.38% 5.31% 4.84%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 50% 124% 149% 137% 122% 184%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and the Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.35, and the ratio of net investment income to average
assets would have been 3.43%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$4,148,863.
(e) Including expense reimbursement. Ratio of expenses to average net assets
excluding reimbursement is 0.41%
(f) Not annualized for periods less than one year.
NOTE 10--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
FS-212
NOTE 10--LEGAL PROCEEDINGS (CONTINUED)
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-213
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PAR
MATURITY (000) VALUE
-----------------------------------------------------------------------------
COMMERCIAL PAPER-20.86%(a)
ASSET-BACKED SECURITIES -- COMMERCIAL
LOANS/ LEASES-0.87%
Atlantis One Funding Corp. (Rabobank-ABS
Program Sponsor) (Acquired 11/25/03;
Cost $13,921,056)
1.16%(b) 05/18/04 $14,000 $ 13,951,731
=============================================================================
ASSET-BACKED SECURITIES -- CONSUMER
RECEIVABLES-0.50%
Thunder Bay Funding Inc. (Royal Bank of
Canada-ABS Program Sponsor) (Acquired
01/15/04; Cost $8,064,752)
1.03%(b) 03/08/04 8,077 8,068,681
=============================================================================
ASSET-BACKED SECURITIES -- FULLY
BACKED-4.31%
Tulip Funding Corp. (ABN AMRO Bank
N.V.-ABS Program Sponsor) (Acquired
01/08/04; Cost $68,912,824)
1.03%(b) 02/12/04 68,974 68,952,292
=============================================================================
ASSET-BACKED SECURITIES -- MULTI-
PURPOSE-4.68%
Asset Securitization Capital Co., LLC
(Canadian Imperial Bank of
Commerce-ABS Program Sponsor)
(Acquired 01/27/04; Cost $9,983,533)
1.04%(b) 03/24/04 10,000 9,984,978
-----------------------------------------------------------------------------
Barton Capital Corp. (Societe
Generale-ABS Program Sponsor)
(Acquired 01/15/04; Cost $34,943,922)
1.03%(b) 03/11/04 35,000 34,960,946
-----------------------------------------------------------------------------
Edison Asset Securitization, LLC (GE
Capital Corp.-ABS Program Sponsor)
(Acquired 01/21/04; Cost $29,919,400)
1.04%(b) 04/23/04 30,000 29,928,933
=============================================================================
74,874,857
=============================================================================
ASSET-BACKED SECURITIES -- TRADE
RECEIVABLES-3.94%
Eureka Securitization, Inc. (Citibank
N.A.-ABS Program Sponsor) (Acquired
01/09/04; Cost $24,961,722)
1.04%(b) 03/02/04 25,000 24,978,333
-----------------------------------------------------------------------------
|
-----------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
ASSET-BACKED SECURITIES -- TRADE
RECEIVABLES-(CONTINUED)
FCAR Owner Trust-Series I (Ford Motor
Credit Co.-ABS Program Sponsor)
1.09% 02/13/04 $38,000 $ 37,986,193
=============================================================================
62,964,526
=============================================================================
RAILROADS-4.69%
Network Rail CP Finance PLC (United
Kingdom) (Strategic Rail Authority-ABS
Program Sponsor) (Acquired 10/09/03;
Cost $74,712,358)
1.10%(b) 02/17/04 75,000 74,963,474
=============================================================================
REGIONAL BANKS-1.87%
Banque et Caisse d'Epargne de l'Etat
(Luxembourg)
1.18% 06/07/04 30,000 29,875,117
=============================================================================
Total Commercial Paper (Cost $333,650,678) 333,650,678
=============================================================================
CERTIFICATES OF DEPOSIT-12.07%
ABN AMRO Bank N.V. (Netherlands)
1.25% 11/02/04 10,000 10,000,000
-----------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom)
1.35% 04/19/04 15,000 15,012,176
-----------------------------------------------------------------------------
BNP Paribas (France)
1.39% 08/05/04 5,000 5,001,019
-----------------------------------------------------------------------------
HBOS Treasury Services PLC (United
Kingdom)
1.16% 03/22/04 40,000 40,000,000
-----------------------------------------------------------------------------
Societe Generale (France)
1.06%(c) 10/01/04 23,000 22,994,602
-----------------------------------------------------------------------------
Svenska Handelsbacken AB (Sweden)
1.12% 07/14/04 50,000 50,000,000
-----------------------------------------------------------------------------
UniCredito Italiano S.p.A. (Italy)
1.07% 04/13/04 50,000 50,000,000
=============================================================================
Total Certificates of Deposit (Cost $193,007,797) 193,007,797
=============================================================================
MASTER NOTE AGREEMENTS-10.32%(d)
Merrill Lynch Mortgage Capital, Inc.
(Acquired 08/25/03; Cost $85,000,000)
1.20%(b)(e) 02/23/04 85,000 85,000,000
-----------------------------------------------------------------------------
Morgan Stanley (Acquired 09/15/03; Cost
$80,000,000)
1.11%(b)(f) 06/14/04 80,000 80,000,000
=============================================================================
Total Master Note Agreements (Cost
$165,000,000) 165,000,000
=============================================================================
|
FS-214
PAR
MATURITY (000) VALUE
-----------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-10.22%
FEDERAL HOME LOAN BANK-6.76%
Unsec. Bonds,
3.75% 02/13/04 $18,000 $ 18,013,811
-----------------------------------------------------------------------------
1.12% 07/12/04 10,000 10,000,000
-----------------------------------------------------------------------------
1.03% 07/23/04 50,000 50,000,000
-----------------------------------------------------------------------------
1.46% 11/17/04 5,000 5,000,000
-----------------------------------------------------------------------------
1.20% 02/28/05 25,000 24,975,000
=============================================================================
107,988,811
=============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-3.46%
Disc. Notes,
1.03%(g) 05/03/04 25,600 25,541,404
-----------------------------------------------------------------------------
1.28%(g) 09/28/04 20,000 19,829,333
-----------------------------------------------------------------------------
Unsec. Notes,
1.36% 09/10/04 10,000 10,000,000
=============================================================================
55,370,737
=============================================================================
Total U.S. Government Agency Securities
(Cost $163,359,548) 163,359,548
=============================================================================
TIME DEPOSITS-5.63%
ING Belgium S.A./N.V.-Brussels (Belgium)
1.06% 02/02/04 25,000 25,000,000
-----------------------------------------------------------------------------
WestLB A.G.-Cayman (Germany)
1.06% 02/02/04 65,000 65,000,000
=============================================================================
Total Time Deposits (Cost $90,000,000) 90,000,000
=============================================================================
MEDIUM-TERM NOTES-3.13%
Money Market Trust LLY-Series 2002-B,
Floating Rate Notes (Acquired 12/03/02;
Cost $50,000,000)
1.17%(b)(c)(h) 12/03/04 50,000 50,000,000
=============================================================================
PROMISSORY NOTES-1.88%
Goldman Sachs Group, Inc. (The)
(Acquired 12/16/03; Cost $30,000,000)
1.25%(b)(h) 07/13/04 30,000 30,000,000
=============================================================================
VARIABLE RATE DEMAND
NOTES-1.85%(i)(j)(k)
INSURED-0.40%
Michigan (State of) Housing Development
Authority; Taxable Series 2000 C RB,
1.17%(l) 12/01/20 6,405 6,405,000
=============================================================================
|
-----------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
LETTER OF CREDIT GUARANTEED-1.45%(m)
Family Express Corp., LLC-Series A, Loan
Program Notes (LOC-First of America
Bank, N.A.),
1.08% 04/01/28 $ 9,070 $ 9,070,000
-----------------------------------------------------------------------------
Miami-Dade (County of), Florida
Industrial Development Authority
(Dolphins Stadium); Taxable Series
2000 IDR (LOC-Societe Generale),
1.05% 07/01/22 100 100,000
-----------------------------------------------------------------------------
Mississippi (State of) Business Finance
Corp. (Viking Range Corp. Project);
Taxable Series 2000 IDR (LOC-Bank of
America N.A),
1.17% 06/01/15 14,095 14,095,000
=============================================================================
23,265,000
=============================================================================
Total Variable Rate Demand Notes
(Cost $29,670,000) 29,670,000
=============================================================================
FUNDING AGREEMENTS-1.06%
New York Life Insurance Co. (Acquired
04/03/03; Cost $17,000,000)
1.21%(b)(c)(h) 04/07/04 17,000 17,000,000
=============================================================================
ASSET-BACKED SECURITIES-0.83%
CONSUMER RECEIVABLES-0.20%
Honda Auto Receivables 2003-2 Owner
Trust, Class A-1 Notes,
1.23% 06/11/04 367 367,363
-----------------------------------------------------------------------------
Nissan Auto Receivables 2003-B Owner
Trust, Class A1 Notes,
1.17% 06/15/04 2,883 2,883,198
=============================================================================
3,250,561
=============================================================================
STRUCTURED-0.63%
Holmes Financing (No. 7) PLC (United
Kingdom)-Series 1, Class A, Floating
Rate Bonds,
1.06%(c) 04/15/04 10,000 10,000,000
=============================================================================
Total Asset-Backed Securities (Cost
$13,250,561) 13,250,561
=============================================================================
Total Investments (excluding
Repurchase Agreements) (Cost
$1,084,938,584) 1,084,938,584
=============================================================================
REPURCHASE AGREEMENTS-35.29%
Banc of America Securities LLC
1.12%(n) 02/02/04 60,000 60,000,000
-----------------------------------------------------------------------------
Banc One Capital Markets Group
1.02%(o) 02/02/04 34,323 34,322,844
-----------------------------------------------------------------------------
BNP Paribas Securities Corp.-New York
Branch (France)
1.13%(p) 02/02/04 65,000 65,000,000
-----------------------------------------------------------------------------
|
FS-215
PAR
MATURITY (000) VALUE
-----------------------------------------------------------------------------
REPURCHASE AGREEMENTS-(CONTINUED)
Citigroup Global Markets Inc.
1.03%(q) 02/02/04 $65,000 $ 65,000,000
-----------------------------------------------------------------------------
Deutsche Bank Securities Inc.-New York
Branch (Germany)
1.12%(r) 02/02/04 70,000 70,000,000
-----------------------------------------------------------------------------
Greenwich Capital Markets, Inc.-New York
Branch (United Kingdom)
1.04%(s) 02/02/04 65,000 65,000,000
-----------------------------------------------------------------------------
Morgan Stanley & Co. Inc.
1.04%(t) 02/02/04 65,000 65,000,000
-----------------------------------------------------------------------------
UBS Warburg LLC-New York Branch
(Switzerland)
1.04%(u) 02/02/04 65,000 65,000,000
-----------------------------------------------------------------------------
|
-----------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
REPURCHASE AGREEMENTS-(CONTINUED)
Wachovia Securities, Inc.
1.13%(v) 02/02/04 $75,000 $ 75,000,000
=============================================================================
Total Repurchase Agreements (Cost
$564,322,844) 564,322,844
=============================================================================
TOTAL INVESTMENTS-103.14% (Cost
$1,649,261,428)(w) 1,649,261,428
=============================================================================
OTHER ASSETS LESS LIABILITIES-(3.14%) (50,236,863)
=============================================================================
NET ASSETS-100.00% $1,599,024,565
_____________________________________________________________________________
=============================================================================
|
Investment Abbreviations:
ABS - Asset Backed Security Ctfs. - Certificates Disc. - Discounted IDR - Industrial Development Revenue Bonds LOC - Letter of Credit RB - Revenue Bonds Unsec. - Unsecured |
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) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/04 was $527,789,368,
which represented 33.01% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(c) Interest rates are redetermined monthly. Rates shown are rates in effect on
01/31/04.
(d) 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.
(e) 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 daily. Rate shown is the rate in effect on 1/31/04.
(f) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one business day's oral notice for up to 10% of
outstanding amount, otherwise, upon seven business day's written notice for
more than 10% of outstanding balance. Interest rates are redetermined daily.
Rate is shown is the rate in effect on 01/31/04.
(g) Security is traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of the purchase
by the Fund.
(h) Security considered to be illiquid. The aggregate market value of these
securities considered to be illiquid at 01/31/04 was $97,000,000 which
represented 6.07% of the Fund's net assets.
(i) Demand security; payable upon demand by the Fund with usually no more than
seven calendar days' notice.
(j) Interest on these securities is taxable income to the Fund.
(k) Interest rates are redetermined weekly. Rates shown are rates in effect on
01/31/04.
(l) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp. or MBIA Insurance
Corp.
(m) Principal and interest payments are guaranteed by the letter of credit
agreement.
(n) Repurchase agreement entered into 01/30/04 with a maturing value of
$60,005,600. Collateralized by $56,952,676 corporate obligations, 0% to
8.40% due 05/15/06 to 03/01/33 with a market value at 01/31/04 of
$63,000,001.
(o) Joint repurchase agreement entered into 01/30/04 with a maturing value of
$500,042,500. Collateralized by $502,515,000 U.S. Government obligations, 0%
to 7.60% due 02/02/04 to 11/15/13 with an aggregate market value at 01/31/04
of $510,003,975.
(p) Repurchase agreement entered into 01/30/04 with a maturing value of
$65,006,121. Collateralized by $58,304,934 corporate obligations, 1.84% to
9.50% due 10/20/05 to 06/01/31 with a market value at 01/31/04 of
$68,250,001.
(q) Joint repurchase agreement entered into 01/30/04 with a maturing value of
$325,027,896. Collateralized by $313,414,000 U.S. Government obligations, 0%
to 6.75% due 10/01/08 to 03/15/31 with an aggregate market value at 01/31/04
of $331,500,320.
(r) Repurchase agreement entered into 01/30/04 with a maturing value of
$70,006,533. Collateralized by $73,427,689 corporate obligations, 1.27% to
1.62% due 02/17/09 to 12/12/38 with a market value at 01/31/04 of
$73,500,000.
(s) Joint repurchase agreement entered into 01/30/04 with a maturing value of
$250,021,667. Collateralized by $447,514,000 U.S. Government obligations, 0%
to 9.38% due 04/15/04 to 04/15/30 with an aggregate market value at 01/31/04
of $255,001,895.
(t) Joint repurchase agreement entered into 01/30/04 with a maturing value of
$250,021,667. Collateralized by $245,132,143 U.S. Government obligations,
4.50% to 7.00% due 02/01/18 to 01/01/34 with an aggregate market value at
01/31/04 of $255,637,501.
(u) Joint repurchase agreement entered into 01/30/04 with a maturing value of
$250,021,667. Collateralized by $238,210,933 U.S. Government obligations,
4.50% to 9.00% due 05/01/06 to 01/01/34 with an aggregate market value at
01/31/04 of $255,003,852.
(v) Repurchase agreement entered into 01/30/04 with a maturing value of
$75,007,063. Collateralized by $260,221,221 corporate obligations, 0.28% to
7.80% due 07/26/04 to 10/01/40 with a market value at 01/31/04 of
$78,750,001.
(w) Also represents cost for federal income tax purposes.
See accompanying notes which are an integral part of the financial statements.
FS-216
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, excluding repurchase
agreements, at value (amortized cost) $1,084,938,584
------------------------------------------------------------
Repurchase agreements (amortized cost) 564,322,844
============================================================
Total investments 1,649,261,428
============================================================
Receivables for:
Fund shares sold 16,508,138
------------------------------------------------------------
Interest 1,217,460
------------------------------------------------------------
Amount due from advisor 136,072
------------------------------------------------------------
Investment for deferred compensation and
retirement plans 236,809
------------------------------------------------------------
Other assets 242,057
============================================================
Total assets 1,667,601,964
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 60,516,404
------------------------------------------------------------
Fund shares reacquired 7,118,738
------------------------------------------------------------
Deferred compensation and retirement plans 319,218
------------------------------------------------------------
Amount due custodian bank 77,881
------------------------------------------------------------
Dividends 10,326
------------------------------------------------------------
Accrued distribution fees 442,909
------------------------------------------------------------
Accrued trustees' fees 1,398
------------------------------------------------------------
Accrued transfer agent fees 31,561
------------------------------------------------------------
Accrued operating expenses 58,964
============================================================
Total liabilities 68,577,399
============================================================
Net assets applicable to shares outstanding $1,599,024,565
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,599,027,580
------------------------------------------------------------
Undistributed net investment income 50,777
------------------------------------------------------------
Undistributed net realized gain (loss)
from investment securities (53,792)
============================================================
$1,599,024,565
____________________________________________________________
============================================================
NET ASSETS:
AIM Cash Reserve Shares $ 731,948,051
____________________________________________________________
============================================================
Class B $ 380,029,860
____________________________________________________________
============================================================
Class C $ 88,204,217
____________________________________________________________
============================================================
Class R $ 3,964,454
____________________________________________________________
============================================================
Investor Class $ 394,877,983
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
AIM Cash Reserve Shares 732,011,741
____________________________________________________________
============================================================
Class B 380,057,316
____________________________________________________________
============================================================
Class C 88,212,095
____________________________________________________________
============================================================
Class R 3,964,729
____________________________________________________________
============================================================
Investor Class 395,220,601
____________________________________________________________
============================================================
Net asset value and offering price per share
for each class $ 1.00
____________________________________________________________
============================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-217
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest $ 9,357,058
=========================================================================
EXPENSES:
Advisory fees 4,450,449
-------------------------------------------------------------------------
Administrative services fees 203,589
-------------------------------------------------------------------------
Custodian fees 24,158
-------------------------------------------------------------------------
Distribution fees:
AIM Cash Reserve Shares 1,114,805
-------------------------------------------------------------------------
Class B 2,363,898
-------------------------------------------------------------------------
Class C 503,310
-------------------------------------------------------------------------
Class R 11,202
-------------------------------------------------------------------------
Transfer agent fees 1,671,770
-------------------------------------------------------------------------
Trustees' fees 15,127
-------------------------------------------------------------------------
Other 179,147
=========================================================================
Total expenses 10,537,455
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (4,651,782)
=========================================================================
Net expenses 5,885,673
=========================================================================
Net investment income 3,471,385
=========================================================================
Net realized gain (loss) from investment securities (1,521)
=========================================================================
Net increase in net assets resulting from operations $ 3,469,864
_________________________________________________________________________
=========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-218
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,471,385 $ 7,842,936
----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (1,521) 44,022
==============================================================================================
Net increase in net assets resulting from operations 3,469,864 7,886,958
==============================================================================================
Distributions to shareholders from net investment income:
AIM Cash Reserve Shares (2,470,125) (7,299,075)
----------------------------------------------------------------------------------------------
Class B (112,741) (432,412)
----------------------------------------------------------------------------------------------
Class C (151,871) (100,719)
----------------------------------------------------------------------------------------------
Class R (6,618) (10,730)
----------------------------------------------------------------------------------------------
Investor Class (839,162) --
==============================================================================================
Total distributions from net investment income (3,580,517) (7,842,936)
==============================================================================================
Distributions to shareholders from net realized gains:
AIM Cash Reserve Shares (23,647) (35,590)
----------------------------------------------------------------------------------------------
Class B (12,702) (20,898)
----------------------------------------------------------------------------------------------
Class C (2,805) (3,549)
----------------------------------------------------------------------------------------------
Class R (122) (38)
----------------------------------------------------------------------------------------------
Investor Class (12,995) --
==============================================================================================
Total distributions from net realized gains (52,271) (60,075)
==============================================================================================
Decrease in net assets resulting from distributions (3,632,788) (7,903,011)
==============================================================================================
Share transactions-net:
AIM Cash Reserve Shares (456,849,181) 67,004,557
----------------------------------------------------------------------------------------------
Class B (163,744,502) (174,148,217)
----------------------------------------------------------------------------------------------
Class C (25,093,104) (5,640,712)
----------------------------------------------------------------------------------------------
Class R (2,315,541) 6,270,260
----------------------------------------------------------------------------------------------
Investor Class 394,916,540 --
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (253,085,788) (106,514,112)
==============================================================================================
Net increase (decrease) in net assets (253,248,712) (106,530,165)
==============================================================================================
NET ASSETS:
Beginning of period 1,852,273,277 1,958,803,442
==============================================================================================
End of period (including undistributed net investment
income of $50,777 and $159,909 for 2004 and 2003,
respectively) $1,599,024,565 $1,852,273,277
______________________________________________________________________________________________
==============================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-219
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Money Market Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to provide as high a level of current income as is consistent with the preservation of capital and liquidity. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value repeated in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- The Fund's securities are valued on the basis of amortized cost which approximates market value as permitted under Rule 2a-7 of the 1940 Act. This method values a security at its cost on the date of purchase and, thereafter, assumes a constant amortization to maturity of any premiums or accretion of any discounts.
B. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements. 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. Eligible securities for collateral are U.S. Government Securities, U.S. Government Agency Securities and/or Investment Grade Debt Securities. Collateral consisting of U.S. Government Securities and U.S. Government Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. Collateral consisting of Investment Grade Debt Securities is marked to market daily to ensure its market value is at least 105% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates ("Joint repurchase agreements"). 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.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income, adjusted for amortization of premiums and accretion of discounts on investments, is recorded on the accrual basis from settlement date.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.55% on the first $1 billion of the Fund's average daily net assets, plus 0.50% on the Fund's average daily net assets in excess of $1 billion. AIM and/or A I M Distributors, Inc. ("AIM Distributors") voluntarily waived fees and/or reimbursed expenses in order to increase the Fund's yield. Waivers and/or reimbursements may be changed from time to time. During the six months ended January 31, 2004, AIM waived fees of $3,800,504.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $203,589 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $926,628 for such services.
FS-220
The Trust has entered into master distribution agreements with AIM Distributors to serve as the distributor for the AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of AIM Cash Reserve shares, 1.00% of the average daily net assets of Class B and Class C shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, up to 0.25% of the average daily net assets of the AIM Cash Reserve Shares, Class B, Class C and Class R shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes.
Effective July 1, 2003, in order to maintain a minimum yield, AIM Distributors reduced broker service fees on AIM Cash Reserve Shares, Class B, Class C and Class R shares. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the six months ended January 31, 2004, the AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class shares paid $1,114,805, $1,772,923, $251,655, $11,202 and $0, respectively, after AIM Distributors waived and/or reimbursed plan fees of $590,975 and $251,655 for Class B and Class C shares, respectively.
Contingent deferred sales charges ("CDSC") are not recorded as expenses of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During six months ended January 31, 2004, AIM Distributors retained $619,454, $7,717, $189,976 and $0 from AIM Cash Reserve Shares, Class B, Class C and Class R shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $8,648 under an expense offset arrangement, which resulted in a reduction of the Fund's total expenses of $8,648.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $5,414 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund did not borrow or lend under the facility during the six months ended January 31, 2004.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
FS-221
NOTE 7--SHARE INFORMATION
The Fund currently offers five different classes of shares: AIM Cash Reserve Shares, Class B shares, Class C shares, Class R shares and Investor Class shares. Class B shares and Class C shares are sold with CDSC. AIM Cash Reserve Shares, Class R shares and Investor Class shares are sold at net asset value. Under some circumstances, Class R shares are subject to CDSC. Generally, Class B shares will automatically convert to AIM Cash Reserve Shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JULY 31,
2004 2003
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------------------------
Sold:
AIM Cash Reserve Shares 1,136,435,829 $1,136,431,580 5,372,980,834 $5,372,980,834
---------------------------------------------------------------------------------------------------------------------------------
Class B 99,819,965 99,820,085 485,890,867 485,890,867
---------------------------------------------------------------------------------------------------------------------------------
Class C 129,701,911 129,706,614 570,319,822 570,319,822
---------------------------------------------------------------------------------------------------------------------------------
Class R 6,432,496 6,432,496 24,594,921 24,594,921
---------------------------------------------------------------------------------------------------------------------------------
Investor Class* 152,825,091 152,827,344 -- --
=================================================================================================================================
Issued as reinvestment of dividends:
AIM Cash Reserve Shares 2,241,526 2,241,526 6,288,154 6,288,154
---------------------------------------------------------------------------------------------------------------------------------
Class B 115,205 115,205 408,246 408,246
---------------------------------------------------------------------------------------------------------------------------------
Class C 138,634 138,634 89,880 89,880
---------------------------------------------------------------------------------------------------------------------------------
Class R 5,767 5,767 9,756 9,756
---------------------------------------------------------------------------------------------------------------------------------
Investor Class* 819,366 819,366 -- --
=================================================================================================================================
Issued in connection with acquisitions:**
AIM Cash Reserve Shares 669,132 669,697 -- --
---------------------------------------------------------------------------------------------------------------------------------
Class B 253,059 252,879 -- --
---------------------------------------------------------------------------------------------------------------------------------
Class C 8,223,808 8,218,055 -- --
---------------------------------------------------------------------------------------------------------------------------------
Investor Class* 433,127,527 432,821,214 -- --
=================================================================================================================================
Automatic conversion of Class B shares to Class A shares:
AIM Cash Reserve Shares 16,094,332 16,094,333 25,073,560 25,073,560
---------------------------------------------------------------------------------------------------------------------------------
Class B (16,094,332) (16,094,333) (25,073,560) (25,073,560)
=================================================================================================================================
Reacquired:
AIM Cash Reserve Shares (1,612,286,316) (1,612,286,317) (5,337,337,991) (5,337,337,991)
---------------------------------------------------------------------------------------------------------------------------------
Class B (247,838,339) (247,838,338) (635,373,770) (635,373,770)
---------------------------------------------------------------------------------------------------------------------------------
Class C (163,156,406) (163,156,407) (576,050,414) (576,050,414)
---------------------------------------------------------------------------------------------------------------------------------
Class R (8,753,804) (8,753,804) (18,334,417) (18,334,417)
---------------------------------------------------------------------------------------------------------------------------------
Investor Class* (191,551,383) (191,551,384) -- --
=================================================================================================================================
(252,776,932) $ (253,085,788) (106,514,112) $ (106,514,112)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
* Investor Class shares commenced sales on September 30, 2003. ** As of the open of business on November 3, 2003, the Fund acquired all of the net assets of INVESCO Cash Reserves Fund pursuant to a plan of reorganization approved by the INVESCO Cash Reserves Fund shareholders on October 21, 2003. The acquisition was accomplished by a tax-free exchange of 442,273,526 shares of the Fund for 442,273,526 shares of INVESCO Cash Reserves Fund outstanding as of the close of business October 31, 2003. INVESCO Cash Reserves Fund's net assets at that date of $441,961,845 were combined with those of the Fund. On the acquisition date, INVESCO Cash Reserves Fund had undistributed net investment income (loss) of $(309,618). The aggregate net assets of the Fund immediately before the acquisition were $1,395,903,235.
FS-222
NOTE 8--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CASH RESERVE
--------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
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 0.0027 0.0064 0.0141 0.0467 0.0300(a) 0.0414
---------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (realized) 0.0001 0.0000 -- -- -- --
=================================================================================================================================
Total from investment operations 0.0028 0.0064 0.0141 0.0467 0.0300 0.0414
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.0028) (0.0064) (0.0141) (0.0467) (0.0300) (0.0414)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.0000) (0.0000) -- -- -- --
=================================================================================================================================
Total distributions (0.0028) (0.0064) (0.0141) (0.0467) (0.0300) (0.0414)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.28% 0.64% 1.42% 4.77% 3.03% 4.22%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $731,948 $1,188,876 $1,121,879 $937,532 $912,042 $989,478
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets(c) 0.58%(d) 0.88% 1.01% 1.06% 1.07%(e) 1.04%
=================================================================================================================================
Ratio of net investment income to average
net assets 0.53%(d) 0.64% 1.40% 4.61% 5.15%(e) 4.16%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.03% for the six months ended January 31, 2004 and for the year
ended July 31, 2003, respectively.
(d) Ratios are annualized and based on average net assets of $886,996,828.
(e) Annualized.
CLASS B
----------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, -------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
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 0.0002 0.0007 0.0065 0.0392 0.0256(a) 0.0339
-------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (realized) 0.0001 0.0000 - - - -
===============================================================================================================================
Total from investment operations 0.0003 0.0007 0.0065 0.0392 0.0256 0.0339
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.0003) (0.0007) (0.0065) (0.0392) (0.0256) (0.0339)
-------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.0000) (0.0000) -- -- -- --
===============================================================================================================================
Total distributions (0.0003) (0.0007) (0.0065) (0.0392) (0.0256) (0.0339)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 0.03% 0.07% 0.66% 3.99% 2.59% 3.45%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $380,030 $543,811 $717,967 $439,445 $289,327 $404,911
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets(c) 1.08%(d) 1.46% 1.76% 1.81% 1.82%(e) 1.79%
===============================================================================================================================
Ratio of net investment income to average
net assets 0.03%(d) 0.06% 0.65% 3.86% 4.40%(e) 3.41%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.78% and 1.76% for the six months ended January 31, 2004 and the
year ended July 31, 2003, respectively.
(d) Ratios are annualized and based on average net assets of $470,210,191.
(e) Annualized.
FS-223
NOTE 8--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
----------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, -------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
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 0.0014 0.0008 0.0065 0.0393 0.0256(a) 0.0339
-------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (realized) 0.0001 0.0000 - - - -
===============================================================================================================================
Total from investment operations 0.0015 0.0008 0.0065 0.0393 0.0256 0.0339
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.0015) (0.0008) (0.0065) (0.0393) (0.0256) (0.0339)
-------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.0000) (0.0000) -- -- -- --
===============================================================================================================================
Total distributions (0.0015) (0.0008) (0.0065) (0.0393) (0.0256) (0.0339)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 0.15% 0.09% 0.66% 4.00% 2.59% 3.44%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $88,204 $113,306 $118,947 $ 86,884 $ 45,457 $ 56,636
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets(c) 0.83%(d) 1.44% 1.76% 1.81% 1.82%(e) 1.79%
===============================================================================================================================
Ratio of net investment income to average
net assets 0.28%(d) 0.08% 0.65% 3.86% 4.40%(e) 3.41%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.78% and 1.74% for the six months ended January 31, 2004 and the
year ended July 31, 2003, respectively.
(d) Ratios are annualized and based on average net assets of $100,114,917.
(e) Annualized.
CLASS R
---------------------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
-----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
-----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0015 0.0038 0.0010
-----------------------------------------------------------------------------------------------------------
Net gains on securities (realized) 0.0000 0.0000 --
===========================================================================================================
Total from investment operations 0.0015 0.0038 0.0010
===========================================================================================================
Less distributions:
Dividends from net investment income (0.0015) (0.0038) (0.0010)
-----------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.0000) (0.0000) --
===========================================================================================================
Total distributions (0.0015) (0.0038) (0.0010)
___________________________________________________________________________________________________________
===========================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
___________________________________________________________________________________________________________
===========================================================================================================
Total return(a) 0.15% 0.38% 0.10%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 3,964 $ 6,280 $ 10
===========================================================================================================
Ratio of expenses to average net assets(b) 0.83%(c) 1.13% 1.26%(d)
===========================================================================================================
Ratio of net investment income to average net assets 0.28%(c) 0.39% 1.15%(d)
___________________________________________________________________________________________________________
===========================================================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.28% and 1.27% for the six months ended January 31, 2004 and the
year ended July 31, 2003, respectively.
(c) Ratios are annualized and based on average net assets of $4,456,609.
(d) Annualized.
FS-224
NOTE 8--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR CLASS
------------------
SEPTEMBER 30, 2003
(DATE SALES
COMMENCED) TO
JANUARY 31,
2004
----------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0027
----------------------------------------------------------------------------------
Net gains on securities (realized) 0.0000
==================================================================================
Total from investment operations 0.0027
==================================================================================
Less distributions:
Dividends from net investment income (0.0027)
----------------------------------------------------------------------------------
Distributions from net realized gains (0.0000)
==================================================================================
Total distributions (0.0027)
__________________________________________________________________________________
==================================================================================
Net asset value, end of period $ 1.00
__________________________________________________________________________________
==================================================================================
Total return(a) 0.27%
==================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $394,878
==================================================================================
Ratio of expenses to average net assets(b) 0.33%(c)
==================================================================================
Ratio of net investment income to average net assets 0.78%(c)
__________________________________________________________________________________
==================================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.78% for the six months ended January 31, 2004.
(c) Ratios are annualized and based on average net assets of $312,240,828.
NOTE 9--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has
FS-225
NOTE 9--LEGAL PROCEEDINGS (CONTINUED)
also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-226
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-98.81%
ALABAMA-1.51%
Alabama (State of) Public School &
College Authority; Capital Improvement
Series 1999 C RB
5.75%, 07/01/17 AA Aa3 $ 1,400 $ 1,598,156
-------------------------------------------------------------------------------
Birmingham (City of) Special Care
Facilities Financing Authority
(Children's Hospital of Alabama);
Health Care Facility Series 2002 RB
5.38%, 06/01/23(b) AAA Aaa 1,500 1,597,695
-------------------------------------------------------------------------------
Courtland (City of) Industrial
Development Board (Champion
International Corp. Project);
Refunding Environmental Improvement
Series 1996 RB
6.40%, 11/01/26(c) -- Baa2 2,315 2,401,650
-------------------------------------------------------------------------------
Jefferson (County of); Prerefunded
Capital Improvement Sewer Series 2001
A RB Wts.
5.00%, 02/01/11(d)(e) AAA Aaa 775 875,254
-------------------------------------------------------------------------------
Jefferson (County of); School Limited
Tax Series 2000 GO Wts.
5.50%, 02/15/20(b) AAA Aaa 1,250 1,380,550
-------------------------------------------------------------------------------
Lauderdale (County of) & Florence (City
of) Health Care Authority (Coffee
Health Group); Series 2000 A RB
6.00%, 07/01/29(b) AAA Aaa 1,000 1,141,610
===============================================================================
8,994,915
===============================================================================
ALASKA-0.37%
Alaska (State of) Housing Finance Corp.
(State Building Lease); Series 1999 RB
5.75%, 04/01/17(b) AAA Aaa 2,000 2,139,680
-------------------------------------------------------------------------------
Alaska (State of) Industrial Development
& Export Authority (Revolving
Fund-A-Lots 1-29); Refunding Series
1994 RB
5.70%, 04/01/04 A A2 55 55,381
===============================================================================
2,195,061
===============================================================================
AMERICAN SAMOA-0.24%
American Samoa (Territory of); Refunding
Unlimited Tax Series 2000 GO
6.00%, 09/01/08(b) A -- 1,280 1,431,949
===============================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
ARIZONA-1.49%
Arizona (State of) Tourism & Sports
Authority (Multipurpose Stadium
Facility); Tax Series 2003 A RB
5.00%, 07/01/25(b) -- Aaa $ 1,000 $ 1,038,750
-------------------------------------------------------------------------------
Phoenix (City of) Civic Improvement
Corp.; Waste Water System Jr. Lien
2000 Series RB
5.70%, 07/01/08(b) AAA Aaa 1,055 1,208,344
-------------------------------------------------------------------------------
Phoenix (City of) Civic Improvement
Corp.; Waste Water System Jr. Lien
Series 2000 RB
5.70%, 07/01/09(b) AAA Aaa 1,275 1,479,459
-------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Radisson City Center);
Refunding Development Series 2002 IDR
6.50%, 12/01/07 (Acquired 03/28/02;
Cost $325,000)(f)(g) -- -- 325 323,693
-------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Radisson City Center);
Refunding Development Series 2002 IDR
6.50%, 12/01/08 (Acquired 03/28/02;
Cost $345,000)(f)(g) -- -- 345 343,016
-------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Radisson City Center
Project); Refunding Development Series
2002 IDR
6.50%, 12/01/09 (Acquired 03/28/02;
Cost $365,000)(f)(g) -- -- 365 362,638
-------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Radisson City Center
Project); Refunding Development Series
2002 IDR
6.70%, 12/01/10 (Acquired 03/28/02;
Cost $390,000)(f)(g) -- -- 390 387,219
-------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Radisson City Center
Project); Refunding Development Series
2002 IDR
6.70%, 12/01/11 (Acquired 03/28/02;
Cost $415,000)(f)(g) -- -- 415 411,792
-------------------------------------------------------------------------------
Pima (County of) Unified School District
No. 10; School Improvement Unlimited
Tax Series 1992 E GO
6.50%, 07/01/05 A+ A2 3,100 3,319,666
===============================================================================
8,874,577
===============================================================================
|
FS-227
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
ARKANSAS-0.56%
Jefferson (County of) (Regional Medical
Center Project); Refunding &
Improvement Hospital Series 2001 RB
5.85%, 06/01/26 A -- $ 500 $ 524,200
-------------------------------------------------------------------------------
North Little Rock (City of) Health
Facilities Board (Baptist Health);
Health Care Series 2001 RB
5.70%, 07/01/22 A+ -- 500 522,385
-------------------------------------------------------------------------------
University of Arkansas (Fayetteville
Campus Facilities); University Series
2002 RB
5.00%, 12/01/27(b) -- Aaa 1,155 1,190,666
-------------------------------------------------------------------------------
Van Buren (County of); Refunding &
Construction Sales & Use Tax Series
2000 RB
5.60%, 12/01/25(b) -- Aaa 1,000 1,105,360
===============================================================================
3,342,611
===============================================================================
CALIFORNIA-2.41%
Abag Financing Authority for Non-Profit
Corps. (Lincoln Glen Manor for Sr.
Citizens); Series 2000 COP
(CEP-Cal-Mortgage)
6.10%, 02/15/25 BBB -- 1,000 1,057,630
-------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit
Corps. (Lytton Gardens Inc.); Series
1999 COP (CEP-Cal-Mortgage)
6.00%, 02/15/19 BBB -- 2,085 2,210,976
-------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit
Corps. (Old Fellows Home of
California); Series 1999 COP
(CEP-Cal-Mortgage)
6.00%, 08/15/24 BBB -- 1,000 1,065,080
-------------------------------------------------------------------------------
Big Bear Lake (City of); Refunding Water
Series 1996 RB
6.00%, 04/01/22(b) AAA Aaa 2,000 2,408,400
-------------------------------------------------------------------------------
California (State of) Department of
Water Resources; Power Supply Series
2002 A RB
5.38%, 05/01/22 BBB+ A3 1,000 1,045,470
-------------------------------------------------------------------------------
California (State of) Educational
Facilities Authority (Fresno Pacific
University); Series 2000 A RB
6.05%, 03/01/11 -- Baa3 1,350 1,520,964
-------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency
(California Toll Road Project); Sr.
Lien Series 1995 A RB
6.00%, 01/01/10(d)(e) AAA Aaa 400 475,236
-------------------------------------------------------------------------------
Los Angeles (City of) Community
Redevelopment Agency Parking System
(Cinerama Dome Public Parking); Series
2000 RB (LOC-Bank of America N.A.)
5.75%, 07/01/26(b) A -- 1,000 1,018,030
-------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
CALIFORNIA-(CONTINUED)
Los Angeles (County of); Series 2001 RB
5.15%, 02/12/06 (Acquired 03/29/01;
Cost $228,613)(f)(g) -- -- $ 227 $ 237,908
-------------------------------------------------------------------------------
Sacramento (City of) Cogeneration
Authority (Proctor & Gamble Project);
Series 1995 RB
7.00%, 07/01/04 BBB -- 500 511,265
-------------------------------------------------------------------------------
Sacramento City Financing Authority
(Convention Center Hotel); Sr. Series
1999 A RB
6.25%, 01/01/30(f) -- -- 750 747,277
-------------------------------------------------------------------------------
Whittier (City of) Utility Authority;
Water Series 2003 A RB
5.00%, 06/01/28(b) AAA Aaa 1,000 1,032,290
-------------------------------------------------------------------------------
Whittier (City of) Utility Authority;
Water Series 2003 A RB
5.00%, 06/01/33(b) AAA Aaa 1,000 1,029,230
===============================================================================
14,359,756
===============================================================================
COLORADO-3.18%
Aurora (City of); Public Improvement
Series 2000 COP
5.50%, 12/01/30(b) AAA Aaa 3,230 3,518,697
-------------------------------------------------------------------------------
Broomfield (City of); Refunding &
Improvement Sales & Use Tax Series
2002 A RB
5.00%, 12/01/31(b) -- Aaa 1,000 1,029,410
-------------------------------------------------------------------------------
Colorado (State of) E-470 Public Highway
Authority; Sr. Series 2000 A RB
5.75%, 09/01/35(b) AAA Aaa 1,000 1,133,730
-------------------------------------------------------------------------------
Colorado (State of) Educational &
Cultural Facilities Authority (Johnson
& Wales University Project); Series
2003 A RB (CEP-XL Capital Ltd.)
5.00%, 04/01/20 AAA Aaa 1,705 1,795,791
-------------------------------------------------------------------------------
Colorado (State of) Educational &
Cultural Facilities Authority (Student
Housing-University of Colorado
Foundation Project); Series 2002 RB
5.00%, 07/01/22(b) AAA Aaa 1,000 1,043,890
-------------------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (Exempla Inc.); Series 2002
A RB
5.50%, 01/01/23 A- A1 2,850 2,918,371
-------------------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (Exempla Inc.); Series 2002
A RB
5.63%, 01/01/33 A- A1 2,000 2,049,860
-------------------------------------------------------------------------------
University of Colorado Hospital
Authority Series 2001 A RB
5.60%, 11/15/31 -- A3 500 511,015
-------------------------------------------------------------------------------
|
FS-228
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
COLORADO-(CONTINUED)
El Paso (County of) School District No.
2 (Harrison); Unlimited Tax Series
2001 GO
5.25%, 12/01/26(b) -- Aaa $ 2,435 $ 2,564,031
-------------------------------------------------------------------------------
Meridian Metropolitan District;
Refunding & Improvement Unlimited Tax
Series 2001 B GO (CEP-Radian
Reinsurance Inc.)
5.00%, 12/01/25 AA -- 1,000 1,010,900
-------------------------------------------------------------------------------
Montrose (County of); Series 1994 COP
6.35%, 06/15/06 A- -- 300 307,989
-------------------------------------------------------------------------------
Northwest Parkway Public Highway
Authority; Sr. Series 2001 A RB
5.25%, 06/15/41(b) AAA Aaa 1,000 1,050,500
===============================================================================
18,934,184
===============================================================================
CONNECTICUT-3.51%
Brooklyn (City of); Unlimited Tax Series
1995 GO
5.50%, 05/01/05(d)(e) AAA Aaa 250 268,587
-------------------------------------------------------------------------------
Brooklyn (City of); Unlimited Tax Series
1995 GO
5.70%, 05/01/05(d)(e) AAA Aaa 250 269,202
-------------------------------------------------------------------------------
Connecticut (State of) (Bradley
International Airport); Special
Obligation Parking Series 2000 A RB
6.60%, 07/01/24(b)(c) A -- 1,250 1,344,075
-------------------------------------------------------------------------------
Connecticut (State of) (Transportation
Infrastructure); Special Obligation
Tax Series 1991 B RB
6.50%, 10/01/10 AA- A1 530 646,542
-------------------------------------------------------------------------------
Connecticut (State of) (Transportation
Infrastructure); Special Obligation
Tax Series 1991 B RB
6.50%, 10/01/12 AA- A1 1,500 1,853,760
-------------------------------------------------------------------------------
Connecticut (State of) Area Cooperative
Educational Services (Staff
Development/Administration
Facilities); Unlimited Tax Series 1999
GO
5.63%, 07/15/19(b) A -- 1,060 1,134,380
-------------------------------------------------------------------------------
Connecticut (State of) Health &
Educational Facilities Authority
(Bridgeport Hospital); Series 1992 A
RB
6.63%, 07/01/18(b) AAA Aaa 500 511,465
-------------------------------------------------------------------------------
Connecticut (State of) Health &
Educational Facilities Authority
(Danbury Hospital); Series 1999 G RB
5.63%, 07/01/25(b) AAA Aaa 250 269,692
-------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
CONNECTICUT-(CONTINUED)
Connecticut (State of) Health &
Educational Facilities Authority
(Danbury Hospital); Unrefunded Series
1991 E RB
6.50%, 07/01/14(b) AAA Aaa $ 110 $ 110,316
-------------------------------------------------------------------------------
Connecticut (State of) Health &
Educational Facilities Authority
(Loomis Chaffee School); Series 2001 D
RB
5.25%, 07/01/31 -- A2 1,000 1,048,410
-------------------------------------------------------------------------------
Connecticut (State of) Health &
Educational Facilities Authority
(Stamford Hospital); Series 1996 F RB
5.40%, 07/01/09(b) AAA Aaa 1,000 1,093,360
-------------------------------------------------------------------------------
Connecticut (State of) Health &
Educational Facilities Authority
(William W. Backus Hospital); Series
1997 D RB
5.75%, 07/01/27(b) AAA -- 1,000 1,089,090
-------------------------------------------------------------------------------
Connecticut (State of) Health &
Educational Facilities Authority
(Windham Community Memorial Hospital);
Series 1996 C RB
5.75%, 07/01/11(b) A -- 670 729,241
-------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Group Home Mortgage);
Special Obligation Series 2000 GH-5 RB
5.85%, 06/15/30(b) AAA Aaa 500 534,230
-------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance
Program); Series 1996 C-1 RB
6.30%, 11/15/17 AAA Aaa 1,270 1,339,304
-------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance
Program); Series 1996 C-2 RB
6.25%, 11/15/18 AAA Aaa 750 790,125
-------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance
Program); Series 1996 G RB
6.00%, 11/15/27(c) AAA Aaa 1,000 1,044,870
-------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance
Program); Series 1998 C RB
5.50%, 11/15/35(c) AAA Aaa 1,775 1,832,119
-------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance
Program); Series 1998 D-2 RB
5.45%, 11/15/24(c) AAA Aaa 55 56,524
-------------------------------------------------------------------------------
|
FS-229
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
CONNECTICUT-(CONTINUED)
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance
Program); Series 2001 A-1 RB
5.25%, 11/15/28 AAA Aaa $ 550 $ 560,884
-------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance
Program); Sub- Series 1998 E-1 RB
5.13%, 05/15/21 AAA Aaa 445 453,540
-------------------------------------------------------------------------------
Manchester (City of) Eighth Utilities
District; Unlimited Tax Series 1991 GO
6.75%, 08/15/06 -- Aa3 180 201,802
-------------------------------------------------------------------------------
Mansfield (City of); Unlimited Tax
Series 1990 GO
6.00%, 06/15/07 -- Aa3 100 113,052
-------------------------------------------------------------------------------
Mansfield (City of); Unlimited Tax
Series 1990 GO
6.00%, 06/15/08 -- Aa3 100 115,321
-------------------------------------------------------------------------------
Mansfield (City of); Unlimited Tax
Series 1990 GO
6.00%, 06/15/09 -- Aa3 100 117,464
-------------------------------------------------------------------------------
New Britain (City of); Unlimited Tax
Series 1992 GO
6.00%, 02/01/11(b) AAA Aaa 400 476,288
-------------------------------------------------------------------------------
North Canaan (City of); Unlimited Tax
Series 1991 GO
6.50%, 01/15/08 -- A3 125 145,007
-------------------------------------------------------------------------------
North Canaan (City of); Unlimited Tax
Series 1991 GO
6.50%, 01/15/09 -- A3 125 147,682
-------------------------------------------------------------------------------
North Canaan (City of); Unlimited Tax
Series 1991 GO
6.50%, 01/15/10 -- A3 125 149,795
-------------------------------------------------------------------------------
North Canaan (City of); Unlimited Tax
Series 1991 GO
6.50%, 01/15/11 -- A3 125 152,776
-------------------------------------------------------------------------------
Somers (City of); Unlimited Tax Series
1990 GO
6.00%, 12/01/10 -- A1 190 226,484
-------------------------------------------------------------------------------
University of Connecticut; Student Fee
Series 2000 A RB
6.00%, 11/15/10(d)(e) NRR NRR 1,325 1,605,251
-------------------------------------------------------------------------------
Westbrook (City of); Unlimited Tax
Series 1992 GO
6.40%, 03/15/10(b) AAA Aaa 380 458,500
===============================================================================
20,889,138
===============================================================================
DELAWARE-0.05%
Delaware (State of) Economic Development
Authority (Osteopathic Hospital
Association); Series 1993 A RB
6.75%, 01/01/13(d) NRR Aaa 250 306,987
===============================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
DISTRICT OF COLUMBIA-0.57%
District of Columbia (George Washington
University); Series 2001 A RB
5.13%, 09/15/31(b) AAA Aaa $ 2,000 $ 2,053,780
-------------------------------------------------------------------------------
District of Columbia (Gonzaga College
High School); Series 1999 RB
5.38%, 07/01/19(b) AAA Aaa 1,055 1,143,040
-------------------------------------------------------------------------------
District of Columbia (Mandarin Oriental
Hotel); Tax Increment Series 2002 RB
5.25%, 07/01/22(b) AAA Aaa 200 212,700
===============================================================================
3,409,520
===============================================================================
FLORIDA-1.55%
Crossings at Fleming Island Community
Development District; Refunding
Special Assessment Series 2000 B RB
5.80%, 05/01/16(b) AAA Aaa 1,000 1,164,690
-------------------------------------------------------------------------------
Escambia (County of) (Champion
International Corp. Project); Series
1994 PCR
6.90%, 08/01/22(c) BBB Baa2 1,125 1,169,786
-------------------------------------------------------------------------------
Jacksonville (City of) Electric
Authority; Water & Sewer Series 2000 A
RB
5.30%, 10/01/30 A+ Aa3 1,000 1,026,750
-------------------------------------------------------------------------------
Jacksonville (City of) Health Facilities
Authority (Ascension Health Credit
Group); Series 2002 A RB
5.25%, 11/15/32 AA Aa2 1,500 1,528,605
-------------------------------------------------------------------------------
Miami-Dade (County of) (Miami
International Airport); Aviation
Series 2000 B RB
5.75%, 10/01/29(b) AAA Aaa 2,000 2,250,520
-------------------------------------------------------------------------------
Orlando (City of) Utilities Commission;
Refunding Water & Electric Series 2002
C RB
5.00%, 10/01/27 AA Aa1 1,000 1,032,570
-------------------------------------------------------------------------------
Sunrise (City of) Utility System;
Refunding Series 1998 RB
5.00%, 10/01/28(b) AAA Aaa 1,000 1,046,600
===============================================================================
9,219,521
===============================================================================
GEORGIA-0.44%
Athens-Clarke (County of) Unified
Government Development Authority
(Catholic Health East); Series 2002 RB
5.50%, 11/15/32 A A2 500 510,425
-------------------------------------------------------------------------------
Gwinnett (County of) Water & Sewer
Authority; Series 2002 RB
5.25%, 08/01/24 AAA Aaa 2,000 2,136,900
===============================================================================
2,647,325
===============================================================================
|
FS-230
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
ILLINOIS-6.42%
Bellwood (City of); Unlimited Tax Series
2002 GO
5.25%, 12/01/25(b) -- Aaa $ 1,000 $ 1,056,300
-------------------------------------------------------------------------------
Chicago (City of) (Cottage View Terrace
Apartments); FHA/GNMA Collateralized
Multi-Family Housing Series 2000 A RB
(CEP-GNMA)
6.13%, 02/20/42(c) AAA -- 1,575 1,660,239
-------------------------------------------------------------------------------
Chicago (City of) Parks District;
Unlimited Tax Series 2001 D GO
5.00%, 01/01/29(b) AAA Aaa 3,000 3,063,150
-------------------------------------------------------------------------------
Chicago (City of); Project & Refunding
Unlimited Tax Series 2000 C GO
5.50%, 01/01/40(b) AAA Aaa 2,750 2,973,217
-------------------------------------------------------------------------------
Chicago (City of); Project & Refunding
Unlimited Tax Series 2001 A GO
5.25%, 01/01/33(b) AAA Aaa 3,940 4,123,959
-------------------------------------------------------------------------------
Chicago (City of); Refunding Unlimited
Tax Series 1993 B GO
5.13%, 01/01/22(b) AAA Aaa 3,065 3,326,322
-------------------------------------------------------------------------------
Chicago (City of); Special
Transportation Series 2001 RB
5.25%, 01/01/31(b) AAA Aaa 1,000 1,048,050
-------------------------------------------------------------------------------
Freeport (City of); Sewer Improvement
Unlimited Tax Series 2000 GO
6.00%, 12/01/29(b) AAA Aaa 1,000 1,153,840
-------------------------------------------------------------------------------
Illinois (State of) Department of
Central Management Services; Series
1999 COF
5.85%, 07/01/19(b) AAA Aaa 1,750 1,987,720
-------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (Adventist Health Systems
Project); Series 1997 A RB
6.00%, 11/15/11(b) AAA Aaa 2,500 2,957,075
-------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (Catholic Charities Housing
Development); Series 1995 RB (CEP-XL
Capital Ltd.)
6.35%, 01/01/25(f) -- -- 1,500 1,413,990
-------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (City of East St. Louis);
Refunding Series 2003 RB (CEP-XL
Capital Ltd.)
5.00%, 11/15/13 AAA Aaa 1,050 1,173,900
-------------------------------------------------------------------------------
Illinois (State of) Educational
Facilities Authority (Northwestern
University); Adjustable Rate Medium
Term Series 1997 RB
5.25%, 11/01/14(e) AA+ Aa1 1,000 1,127,790
-------------------------------------------------------------------------------
Illinois (State of) Educational
Facilities Authority (Robert Morris
College); Series 2000 RB
5.75%, 06/01/20(b) -- Aaa 1,305 1,470,944
-------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
ILLINOIS-(CONTINUED)
Illinois (State of) Educational
Facilities Authority (Robert Morris
College); Series 2000 RB
5.80%, 06/01/30(b) -- Aaa $ 1,000 $ 1,111,510
-------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Blessing Hospital); Series
1999 A RB
6.00%, 11/15/19(b) AAA Aaa 1,000 1,148,920
-------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Evangelical Hospital
Corp.); Refunding Series 1992 A RB
6.25%, 04/15/22(d) NRR Aaa 1,000 1,187,830
-------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Evangelical Hospital
Corp.); Series 1992 C RB
6.25%, 04/15/22(d) NRR Aa1 1,150 1,366,004
-------------------------------------------------------------------------------
Metropolitan Pier & Exposition Authority
(McCormick Place Expansion); Dedicated
State Tax Series 2002 A RB
6.02%, 06/15/30(b)(h) AAA Aaa 1,000 251,160
-------------------------------------------------------------------------------
Metropolitan Pier & Exposition Authority
(McCormick Place Expansion); Dedicated
State Tax Series 2002 A RB
5.25%, 06/15/42(b) AAA Aaa 1,000 1,048,940
-------------------------------------------------------------------------------
Rockford (City of) School District No.
205; Unlimited Tax Series 2001 GO
5.00%, 02/01/17(b) -- Aaa 500 549,745
-------------------------------------------------------------------------------
Tazewell (County of) Community High
School District No. 303 (Pekin);
Unlimited Tax Series 1996 GO
5.63%, 01/01/14(b) AAA Aaa 1,435 1,570,148
-------------------------------------------------------------------------------
Will (County of) School District No. 122
(New Lenox);Unlimited Tax Series 2000
A GO
6.50%, 11/01/14(d) NRR Aaa 1,165 1,424,877
===============================================================================
38,195,630
===============================================================================
INDIANA-5.69%
DeKalb (County of) Indiana Redevelopment
Authority (Mini-Mill Local Public
Improvement); Series 1995 A RB
6.50%, 01/15/14 A- -- 900 946,764
-------------------------------------------------------------------------------
East Allen (City of) Multi-School
Building Corp.; First Mortgage Series
2000 RB
5.75%, 01/15/10(d)(e) AAA Aaa 735 857,392
-------------------------------------------------------------------------------
Hamilton Southeastern (City of)
Cumberland Campus School Building
Corp.; First Mortgage Series 2001 RB
5.13%, 01/15/23(b) AAA Aaa 1,000 1,042,700
-------------------------------------------------------------------------------
|
FS-231
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
INDIANA-(CONTINUED)
Hancock (County of) & Mount Vernon (City
of) Multi-School Building Corp.; First
Mortgage Series 2001 RB (CEP-State Aid
Withholding)
5.45%, 07/15/22 AA- -- $ 1,000 $ 1,069,310
-------------------------------------------------------------------------------
Indiana (State of) Bond Bank; Special
Program Series 2000 A RB
5.90%, 02/01/14(b) AAA Aaa 1,000 1,162,140
-------------------------------------------------------------------------------
Indiana (State of) Housing Finance
Authority; Single Family Mortgage
Series 1995 B-1 RB
6.15%, 07/01/17 -- Aaa 55 56,880
-------------------------------------------------------------------------------
Indiana (State of) Transportation
Finance Authority; Highway Series 2000
RB
5.38%, 12/01/25 AA- Aa2 2,000 2,110,140
-------------------------------------------------------------------------------
Indiana (State of) Transportation
Finance Authority; Unrefunded Airport
Facilities Lease Series 1992 A RB
6.25%, 11/01/16 AA- A1 105 106,469
-------------------------------------------------------------------------------
Indianapolis (City of) (Lake Nora & Fox
Club Project); Multifamily Series 1999
A RB
5.90%, 10/01/19(b) -- Aaa 1,795 1,805,591
-------------------------------------------------------------------------------
Indianapolis (City of) Local Public
Improvement Bond Bank; Waterworks
Project Series 2002 A RB
5.25%, 07/01/33(b) AAA Aaa 1,000 1,049,840
-------------------------------------------------------------------------------
Indianapolis (City of) Thermal Energy
System; Series 2001 A RB
5.00%, 10/01/11(b) AAA Aaa 4,000 4,502,800
-------------------------------------------------------------------------------
Lafayette (City of); Sewer Series 2002
RB
5.15%, 07/01/24(b) AAA Aaa 1,000 1,048,340
-------------------------------------------------------------------------------
Northern Wells (City of) Community
School Building Corp.; First Mortgage
Series 2002 RB
5.40%, 07/15/23(b) AAA Aaa 500 537,500
-------------------------------------------------------------------------------
Petersburg (City of) (Indiana Power &
Lighting Project); Refunding Series
1991 PCR
5.75%, 08/01/21 BB+ Baa2 4,000 4,125,600
-------------------------------------------------------------------------------
Petersburg (City of) (Indiana Power &
Lighting Project); Refunding Series
1993 B PCR
5.40%, 08/01/17(b) AAA Aaa 9,850 11,254,906
-------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
INDIANA-(CONTINUED)
St. Joseph (County of) Hospital
Authority (Memorial Health System);
Health System Series 2000 RB
5.63%, 08/15/33(b) AAA Aaa $ 1,000 $ 1,073,370
-------------------------------------------------------------------------------
Wa-Nee Middle School Building Corp.;
First Mortgage Unlimited Tax Series
2001 GO
5.50%, 01/15/20(b) AAA Aaa 1,000 1,104,570
===============================================================================
33,854,312
===============================================================================
KANSAS-0.41%
Newton (City of) (Newton Healthcare
Corp.); Hospital Series 1994 A RB
7.38%, 11/15/04(d)(e) NRR NRR 250 266,935
-------------------------------------------------------------------------------
Overland Park (City of) Development
Corp. (First Tier-Overland Park
Project); Series 2001 A RB
7.38%, 01/01/32(f) -- -- 2,135 2,152,849
===============================================================================
2,419,784
===============================================================================
KENTUCKY-0.74%
Jefferson (County of) (Beverly
Enterprises Project); Refunding Health
Facilities Series 1999 RB
5.88%, 05/01/08(f) -- -- 595 593,370
-------------------------------------------------------------------------------
Mount Sterling (City of) (Kentucky
League Cities); Lease Funding Series
1993 A RB
6.15%, 03/01/13 -- Aa3 3,000 3,041,550
-------------------------------------------------------------------------------
Russell (City of) (Bon Secours-St.
Francis Medical Center Inc.); Series
2002 A RB
5.63%, 11/15/30 A- A3 750 764,235
===============================================================================
4,399,155
===============================================================================
LOUISIANA-6.69%
Lafayette (City of); Public Improvement
Sales Tax Series 2000 A RB
5.50%, 03/01/23(b) AAA Aaa 2,360 2,594,466
-------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environment Facilities Community
Development Authority (Bosier Parish
Community College); Series 2002 RB
5.13%, 12/01/24(b) AAA Aaa 1,000 1,045,890
-------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority (Parking
Facilities Corp. Garage Project);
Series 2001 A RB
5.20%, 10/01/20(b) AAA Aaa 1,760 1,868,222
-------------------------------------------------------------------------------
|
FS-232
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
LOUISIANA-(CONTINUED)
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority; Capital
Projects & Equipment Acquisitions
Series 2000 A RB
6.30%, 07/01/30(b) AAA Aaa $ 4,000 $ 5,004,680
-------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority; Capital
Projects & Equipment Acquisitions
Series 2000 RB
6.55%, 09/01/25(b) A -- 12,040 13,674,430
-------------------------------------------------------------------------------
Louisiana (State of) Public Facilities
Authority (Ochsner Clinic Foundation
Project); Series 2002 B RB
5.50%, 05/15/32 -- A3 4,750 4,835,928
-------------------------------------------------------------------------------
Louisiana (State of) Public Facilities
Authority (Tulane University); Series
1996 RB
6.00%, 10/01/06(d)(e) AAA Aaa 2,500 2,814,750
-------------------------------------------------------------------------------
Louisiana (State of) Public Facilities
Authority (Tulane University); Series
2002 A RB
5.13%, 07/01/27(b) AAA Aaa 2,100 2,176,062
-------------------------------------------------------------------------------
Ouachita (Parish of) Hospital Service
District No. 1 (Glenwood Regional
Medical Center); Refunding Series 1996
RB
5.70%, 05/15/16(b) AAA Aaa 1,000 1,114,670
-------------------------------------------------------------------------------
St. John Baptist (Parish of) Sales Tax
District; Series 1987 RB
7.60%, 01/01/08(d) NRR NRR 500 601,160
-------------------------------------------------------------------------------
St. John Baptist (Parish of) Sales Tax
District; Series 1987 RB
7.60%, 01/01/09(d) NRR NRR 500 616,420
-------------------------------------------------------------------------------
Tangipahoa (Parish of) Hospital Service
District No. 1 (North Oaks Medical
Center Project); Refunding Hospital
Series 2003 A RB
5.00%, 02/01/25 A -- 1,500 1,488,435
-------------------------------------------------------------------------------
Tangipahoa (Parish of) Hospital Service
District No. 1 (North Oaks Medical
Center Project); Refunding Hospital
Series 2003 A RB
5.00%, 02/01/30 A -- 1,000 977,240
-------------------------------------------------------------------------------
West Feliciana (Parish of) (Gulf States
Utilities); Series 1992 A PCR
7.50%, 05/01/15 BB+ -- 1,000 1,021,940
===============================================================================
39,834,293
===============================================================================
MAINE-0.26%
Maine (State of) Housing Authority;
Mortgage Series 1999 E-1 RB
5.85%, 11/15/20 AA+ Aa1 1,500 1,572,390
===============================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
MARYLAND-0.17%
Maryland (State of) Health & Higher
Educational Facilities Authority
(University of Maryland Medical
System); Series 2001 RB
5.25%, 07/01/28 A A3 $ 1,000 $ 1,020,860
===============================================================================
MASSACHUSETTS-2.73%
Boston (City of) Water & Sewer
Commission; Sr. Series 1993 A RB
5.25%, 11/01/19(b) AAA Aaa 5,385 6,037,716
-------------------------------------------------------------------------------
Massachusetts (State of); Consumer Lien
Unlimited Tax Series 2000 A GO
5.75%, 02/01/09 AA- Aa2 785 898,472
-------------------------------------------------------------------------------
Massachusetts (State of) Development
Finance Agency (Boston University);
Series 1999 P RB
6.00%, 05/15/59 BBB+ A3 4,500 5,060,520
-------------------------------------------------------------------------------
Massachusetts (State of) Development
Finance Agency (College Issue); Series
2003 B RB (CEP-XL Capital Ltd.)
5.25%, 07/01/33 AAA Aaa 1,000 1,042,930
-------------------------------------------------------------------------------
Massachusetts (State of) Health &
Educational Facilities Authority
(Winchester Hospital); Series 1994 D
RB
5.80%, 07/01/09(b) AAA -- 1,000 1,037,000
-------------------------------------------------------------------------------
Massachusetts (State of) Housing Finance
Agency; Single Family Housing Series
1994 RB
6.60%, 12/01/26(c) AA Aa3 615 632,890
-------------------------------------------------------------------------------
Massachusetts (State of) Transportation
Authority; Sales Tax Series 2002 A RB
5.00%, 07/01/32 AAA Aa2 1,500 1,538,235
===============================================================================
16,247,763
===============================================================================
MICHIGAN-5.52%
Allegan (City of) Public School
District; Unlimited Tax Series 2000 GO
5.75%, 05/01/30(b) AAA Aaa 500 558,400
-------------------------------------------------------------------------------
Almont (City of) Community Schools;
Refunding School Building & Site
Unlimited Tax Series 2002 GO
5.00%, 05/01/27 AA+ Aa1 1,000 1,029,910
-------------------------------------------------------------------------------
Bullock Creek School District; Unlimited
Tax Series 2000 GO
5.50%, 05/01/22 AA+ Aa1 1,000 1,102,960
-------------------------------------------------------------------------------
Caledonia (City of) Community Schools;
Unlimited Tax Series 2000 GO
5.50%, 05/01/23(b) AAA Aaa 1,000 1,100,030
-------------------------------------------------------------------------------
|
FS-233
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
MICHIGAN-(CONTINUED)
Chippewa Valley Schools; Refunding
Unlimited Tax Series 2002 GO
5.13%, 05/01/27 AA+ Aa1 $ 1,000 $ 1,033,520
-------------------------------------------------------------------------------
Detroit (City of) Water Supply System;
Prerefunded Sr. Lien Series 2001 A RB
5.25%, 07/01/11(d)(e) AAA Aaa 1,655 1,905,418
-------------------------------------------------------------------------------
Detroit (City of) Water Supply System;
Sr. Lien Series 2001 A RB
5.00%, 07/01/30(b) AAA Aaa 5,000 5,136,800
-------------------------------------------------------------------------------
Detroit (City of) Water Supply System;
Unrefunded Sr. Lien Series 2001 A RB
5.25%, 07/01/33(b) AAA Aaa 1,845 1,933,652
-------------------------------------------------------------------------------
Huron (City of) School District;
Unlimited Tax Series 2001 GO
5.38%, 05/01/26(b) AAA Aaa 250 265,435
-------------------------------------------------------------------------------
Jackson (City of) Brownfield
Redevelopment Authority; Series 2002
TAN
5.13%, 06/01/24(b) AAA Aaa 1,000 1,049,310
-------------------------------------------------------------------------------
Lake Orion (City of) Community School
District; Unlimited Tax Series 2000 A
GO
6.00%, 05/01/10(d)(e) AAA Aaa 500 594,170
-------------------------------------------------------------------------------
Lake Orion (City of) Community School
District; Refunding Unlimited Tax
Series 1994 GO
7.00%, 05/01/05(d)(e) AAA Aaa 2,500 2,707,325
-------------------------------------------------------------------------------
Lincoln Park (City of) School District;
Unlimited Tax Series 1996 GO
6.00%, 05/01/06(d)(e) AAA Aaa 1,210 1,341,539
-------------------------------------------------------------------------------
Michigan (State of) Hospital Finance
Authority (Ascension Health Credit);
Series 1999 A RB
5.50%, 11/15/07(b) AAA Aaa 3,000 3,366,420
-------------------------------------------------------------------------------
Michigan (State of) Municipal Bond
Authority (Drinking Water Revolving
Fund); Series 2000 RB
5.50%, 10/01/10(d)(e) AAA Aaa 1,000 1,177,920
-------------------------------------------------------------------------------
Michigan (State of) Public Water Agency
(Combustion Turbine No. 1); Series
2001 A RB
5.25%, 01/01/24(b) AAA Aaa 2,500 2,664,600
-------------------------------------------------------------------------------
Newaygo (City of) Public Schools
Unlimited Tax Series 2000 GO
5.50%, 05/01/21 AA+ Aa1 1,000 1,104,720
-------------------------------------------------------------------------------
Ypsilanti (City of) School District;
Refunding Unlimited Tax Series 1996 GO
5.75%, 05/01/07(d)(e) AAA Aaa 4,275 4,804,288
===============================================================================
32,876,417
===============================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
MINNESOTA-0.45%
Minneapolis & St. Paul (Cities of)
Metropolitan Airports Commission
(Northwest Airlines Inc.); Special
Facilities Series 2001 A RB
7.00%, 04/01/25(c)(f) -- -- $ 1,500 $ 1,484,145
-------------------------------------------------------------------------------
Minneapolis (City of); Parking Ramp
Unlimited Tax Series 2000 A GO
5.90%, 12/01/20 AAA Aa1 1,000 1,168,990
===============================================================================
2,653,135
===============================================================================
MISSISSIPPI-1.03%
Mississippi (State of) Higher Education
Assistance Corp.; Sub- Series 1994 C
RB (CEP-Gtd Std LNs)
7.50%, 09/01/09(c) -- A2 5,000 5,080,800
-------------------------------------------------------------------------------
Mississippi (State of) Hospital
Equipment & Facilities Authority
(Forrest County General Hospital);
Series 2000 RB
5.50%, 01/01/27(b) -- Aaa 1,000 1,079,720
===============================================================================
6,160,520
===============================================================================
MISSOURI-1.03%
Kansas City (City of) Industrial
Development Authority (General Motors
Corp. Project); Series 1984 PCR
6.05%, 04/01/06 BBB Baa1 170 170,585
-------------------------------------------------------------------------------
Missouri (State of) Environmental
Improvement & Energy Resources
Authority (State Revolving Fund);
Prerefunded Water Series 1995 C PCR
5.85%, 01/01/05(d)(e) -- Aaa 730 768,748
-------------------------------------------------------------------------------
Missouri (State of) Environmental
Improvement & Energy Resources
Authority (State Revolving Fund);
Unrefunded Water Series 1995 C PCR
5.85%, 01/01/10 -- Aaa 270 283,241
-------------------------------------------------------------------------------
Missouri (State of) Health & Educational
Facilities Authority (Washington
University Project); Educational
Facilities Series 2001 A RB
5.13%, 06/15/41 AA+ Aa1 4,000 4,127,160
-------------------------------------------------------------------------------
Missouri (State of) Housing Development
Commission; (Multifamily Housing)
Series 2001 RB (CEP-FHA)
5.38%, 12/01/18 AA -- 760 802,119
===============================================================================
6,151,853
===============================================================================
|
FS-234
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
NEBRASKA-0.18%
Omaha (City of) Public Power District;
Electric Series 2002 A RB
5.20%, 02/01/22 AA Aa2 $ 1,000 $ 1,051,400
===============================================================================
NEVADA-2.75%
Boulder (City of) (Boulder City Hospital
Inc. Project); Refunding Hospital
Series 1998 RB
5.85%, 01/01/22(f) -- -- 500 428,130
-------------------------------------------------------------------------------
Clark (County of) (Nevada Power Co.
Project); Refunding Series 1992 C IDR
7.20%, 10/01/22 BB Ba2 1,500 1,532,550
-------------------------------------------------------------------------------
Clark (County of) Bond Bank; Limited Tax
Series 2001 GO
5.00%, 06/01/31(b) AAA Aaa 5,000 5,132,250
-------------------------------------------------------------------------------
Clark (County of); Airport Sub. Lien
Series 2001 B RB
5.13%, 07/01/21(b) AAA Aaa 2,250 2,360,790
-------------------------------------------------------------------------------
Clark (County of); Airport Lien Sub-
Series 2001 B RB
5.25%, 07/01/34(b) AAA Aaa 1,500 1,555,800
-------------------------------------------------------------------------------
Humboldt (County of) (Sierra Pacific
Project); Refunding Series 1987 PCR
6.55%, 10/01/13(b) AAA Aaa 3,000 3,055,410
-------------------------------------------------------------------------------
Reno (City of) Redevelopment Agency;
Refunding Sub-Series 1995 A TAN
6.00%, 06/01/10 -- Baa3 1,185 1,243,729
-------------------------------------------------------------------------------
Truckee Meadows Water Authority; Water
Series 2001 A RB
5.13%, 07/01/30(b) AAA Aaa 1,000 1,035,140
===============================================================================
16,343,799
===============================================================================
NEW JERSEY-2.18%
New Jersey (State of) Economic
Development Authority (Continental
Airlines, Inc. Project); Special
Facility Series 1999 RB
6.40%, 09/15/23(c) B Caa2 1,000 906,310
-------------------------------------------------------------------------------
New Jersey (State of) Economic
Development Authority (Continental
Airlines, Inc. Project); Special
Facility Series 1999 RB
6.25%, 09/15/29(c) B Caa2 4,750 4,197,480
-------------------------------------------------------------------------------
New Jersey (State of) Economic
Development Authority (Continental
Airlines, Inc. Project); Special
Facilities Series 2000 RB
7.00%, 11/15/30(c) B Caa2 4,000 3,834,200
-------------------------------------------------------------------------------
New Jersey (State of) Health Care
Facilities Financing Authority
(Raritan Bay Medical Center); Series
1994 RB
7.25%, 07/01/27(f) -- -- 250 256,610
-------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
NEW JERSEY-(CONTINUED)
New Jersey (State of) Health Care
Facilities Financing Authority (St.
Peters University Hospital); Series
2000 A RB
6.88%, 07/01/20 BBB Baa1 $ 500 $ 538,070
-------------------------------------------------------------------------------
New Jersey (State of) Tobacco Settlement
Financing Corp. Asset Backed Series
2002 RB
5.38%, 06/01/18 BBB Baa2 1,500 1,306,125
-------------------------------------------------------------------------------
New Jersey (State of) Transportation
Trust Fund Authority; Transportation
System Series 1999 A RB
5.50%, 06/15/10 AA- Aa3 1,670 1,914,338
===============================================================================
12,953,133
===============================================================================
NEW MEXICO-1.68%
Las Cruces (City of) South Central Solid
Waste Authority; Environmental
Services Series 1995 RB
5.65%, 06/01/09 -- A3 575 599,512
-------------------------------------------------------------------------------
Los Alamos (County of) Incorporated
Utility System; Series 1994 A RB
6.00%, 07/01/09(b) AAA Aaa 5,000 5,194,350
-------------------------------------------------------------------------------
Los Alamos (County of) Incorporated
Utility System; Series 1994 A RB
6.00%, 07/01/15(b) AAA Aaa 2,000 2,077,740
-------------------------------------------------------------------------------
Santa Fe (City of); Series 1994 RB
6.25%, 06/01/04(d)(e) AAA Aaa 2,100 2,136,330
===============================================================================
10,007,932
===============================================================================
NEW YORK-4.66%
Metropolitan Transportation Authority;
Dedicated Tax Fund Series 2000 A RB
5.88%, 04/01/10(d)(e) AAA Aaa 1,500 1,773,150
-------------------------------------------------------------------------------
Metropolitan Transportation Authority;
Refunding Series 2002 A RB
5.13%, 01/01/29 AA- A3 1,000 1,029,200
-------------------------------------------------------------------------------
New York (City of) Municipal Water
Finance Authority; Prerefunded Water &
Sewer System Series 2000 B RB
6.00%, 06/15/10(d)(e) NRR NRR 935 1,125,198
-------------------------------------------------------------------------------
New York (City of) Municipal Water
Finance Authority; Unrefunded Water &
Sewer System Series 2000 B RB
6.00%, 06/15/33 AA Aa2 565 665,745
-------------------------------------------------------------------------------
New York (City of) Municipal Water
Finance Authority; Water & Sewer
System Series 1996 A RB
5.50%, 06/15/24(b) AAA Aaa 1,000 1,076,880
-------------------------------------------------------------------------------
|
FS-235
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
NEW YORK-(CONTINUED)
New York (City of) Municipal Water
Finance Authority; Water & Sewer
System Series 1997 B RB
5.75%, 06/15/29 AA Aa2 $ 3,850 $ 4,258,909
-------------------------------------------------------------------------------
New York (City of); Prerefunded
Unlimited Tax Series 1994 B1 GO
7.38%, 08/15/04(d)(e) NRR Aaa 500 521,935
-------------------------------------------------------------------------------
New York (City of); Prerefunded
Unlimited Tax Series 1996 A GO
6.25%, 08/01/06(d)(e) NRR NRR 2,540 2,871,368
-------------------------------------------------------------------------------
New York (City of); Unrefunded Unlimited
Tax Series 1991 B GO
7.00%, 02/01/18(d) AAA Aaa 40 40,109
-------------------------------------------------------------------------------
New York (City of); Unrefunded Unlimited
Tax Series 1996 A GO
6.25%, 08/01/17 A A2 495 550,381
-------------------------------------------------------------------------------
New York (State of) Dormitory Authority
(State University Educational
Facilities); Series 1995 A RB
6.50%, 05/15/06 AA- A3 1,000 1,102,150
-------------------------------------------------------------------------------
New York (State of) Environmental
Facilities Corp. (State Water
Revolving Project); Unrefunded Series
1991 E PCR
6.88%, 06/15/10 AAA Aaa 1,100 1,103,993
-------------------------------------------------------------------------------
Port Authority of New York & New Jersey;
Consolidated Ninety-third series 1994
RB
6.13%, 06/01/94 AA- A1 5,250 6,153,683
-------------------------------------------------------------------------------
Triborough Bridge & Tunnel Authority;
Series 1992 Y RB
5.50%, 01/01/17(d) AAA NRR 2,900 3,371,830
-------------------------------------------------------------------------------
Triborough Bridge & Tunnel Authority;
Series 1993 B RB
5.00%, 01/01/20(d) AAA NRR 1,935 2,112,188
===============================================================================
27,756,719
===============================================================================
NORTH CAROLINA-0.95%
North Carolina (State of) Eastern
Municipal Power Agency; Power System
Series 1993 A RB
6.13%, 01/01/10(d) AAA Aaa 1,500 1,778,790
-------------------------------------------------------------------------------
North Carolina (State of) Housing
Finance Agency; Single Family Series
1996 II RB (CEP-FHA)
6.20%, 03/01/16 AA Aa2 320 334,275
-------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
NORTH CAROLINA-(CONTINUED)
North Carolina (State of) Municipal
Power Agency (No. 1 Catawba Electric
Project); Refunded Series 1990 RB
6.50%, 01/01/10(d) AAA BAA1 $ 260 $ 304,582
-------------------------------------------------------------------------------
North Carolina (State of) Municipal
Power Agency (No. 1 Catawba Electric
Project); Refunding Series 1992 RB
7.25%, 01/01/07 BBB+ Baa1 2,890 3,263,128
===============================================================================
5,680,775
===============================================================================
OHIO-2.81%
Cleveland (City of); Refunding First
Series Waterworks Series 1993 G RB
5.50%, 01/01/21(b) AAA Aaa 3,300 3,824,205
-------------------------------------------------------------------------------
Cuyahoga (County of); Refunding Series
2003 A RB
5.50%, 01/01/29 A A1 2,000 2,083,380
-------------------------------------------------------------------------------
Fairfield (City of) School District;
Unlimited Tax Series 1995 GO
6.10%, 12/01/05(d)(e) AAA Aaa 1,000 1,087,030
-------------------------------------------------------------------------------
Findlay (City of); Limited Tax Series
1996 GO
5.88%, 07/01/17 AA- Aa3 1,000 1,106,950
-------------------------------------------------------------------------------
Montgomery (County of) (Grandview
Hospital & Medical Center); Refunding
Hospital Series 1997 RB
5.50%, 12/01/09(d)(e) NRR NRR 1,000 1,138,390
-------------------------------------------------------------------------------
Ohio (State of) Department of
Transportation (Panhandle Rail Line
Project); Series 1992 COP
6.50%, 04/15/12(b) AAA Aaa 1,035 1,046,209
-------------------------------------------------------------------------------
Ohio (State of) Water Development
Authority (Pollution
Control-Cleveland); Refunding
Pollution Control Series 1999 A PCR
5.58%, 06/15/04(c)(e) BB+ Baa3 3,000 3,034,890
-------------------------------------------------------------------------------
Plain (City of) Local School District;
Prerefunded Unlimited Tax Series 2000
GO
6.00%, 06/01/11(d)(e) NRR Aaa 410 491,520
-------------------------------------------------------------------------------
Plain (City of) Local School District;
Unrefunded Unlimited Tax Series 2000
GO
6.00%, 12/01/25(b) -- Aaa 90 104,856
-------------------------------------------------------------------------------
Stark (County of) Lake Ohio Local School
District; Unlimited Tax Series 2000 GO
5.75%, 12/01/26(b) AAA Aaa 2,500 2,824,175
===============================================================================
16,741,605
===============================================================================
|
FS-236
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
OKLAHOMA-1.93%
Jenkins (City of) Aquarium Authority;
First Mortgage Series 2000 RB
6.00%, 07/01/20(b) -- Aaa $ 800 $ 936,880
-------------------------------------------------------------------------------
Mustang (City of) Improvement Authority;
Utility Series 1999 RB
5.70%, 10/01/19(b) -- Aaa 1,500 1,700,115
-------------------------------------------------------------------------------
Oklahoma (State of) Development Finance
Authority (St. John Health System);
Refunding Series 1999 RB
5.75%, 02/15/18 AA Aa3 675 728,420
-------------------------------------------------------------------------------
Oklahoma (State of) Development Finance
Authority (St. John Health System);
Refunding Series 1999 RB
5.75%, 02/15/25 AA Aa3 1,750 1,877,803
-------------------------------------------------------------------------------
Oklahoma City Airport Trust; Twenty-
seventh Jr. Lien Series 2000 A RB
5.13%, 07/01/20(b) AAA Aaa 2,575 2,704,548
-------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority
(St. John's Medical Center Project);
Hospital Series 1994 RB
6.25%, 02/15/06(d)(e) NRR NRR 2,000 2,189,700
-------------------------------------------------------------------------------
Tulsa (City of) Public Facilities
Authority; Capital Improvement Series
1988 B RB
6.00%, 03/01/08 AA -- 1,305 1,322,931
===============================================================================
11,460,397
===============================================================================
OREGON-0.55%
Cow Creek Band Umpqua Tribe of Indians;
Series 1998 B RB
5.10%, 07/01/12 (Acquired 08/18/98;
Cost $997,470)(b)(g) AAA Aaa 1,000 1,032,240
-------------------------------------------------------------------------------
Portland (City of) Sewer System; Series
1994 A RB
6.20%, 06/01/04(d)(e) AAA NRR 1,200 1,232,532
-------------------------------------------------------------------------------
Portland (City of) Sewer System; Series
1994 A RB
6.25%, 06/01/04(d)(e) AAA NRR 1,000 1,027,280
===============================================================================
3,292,052
===============================================================================
PENNSYLVANIA-1.63%
Allegheny (County of) Higher Education
Building Authority (Carnegie Mellon
University); Series 2002 RB
5.25%, 03/01/32 AA- -- 1,500 1,567,140
-------------------------------------------------------------------------------
Allegheny (County of) Port Authority;
Special Transportation Series 1999 RB
6.13%, 03/01/09(d) AAA Aaa 1,000 1,183,190
-------------------------------------------------------------------------------
|
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 RB
7.38%, 12/01/08(f)(g) (Acquired
02/22/01; Cost $1,450,000) -- -- $ 1,450 $ 1,467,647
-------------------------------------------------------------------------------
Montgomery (County of) Industrial
Development Authority (Pennsburg
Nursing & Rehabilitation Center);
Series 1993 RB
7.63%, 03/31/04(d)(e) NRR Aaa 100 103,839
-------------------------------------------------------------------------------
Pennsylvania (State of) Economic
Development Financing Authority
(Colver Project); Resource Recovery
Series 1994 D RB
7.05%, 12/01/10(c) BBB- -- 2,900 3,038,446
-------------------------------------------------------------------------------
Pennsylvania (State of) Higher
Educational Facilities Authority
(Clarion University Foundation Inc.);
Series 2003 A RB (CEP-XL Capital Ltd.)
5.00%, 07/01/28 AAA Aaa 1,000 1,034,860
-------------------------------------------------------------------------------
Pennsylvania (State of); Unlimited Tax
Third Series 1994 GO
6.75%, 11/15/04(d)(e) AAA Aaa 1,250 1,325,350
===============================================================================
9,720,472
===============================================================================
PUERTO RICO-0.39%
Children's Trust Fund; Asset-Backed
Tobacco Settlement Series 2002 RB
5.38%, 05/15/33 BBB Baa2 495 473,532
-------------------------------------------------------------------------------
Children's Trust Fund; Tobacco
Settlement Series 2000 RB
6.00%, 07/01/10(d)(e) AAA NRR 1,000 1,196,220
-------------------------------------------------------------------------------
Puerto Rico (Commonwealth of) Highway &
Transportation Authority;
Transportation Series 2000 B RB
6.00%, 07/01/10(d)(e) NRR NRR 100 120,139
-------------------------------------------------------------------------------
Puerto Rico (Commonwealth of); Public
Improvement Unlimited Tax Series 2000
GO
6.00%, 07/01/29 A- Baa1 500 537,885
===============================================================================
2,327,776
===============================================================================
RHODE ISLAND-0.80%
Providence ( City of) Public Building
Authority; Series 2000 A RB
5.75%, 12/15/16(b) AAA Aaa 1,210 1,418,265
-------------------------------------------------------------------------------
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 A RB
6.00%, 06/01/23 BBB Baa2 3,500 3,353,105
===============================================================================
4,771,370
===============================================================================
|
FS-237
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
SOUTH CAROLINA-1.75%
Piedmont Municipal Power Agency;
Refunding Electric Series 1986 A RB
5.75%, 01/01/24 BBB- Baa3 $ 1,150 $ 1,150,736
-------------------------------------------------------------------------------
South Carolina (State of) Jobs Economic
Development Authority (Bon Secours-St.
Francis Medical Center Inc.); Economic
Development Series 2002 A RB
5.50%, 11/15/23 A- A3 2,000 2,048,780
-------------------------------------------------------------------------------
South Carolina (State of) Jobs Economic
Development Authority (Palmetto Health
Alliance); Hospital Facilities
Improvement Series 2000 A RB
7.13%, 12/15/10(d)(e) NRR NRR 1,000 1,270,420
-------------------------------------------------------------------------------
South Carolina (State of) Jobs Economic
Development Authority (Palmetto Health
Alliance); Refunding Hospital
Facilities Refunding Series 2003 A RB
6.25%, 08/01/31 BBB Baa2 1,000 1,026,620
-------------------------------------------------------------------------------
South Carolina (State of) Jobs-Economic
Development Authority (Palmetto Health
Alliance); Refunding Hospital
Facilities Series 2003 A RB
6.13%, 08/01/23 BBB Baa2 1,500 1,542,900
-------------------------------------------------------------------------------
South Carolina (State of) Public Service
Authority; Series 2002 B RB
5.13%, 01/01/32(b) AAA Aaa 1,250 1,298,925
-------------------------------------------------------------------------------
South Carolina (State of) Transportation
Infrastructure Bank; Series 2001 A RB
5.00%, 10/01/11(d)(e) NRR Aaa 1,000 1,138,830
-------------------------------------------------------------------------------
Tobacco Settlement Revenue Management
Authority; Tobacco Settlement Series
2001 B RB
6.38%, 05/15/28 BBB Baa2 1,000 946,290
===============================================================================
10,423,501
===============================================================================
SOUTH DAKOTA-0.72%
Aberdeen (City of) School District No.
6-1; Unlimited Tax Series 2000 GO
5.45%, 01/01/26(b) AAA Aaa 3,940 4,198,464
-------------------------------------------------------------------------------
South Dakota (State of) Health &
Educational Facilities Authority
(Huron Regional Medical Center);
Series 1994 RB
7.25%, 04/01/20 BBB+ -- 100 102,655
===============================================================================
4,301,119
===============================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
TENNESSEE-0.68%
Franklin (City of) Industrial
Development Board (Landings Apartment
Project); Refunding Multifamily
Housing Series 1996 A RB
5.75%, 04/01/10(b) AAA Aaa $ 735 $ 784,385
-------------------------------------------------------------------------------
Putnam (County of); Refunding Unlimited
Tax Series 2001 GO
5.25%, 04/01/17(b) -- Aaa 1,000 1,140,080
-------------------------------------------------------------------------------
Robertson & Somner (Counties of) White
House Utility District; Water & Sewer
Series 2000 RB
6.00%, 01/01/10(d)(e) NRR Aaa 1,000 1,179,080
-------------------------------------------------------------------------------
Shelby (County of) Health Educational &
Housing Facilities Board (Kirby Pines
Retirement Community); Health Care
Facilities Series 1997 A RB
6.25%, 11/15/16(f) -- -- 1,000 955,670
===============================================================================
4,059,215
===============================================================================
TEXAS-21.74%
Allen (City of) Independent School
District; Refunding Unlimited Tax
Series 2000 GO (CEP-Texas Permanent
School Fund)
5.95%, 02/15/25 AAA Aaa 1,600 1,797,568
-------------------------------------------------------------------------------
Arlington (City of) Independent School
District; Prerefunded Unlimited Tax
Series 1995 GO (CEP-Texas Permanent
School Fund)
5.75%, 02/15/05(d)(e) NRR Aaa 705 738,798
-------------------------------------------------------------------------------
Arlington (City of) Independent School
District; Unrefunded Unlimited Tax
Series 1995 GO (CEP-Texas Permanent
School Fund)
5.75%, 02/15/21 -- Aaa 295 307,803
-------------------------------------------------------------------------------
Austin (City of); Refunding Hotel
Occupancy Tax Sub. Lien Series 1999 RB
5.80%, 11/15/29(b) AAA Aaa 1,000 1,117,700
-------------------------------------------------------------------------------
Austin (City of) Community College
District; Refunding Combined Fee
Series 1995 RB
6.10%, 02/01/05(d)(e) AAA Aaa 1,115 1,170,293
-------------------------------------------------------------------------------
Austin (City of) Utility System;
Refunding Capital Appreciation Series
1992 RB
3.65%, 11/15/11(b)(i) AAA Aaa 1,400 1,059,800
-------------------------------------------------------------------------------
Bellville (City of) Independent School
District; Prerefunded Unlimited Tax
Series 1995 GO (CEP-Texas Permanent
School Fund)
6.13%, 02/01/06(d)(e) -- Aaa 535 583,482
-------------------------------------------------------------------------------
|
FS-238
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Bellville (City of) Independent School
District; Unrefunded Unlimited Tax
Series 1995 GO (CEP-Texas Permanent
School Fund)
6.13%, 02/01/20 -- Aaa $ 295 $ 319,187
-------------------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Dymaxion & Monarch Park Apartments);
Multifamily Housing Series 2000 A RB
6.10%, 08/01/30(b) -- Aaa 1,000 1,066,800
-------------------------------------------------------------------------------
Bexar (County of) Metropolitan Water
District; Lease Purchase Series 2001
RB
5.53%, 07/20/06 -- -- 441 462,276
-------------------------------------------------------------------------------
Brazos (County of) Health Facilities
Development Corp. (Franciscan Services
Corp. Obligated Group); Series 1997 A
RB
5.38%, 01/01/22(b) AAA Aaa 1,250 1,328,525
-------------------------------------------------------------------------------
Carroll (City of) Independent School
District; Refunding Unlimited Tax
Series 2001 GO (CEP-Texas Permanent
School Fund)
5.25%, 02/15/33 AAA Aaa 1,350 1,411,250
-------------------------------------------------------------------------------
Carrollton (City of); Limited Tax Series
1996 GO
5.75%, 08/15/06(d)(e) NRR NRR 1,000 1,104,090
-------------------------------------------------------------------------------
Cisco (City of) Jr. College District;
Refunding Consolidated Series 2002 RB
5.25%, 07/01/26(b) -- Aaa 1,000 1,054,130
-------------------------------------------------------------------------------
Cleveland (City of) Independent School
District; Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
5.13%, 02/01/31 AAA Aaa 2,000 2,064,580
-------------------------------------------------------------------------------
Comal (County of) Independent School
District; Refunding Unlimited Tax
School Building Series 2001 GO
(CEP-Texas Permanent School Fund)
5.25%, 02/01/28 -- Aaa 2,000 2,095,220
-------------------------------------------------------------------------------
Comal (County of) Independent School
District; Refunding Unlimited Tax
Series 1999 GO (CEP-Texas Permanent
School Fund)
5.75%, 08/01/28 -- Aaa 1,000 1,113,110
-------------------------------------------------------------------------------
Denton (City of) Utility System; Series
2000 A RB
5.40%, 12/01/13(b) AAA Aaa 1,000 1,120,210
-------------------------------------------------------------------------------
DeSoto (City of) Independent School
District; Refunding Unlimited Tax
Series 1998 GO (CEP-Texas Permanent
School Fund)
5.13%, 08/15/17 AAA -- 1,000 1,001,850
-------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Galena Park (City of) Independent School
District; Refunding Capital
Appreciation Unlimited Tax Series 1996
GO (CEP-Texas Permanent School Fund)
5.16%, 08/15/23(i) -- Aaa $ 2,000 $ 742,260
-------------------------------------------------------------------------------
Georgetown (City of) Utility System;
Series 1995 A RB
6.20%, 08/15/05(d)(e) AAA Aaa 1,500 1,613,160
-------------------------------------------------------------------------------
Grapevine (City of); Limited Tax Series
2000 GO Ctfs.
5.88%, 08/15/26(b) AAA Aaa 1,610 1,822,456
-------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Memorial Hermann
Health Care Project); Hospital Series
2001 A RB
6.38%, 06/01/29 A A2 750 812,003
-------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (St. Luke's
Episcopal Hospital Project); Series
2001 A RB
5.38%, 02/15/26 AA- -- 1,000 1,023,270
-------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (St. Luke's
Episcopal Hospital Project); Series
2002 RB
5.13%, 02/15/32 AA- -- 1,000 1,009,270
-------------------------------------------------------------------------------
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 2,051,820
-------------------------------------------------------------------------------
Harris (County of) -- Houston (City of)
Sports Authority; Refunding Jr. Lien
Series 2001 B RB
5.25%, 11/15/40(b) AAA Aaa 5,000 5,190,300
-------------------------------------------------------------------------------
Harris (County of) Mental Health &
Mental Retardation Authority;
Refunding Series 1992 RB
6.25%, 09/15/10(b) AAA Aaa 4,500 4,523,760
-------------------------------------------------------------------------------
Harris (County of); Refunding Limited
Tax Series 2002 GO
5.13%, 08/15/31 AA+ Aa1 2,000 2,054,900
-------------------------------------------------------------------------------
Houston (City of) Airport System; Sub.
Lien Series 2000 B RB
5.50%, 07/01/30(b) AAA Aaa 1,000 1,065,400
-------------------------------------------------------------------------------
Houston (City of) Water & Sewer System;
Jr. Lien Series 1997 C RB
5.38%, 12/01/27(b) AAA Aaa 2,495 2,656,975
-------------------------------------------------------------------------------
Hurst-Euless-Bedford Independent School
District; Prerefunded Unlimited Tax
Series 1994 GO (CEP-Texas Permanent
School Fund)
6.50%, 08/15/04(d)(e) AAA Aaa 640 658,925
-------------------------------------------------------------------------------
|
FS-239
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Hurst-Euless-Bedford Independent School
District; Unrefunded Unlimited Tax
Series 1994 GO (CEP-Texas Permanent
School Fund)
6.50%, 08/15/24 AAA Aaa $ 360 $ 369,824
-------------------------------------------------------------------------------
Katy (City of) Independent School
District; Limited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
6.13%, 02/15/32 AAA Aaa 1,500 1,713,585
-------------------------------------------------------------------------------
Keller (City of) Independent School
District; Refunding Unlimited Tax
Series 2001 GO (CEP-Texas Permanent
School Fund)
5.25%, 08/15/26 AAA Aaa 2,000 2,104,020
-------------------------------------------------------------------------------
Keller (City of) Independent School
District; Series 1994 COP
6.00%, 08/15/05(i)(b)(g) (Acquired
09/13/94; cost $530,000) AAA Aaa 530 567,291
-------------------------------------------------------------------------------
Laredo (City of) Community College
District; Limited Tax Series 2002 GO
5.25%, 08/01/27(b) AAA Aaa 1,000 1,053,890
-------------------------------------------------------------------------------
Laredo (City of) Community College
District; Limited Tax Series 2002 GO
5.25%, 08/01/32(b) AAA Aaa 1,000 1,046,690
-------------------------------------------------------------------------------
Little Elm (City of) Independent School
District; Refunding Unlimited Tax
Series 1999 GO (CEP-Texas Permanent
School Fund)
6.00%, 08/15/35 AAA -- 4,000 4,567,880
-------------------------------------------------------------------------------
Little Elm (City of) Independent School
District; Refunding Unlimited Tax
Series 2000 GO (CEP-Texas Permanent
School Fund)
6.13%, 08/15/35 AAA -- 1,000 1,167,290
-------------------------------------------------------------------------------
Lockhart (City of) Tax and Utility
Systems; Limited Tax Series 1996 GO
Ctfs.
5.90%, 08/01/06(d)(e) AAA Aaa 1,100 1,218,217
-------------------------------------------------------------------------------
Lockhart (City of) Tax and Utility
Systems; Limited Tax Series 1996 GO
Ctfs.
5.85%, 08/01/11(b) AAA Aaa 605 663,510
-------------------------------------------------------------------------------
Lubbock (City of) Health Facilities
Development Corp. (St. Joseph Health
System); Series 1998 RB
5.25%, 07/01/13 AA- Aa3 2,000 2,106,060
-------------------------------------------------------------------------------
Montgomery (County of); Permanent
Improvement Limited Tax Series 2000 GO
5.25%, 09/01/20(b) AAA Aaa 1,000 1,071,610
-------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Nacogdoches (City of) Independent School
District; Refunding Unlimited Tax
Series 2001 GO (CEP-Texas Permanent
School Fund)
5.30%, 02/15/25 AAA Aaa $ 2,765 $ 2,912,347
-------------------------------------------------------------------------------
Northside Independent School District;
Unlimited Tax Series 1999 A GO
(CEP-Texas Permanent School Fund)
5.50%, 08/15/24 AAA Aaa 1,000 1,088,750
-------------------------------------------------------------------------------
Nueces River Authority (Corpus Christi
Lake); Water Supply Facilities Series
1997 RB
5.50%, 03/01/27(b) AAA Aaa 1,900 2,049,036
-------------------------------------------------------------------------------
Pasadena (City of); Limited Tax Series
2002 GO Ctfs.
5.25%, 04/01/32(b) AAA Aaa 2,000 2,092,060
-------------------------------------------------------------------------------
Pflugerville (City of) Independent
School District; Unlimited Tax Series
2000 GO (CEP-Texas Permanent School
Fund)
5.50%, 08/15/23 AAA Aaa 1,615 1,773,415
-------------------------------------------------------------------------------
Plano (City of); Limited Tax Series 2000
GO
5.88%, 09/01/19 AAA Aaa 850 983,833
-------------------------------------------------------------------------------
Richardson (City of) Hospital Authority
(Baylor/Richardson Medical Center);
Unrefunded Hospital Series 1993 RB
6.50%, 12/01/12 BBB+ Baa1 725 742,799
-------------------------------------------------------------------------------
Richardson (City of); Hotel Occupancy
Limited Tax Series 2000 A GO Ctfs.
5.75%, 02/15/21(b) AAA Aaa 2,000 2,256,620
-------------------------------------------------------------------------------
Richardson (City of); Limited Tax Series
2001 GO Ctfs.
5.00%, 02/15/19 AA+ Aa1 1,720 1,802,990
-------------------------------------------------------------------------------
Rockwall (City of) Independent School
District; School Building Unlimited
Tax Series 2003 GO (CEP-Texas
Permanent School Fund)
5.25%, 02/15/29 AAA Aaa 1,000 1,050,590
-------------------------------------------------------------------------------
San Angelo (City of) Waterworks & Sewer
System; Refunding & Improvement Series
2001 RB
5.25%, 04/01/19(b) AAA Aaa 1,000 1,072,580
-------------------------------------------------------------------------------
San Antonio (City of) Independent School
District; Unlimited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
5.50%, 08/15/24 AAA Aaa 3,500 3,810,625
-------------------------------------------------------------------------------
San Antonio (City of); Limited Tax
Series 2000 A GO
5.38%, 02/01/19 AA+ Aa2 1,185 1,282,774
-------------------------------------------------------------------------------
San Antonio (City of); Refunding Water
Series 1999 RB
5.88%, 05/15/18 AA- Aa3 1,000 1,150,910
-------------------------------------------------------------------------------
|
FS-240
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Schertz-Cibolo-Universal City
Independent School District; Refunding
Building Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
5.13%, 08/01/25 -- Aaa $ 1,535 $ 1,594,451
-------------------------------------------------------------------------------
Spring Branch (City of) Independent
School District; Limited Tax Series
2000 GO (CEP-Texas Permanent School
Fund)
5.75%, 02/01/24 AAA Aaa 5,000 5,586,150
-------------------------------------------------------------------------------
Texas (State of); Refunding Water
Development Unlimited Tax Series 2001
A GO
5.25%, 08/01/35 AA Aa1 1,840 1,926,940
-------------------------------------------------------------------------------
Texas (State of) (Veteran's Land);
Unlimited Tax Series 1994 GO
6.40%, 12/01/24(c) AA Aa1 2,000 2,075,440
-------------------------------------------------------------------------------
Texas (State of) (Water Financial
Assistance); Unlimited Tax Series 1999
GO
5.50%, 08/01/24 AA Aa1 1,500 1,624,545
-------------------------------------------------------------------------------
Texas (State of) Department of Housing &
Community Affairs (Asmara Affordable
Housing Inc. Project); Multifamily
Housing Series 1996 A RB
6.30%, 01/01/07(d)(e) AAA NRR 310 325,705
-------------------------------------------------------------------------------
Texas (State of) North Central Texas
Health Facilities Development Corp.
(Texas Health Resources System);
Series 1997 B RB
5.75%, 02/15/12(b) AAA Aaa 2,000 2,228,200
-------------------------------------------------------------------------------
Texas (State of) Public Property Finance
Corp. (Mental Health & Mental
Retardation); Series 1996 RB
6.20%, 09/01/16 BBB+ -- 735 750,464
-------------------------------------------------------------------------------
Texas (State of) Turnpike Authority
(Central Texas Turnpike System); First
Tier Series 2002 A RB
5.50%, 08/15/39(b) AAA Aaa 1,000 1,082,690
-------------------------------------------------------------------------------
Town Center Improvement District; Sales
& Hotel Occupancy Tax Series 2001 RB
5.13%, 03/01/21(b) AAA Aaa 2,500 2,619,925
-------------------------------------------------------------------------------
Town Center Improvement District; Sales
& Hotel Occupancy Tax Series 2001 RB
5.13%, 03/01/23(b) AAA Aaa 1,000 1,039,930
-------------------------------------------------------------------------------
Town Center Improvement District; Sales
& Hotel Occupancy Tax Series 2001 RB
5.25%, 03/01/27(b) AAA Aaa 2,800 2,929,388
-------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
TEXAS-(CONTINUED)
United Independent School District;
Unlimited Tax Series 2000 GO
(CEP-Texas Permanent School Fund)
5.13%, 08/15/26 AAA Aaa $ 1,000 $ 1,041,700
-------------------------------------------------------------------------------
University of Texas Financing System;
Series 1999 B RB
5.70%, 08/15/09(d)(e) AAA Aaa 1,000 1,164,320
-------------------------------------------------------------------------------
Victoria (County of) (Citizens Medical
Center); Hospital Series 1994 RB
6.20%, 01/01/10(b) AAA Aaa 1,000 1,024,850
-------------------------------------------------------------------------------
Waxahachie (City of) Independent School
District; Refunding Unlimited Tax
Series 2002 GO (CEP-Texas Permanent
School Fund)
5.25%, 08/15/26 -- Aaa 3,400 3,576,834
-------------------------------------------------------------------------------
Waxahachie (City of) Independent School
District; Refunding Unlimited Tax
Series 2002 GO (CEP-Texas Permanent
School Fund)
5.25%, 08/15/30 -- Aaa 2,890 3,032,737
-------------------------------------------------------------------------------
Waxahachie (City of) Independent School
District; Refunding Unlimited Tax
Series 2002 GO (CEP-Texas Permanent
School Fund)
5.38%, 08/15/27 -- Aaa 2,000 2,125,140
-------------------------------------------------------------------------------
Weatherford (City of) Independent School
District; Prerefunded Unlimited Tax
Series 1994 GO (CEP-Texas Permanent
School Fund)
6.40%, 02/15/05(d)(e) NRR Aaa 900 949,122
-------------------------------------------------------------------------------
Weatherford (City of) Independent School
District; Unrefunded Unlimited Tax
Series 1994 GO (CEP-Texas Permanent
School Fund)
6.40%, 02/15/12 -- Aaa 100 105,002
-------------------------------------------------------------------------------
West University Place (City of);
Permanent Improvement Limited Tax
Series 2000 GO
5.30%, 02/01/18(b) AAA Aaa 1,000 1,082,490
-------------------------------------------------------------------------------
West University Place (City of);
Permanent Improvement Limited Tax
Series 2000 GO
5.35%, 02/01/20(b) AAA Aaa 2,150 2,297,383
-------------------------------------------------------------------------------
Ysleta (City of) Independent School
District Public Facility Corp.;
Refunding Lease Series 2001 RB
5.38%, 11/15/24(b) AAA Aaa 1,300 1,374,100
===============================================================================
129,417,873
===============================================================================
|
FS-241
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
UTAH-1.09%
Intermountain Power Agency; Power Supply
Series 1995 B RB
5.00%, 07/01/16(d) NRR NRR $ 1,240 $ 1,248,978
-------------------------------------------------------------------------------
Salt Lake (County of) (Westminster
College Project); Series 1997 RB
5.75%, 10/01/27 BBB -- 1,000 1,037,050
-------------------------------------------------------------------------------
South Jordan (City of); Sales Tax Series
2001 RB
5.20%, 08/15/26(b) AAA Aaa 1,500 1,559,610
-------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency;
Single Family Housing Series 1994 D-1
RB (CEP-FHA/VA/ FmHA)
6.45%, 07/01/11 -- Aaa 50 51,347
-------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency;
Single Family Mortgage Sub-Series 1994
C RB (CEP-FHA/ VA/FmHA)
6.05%, 07/01/06 -- Aa1 40 41,985
-------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency;
Single Family Mortgage Sub-Series 1994
E-1 RB 6.30%, 07/01/06 AA- -- 15 15,784
-------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency;
Single Family Mortgage Sub-Series 2000
B-1 RB (CEP-FHA/VA)
6.00%, 07/01/10(c) AA- Aa3 275 285,799
-------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency;
Sr. Single Family Mortgage Series 1995
G-2 RB
6.45%, 07/01/27(c) AAA Aaa 205 211,490
-------------------------------------------------------------------------------
Washington (City of); Sales Tax Series
2003 RB
5.00%, 11/15/23(b) AAA Aaa 915 953,759
-------------------------------------------------------------------------------
West Valley (City of); Sales Tax Series
2002 A RB
5.00%, 07/15/19(b) AAA Aaa 1,035 1,095,610
===============================================================================
6,501,412
===============================================================================
VERMONT-0.27%
Vermont (State of) Educational & Health
Buildings Financing Agency (Fletcher
Allen Health Care); Hospital Series
2000 A RB
6.00%, 12/01/23(b) AAA Aaa 1,000 1,150,560
-------------------------------------------------------------------------------
Vermont (State of) Housing Finance
Agency; Single Family Housing Series
1994 5 RB
6.88%, 11/01/16(c) A+ A1 430 441,533
===============================================================================
1,592,093
===============================================================================
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
VIRGIN ISLANDS-0.27%
Virgin Islands (Territory of) Public
Finance Authority (Gross Receipts
Taxes Loan Notes); Series 1999 A RB
6.13%, 10/01/29(b) A -- $ 500 $ 553,935
-------------------------------------------------------------------------------
Virgin Islands (Territory of) Public
Finance Authority (Gross Receipts
Taxes Loan Notes); Series 2003 RB
5.00%, 10/01/31(b) A -- 1,000 1,024,860
===============================================================================
1,578,795
===============================================================================
VIRGINIA-1.15%
Fauquier (County of) Industrial
Development Authority (Fauquier
Hospital Foundation, Inc.); Hospital
Series 2002 IDR (CEP-Radian
Reinsurance Inc.)
5.25%, 10/01/31 AA -- 1,000 1,041,370
-------------------------------------------------------------------------------
Fauquier (County of) Industrial
Development Authority (Fauquier
Hospital Foundation, Inc.) Hospital
Series 2002 IDR (CEP-Radian
Reinsurance Inc.)
5.50%, 10/01/17 AA -- 500 561,890
-------------------------------------------------------------------------------
Henrico (County of) Economic Development
Authority (Virginia United Methodist
Homes Inc.); Refunding Residential
Care Facilities Series 2002 A RB
6.50%, 06/01/22(f) -- -- 2,000 2,013,060
-------------------------------------------------------------------------------
Norton (City of) Industrial Development
Authority (Norton Community Hospital);
Refunding & Improvement Hospital
Series 2001 RB
6.00%, 12/01/22(b) A -- 1,000 1,086,380
-------------------------------------------------------------------------------
Suffolk (City of) Industrial Development
Authority (Hotel & Conference Center);
Economic Development Series 2003 IDR
5.00%, 10/01/23(b) A -- 500 506,080
-------------------------------------------------------------------------------
Virginia (State of) Housing Development
Authority; Series 2000 D RB
5.70%, 04/01/11(c) AA+ Aa1 1,500 1,651,725
===============================================================================
6,860,505
===============================================================================
WASHINGTON-1.73%
Clark (County of) School District No.
117; Unlimited Tax Series 1995 GO
6.00%, 12/01/05(d)(e) AAA Aaa 1,000 1,083,340
-------------------------------------------------------------------------------
King (County of); Sewer Series 1999 RB
5.50%, 01/01/22(b) AAA Aaa 1,000 1,099,780
-------------------------------------------------------------------------------
|
FS-242
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
WASHINGTON-(CONTINUED)
Pend Oreille (County of) Public Utility
District No. 1; Electric Series 1996 B
RB
6.30%, 01/01/17 BBB+ A3 $ 1,400 $ 1,498,980
-------------------------------------------------------------------------------
Pierce (County of) White River School
District No. 416; Unlimited Tax Series
2000 GO
5.35%, 12/01/09 -- Aa1 1,550 1,766,380
-------------------------------------------------------------------------------
Washington (State of) Health Care
Facilities Authority (Providence
Health System Project); Series 2001 A
RB
5.25%, 10/01/21(b) AAA Aaa 2,000 2,125,420
-------------------------------------------------------------------------------
Washington (State of) Public Power
Supply System (Nuclear Project No. 1);
Refunding Series 1996 A RB
5.75%, 07/01/12(b) AAA Aaa 2,000 2,215,580
-------------------------------------------------------------------------------
West Richland (City of); Water & Sewer
Series 1994 RB
7.00%, 12/01/04(d)(e) AAA Aaa 500 525,005
===============================================================================
10,314,485
===============================================================================
WISCONSIN-1.48%
Adams-Friendship (Cities of) Area School
District; Refunding Unlimited Tax
Series 1996 GO
6.50%, 04/01/15(b) AAA Aaa 1,340 1,676,193
-------------------------------------------------------------------------------
Wisconsin (State of) Health &
Educational Facilities Authority
(Sinai Samaritan Medical Center Inc.);
Series 1996 RB
5.75%, 08/15/16(b) AAA Aaa 1,500 1,656,390
-------------------------------------------------------------------------------
|
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
-------------------------------------------------------------------------------
WISCONSIN-(CONTINUED)
Wisconsin (State of) Health &
Educational Facilities Authority
(Sisters of the Sorrowful Mother
Ministry Corp.); Series 1997 A RB
5.90%, 08/15/24(b) AAA Aaa $ 2,500 $ 2,722,900
-------------------------------------------------------------------------------
Wisconsin (State of); Unlimited Tax
Series 2000 C GO
5.50%, 05/01/19 AA- Aa3 2,500 2,779,500
===============================================================================
8,834,983
===============================================================================
WYOMING-0.40%
Laramie (County of) (Memorial Hospital
Project); Hospital Series 1992 RB
6.70%, 05/01/12(b) AAA Aaa 250 253,545
-------------------------------------------------------------------------------
Natrona (County of) (Wyoming Medical
Center Project); Hospital Series 1995
RB
6.00%, 03/15/06(d)(e) AAA Aaa 1,000 1,103,180
-------------------------------------------------------------------------------
Sweetwater (County of) (Idaho Power Co.
Project); Refunding Series 1996 A PCR
6.05%, 07/15/26 BBB+ A3 1,000 1,035,730
===============================================================================
2,392,455
===============================================================================
TOTAL INVESTMENTS-98.81% (Cost
$539,784,983) 588,375,522
===============================================================================
OTHER ASSETS LESS LIABILITIES-1.19% 7,110,955
===============================================================================
NET ASSETS-100.00% $595,486,477
_______________________________________________________________________________
===============================================================================
|
Investment Abbreviations:
CEP - Credit Enhancement Provider COP - Certificate of Participation Ctfs. - Certificates FHA - Federal Housing Administration FmHA - Farmers Home Administration GNMA - Government National Mortgage Association GO - General Obligation Bonds IDR - Industrial Development Revenue Bonds Jr. - Junior LOC - Letter of Credit PCR - Pollution Control Revenue Bonds RB - Revenue Bonds Sr. - Senior Sub. - Subordinated TAN - Tax Allocation Notes VA - Department of Veterans' Affairs Wts. - Warrants |
Notes to Schedule of Investments:
(a) Ratings assigned by Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's"). NRR indicates a security that is not
re-rated subsequent to funding of an escrow fund (consisting of U.S.
Treasury obligations); this funding is pursuant to an advance refunding of
this security.
(b) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., American Capital
Access Holdings, Financial Guaranty Insurance Co., Financial Security
Assurance Inc., or MBIA Insurance Corp.
(c) Security subject to the alternative minimum tax.
(d) Advance refunded; 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) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/04 was $5,133,444,
which represented 0.86% of the Fund's net assets. These securities are
considered to be illiquid.
(h) Principal and interest payments are guaranteed by the letter of credit
agreement.
(i) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
See accompanying notes which are an integral part of the financial statements.
FS-243
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$539,784,983) $588,375,522
-----------------------------------------------------------
Receivables for:
Investments sold 906,130
-----------------------------------------------------------
Fund shares sold 296,731
-----------------------------------------------------------
Interest 8,217,197
-----------------------------------------------------------
Amount due from Advisor 71,922
-----------------------------------------------------------
Investment for deferred compensation and
retirement plans 136,896
-----------------------------------------------------------
Other assets 58,699
===========================================================
Total assets $598,063,097
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 943,805
-----------------------------------------------------------
Amount due custodian bank 514,059
-----------------------------------------------------------
Dividends 760,980
-----------------------------------------------------------
Deferred compensation and retirement plans 164,326
-----------------------------------------------------------
Accrued distribution fees 151,060
-----------------------------------------------------------
Accrued trustees' fees 782
-----------------------------------------------------------
Accrued transfer agent fees 37,230
-----------------------------------------------------------
Accrued operating expenses 4,378
===========================================================
Total liabilities 2,576,620
===========================================================
Net assets applicable to shares outstanding $595,486,477
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $556,728,407
-----------------------------------------------------------
Undistributed net investment income 226,197
-----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (10,058,666)
-----------------------------------------------------------
Unrealized appreciation of investment
securities 48,590,539
===========================================================
$595,486,477
___________________________________________________________
===========================================================
NET ASSETS:
Class A $306,861,078
___________________________________________________________
===========================================================
Class B $ 84,582,272
___________________________________________________________
===========================================================
Class C $ 24,157,046
___________________________________________________________
===========================================================
Investor Class $179,886,081
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 37,327,160
___________________________________________________________
===========================================================
Class B 10,270,951
___________________________________________________________
===========================================================
Class C 2,939,354
___________________________________________________________
===========================================================
Investor Class 21,870,558
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 8.22
-----------------------------------------------------------
Offering price per share:
(Net asset value of $8.22 divided by
95.25%) $ 8.63
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 8.24
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 8.22
___________________________________________________________
===========================================================
Investor Class:
Net asset value and offering price per
share $ 8.23
___________________________________________________________
===========================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-244
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest 13,310,659
_________________________________________________________________________
=========================================================================
EXPENSES:
Advisory fees 1,095,752
-------------------------------------------------------------------------
Administrative services fees 70,838
-------------------------------------------------------------------------
Custodian fees 12,696
-------------------------------------------------------------------------
Distribution fees:
Class A 393,699
-------------------------------------------------------------------------
Class B 451,598
-------------------------------------------------------------------------
Class C 117,982
-------------------------------------------------------------------------
Investor Class 37,800
-------------------------------------------------------------------------
Transfer agent fees 181,914
-------------------------------------------------------------------------
Trustees' fees 7,484
-------------------------------------------------------------------------
Other 114,653
=========================================================================
Total expenses 2,484,416
=========================================================================
Less: Expense offset arrangements (2,277)
=========================================================================
Net expenses 2,482,139
=========================================================================
Net investment income 10,828,520
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 479,745
=========================================================================
Change in net unrealized appreciation of investment
securities 13,938,854
=========================================================================
Net gain from investment securities 14,418,599
=========================================================================
Net increase in net assets resulting from operations $25,247,119
_________________________________________________________________________
=========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-245
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
-------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 10,828,520 $ 20,711,876
-------------------------------------------------------------------------------------------
Net realized gain from investment securities 479,745 194,250
-------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 13,938,854 (4,964,846)
===========================================================================================
Net increase in net assets resulting from operations 25,247,119 15,941,280
===========================================================================================
Distributions to shareholders from net investment income:
Class A (6,958,346) (15,869,640)
-------------------------------------------------------------------------------------------
Class B (1,661,829) (4,141,072)
-------------------------------------------------------------------------------------------
Class C (433,816) (1,054,998)
-------------------------------------------------------------------------------------------
Investor Class (1,489,240) --
===========================================================================================
Decrease in net assets resulting from distributions (10,543,231) (21,065,710)
===========================================================================================
Share transactions-net:
Class A (31,306,463) (7,594,641)
-------------------------------------------------------------------------------------------
Class B (15,327,770) (5,994,533)
-------------------------------------------------------------------------------------------
Class C (1,997,071) (3,421,085)
-------------------------------------------------------------------------------------------
Investor Class 178,679,255 --
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 130,047,951 (17,010,259)
===========================================================================================
Net increase (decrease) in net assets 144,751,839 (22,134,689)
===========================================================================================
NET ASSETS:
Beginning of period 450,734,638 472,869,327
===========================================================================================
End of period (including undistributed net investment
income of $226,197 and $(59,092) for 2004 and 2003,
respectively) $595,486,477 $450,734,638
___________________________________________________________________________________________
===========================================================================================
|
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Municipal Bond Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is to achieve a high level of current income 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. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Portfolio securities are valued on the basis of prices provided by an independent pricing service approved by the Board of Trustees. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Portfolio securities for which prices are not provided by the pricing service are valued at the mean between the last available bid and asked prices, unless the Board of Trustees, or persons designated by the Board of Trustees, determines that the mean between the last available bid and asked prices does not accurately reflect the
FS-246
current market value of the security. Securities for which market quotations either are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Securities with a demand feature exercisable within one to seven days are valued at par. Notwithstanding the above, short-term obligations with maturities of 60 days or less and commercial paper are valued at amortized cost which approximates market value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $200 million of the Fund's average daily net assets, plus 0.40% on the next $300 million of the Fund's average daily net assets, plus 0.35% on the next $500 million of the Fund's average daily net assets, plus 0.30% on the Fund's average daily net assets in excess of $1 billion.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $70,838 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $75,499 for such services.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C Investor Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, 0.25% of the average daily net assets of the Class A, Class B, or Class C shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A, Class B, Class C and Investor Class shares paid $393,699, $451,598, $117,982 and $37,800, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the six months ended January 31, 2004, AIM Distributors retained $27,242 in front-end sales commissions from the sale of Class A shares and $21,528, $2,762 and $1,940 for Class A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $2,277 under an expense offset arrangement, which resulted in a reduction of the Fund's total expenses of $2,277.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have
FS-247
certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $3,141 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under either the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2004 $ 92,144
----------------------------------------------------------
July 31, 2007 1,947,609
----------------------------------------------------------
July 31, 2008 8,431,875
==========================================================
Total capital loss carryforward $10,471,628
__________________________________________________________
==========================================================
|
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $9,833,355 and $64,711,591, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $49,394,931
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (871,175)
===========================================================
Net unrealized appreciation of investment
securities $48,523,756
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $539,851,766.
|
FS-248
NOTE 8--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares, Class B shares, Class C shares and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Investor Class shares are sold at net asset value. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 8,578,242 $ 68,608,844 41,276,911 $ 336,373,916
--------------------------------------------------------------------------------------------------------------------------
Class B 404,963 3,291,326 3,425,769 27,924,611
--------------------------------------------------------------------------------------------------------------------------
Class C 673,792 5,478,759 2,577,392 21,026,115
--------------------------------------------------------------------------------------------------------------------------
Investor Class* 312,194 2,554,696 -- --
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 472,802 3,844,570 1,071,470 8,718,591
--------------------------------------------------------------------------------------------------------------------------
Class B 131,226 1,068,895 314,210 2,560,594
--------------------------------------------------------------------------------------------------------------------------
Class C 36,776 299,000 90,736 737,965
--------------------------------------------------------------------------------------------------------------------------
Investor Class* 132,680 1,087,829 -- --
==========================================================================================================================
Issued in connection with acquisitions:**
Class A 181,334 1,481,885 -- --
--------------------------------------------------------------------------------------------------------------------------
Class B 81,647 667,854 -- --
--------------------------------------------------------------------------------------------------------------------------
Class C 205,579 1,679,589 -- --
--------------------------------------------------------------------------------------------------------------------------
Investor Class* 22,822,011 186,469,042 -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 437,968 3,571,325 668,278 5,433,316
--------------------------------------------------------------------------------------------------------------------------
Class B (437,181) (3,571,325) (625,570) (5,433,316)
==========================================================================================================================
Reacquired:
Class A (13,572,042) (108,813,087) (43,911,135) (358,120,464)
--------------------------------------------------------------------------------------------------------------------------
Class B (2,074,450) (16,784,520) (3,849,409) (31,046,422)
--------------------------------------------------------------------------------------------------------------------------
Class C (1,170,785) (9,454,419) (3,094,367) (25,185,165)
--------------------------------------------------------------------------------------------------------------------------
Investor Class* (1,396,327) (11,432,312) -- --
==========================================================================================================================
15,820,429 $ 130,047,951 (2,055,715) $ (17,010,259)
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
* Investor Class shares commenced sales on September 30, 2003. ** As of the open of business on November 24, 2003, the Fund acquired all of the net assets of INVESCO Tax-Free Bond Fund pursuant to a plan of reorganization approved by INVESCO Tax-Free Bond Fund shareholders on October 28, 2003. The acquisition was accomplished by a tax-free exchange of 23,290,571 shares of the Fund for 12,061,820 shares of INVESCO Tax-Free Bond Fund outstanding as of the close of business November 21, 2003. Invesco Tax-Free Bond Fund's net assets at that date of $190,298,370 including $16,453,346 of unrealized appreciation, were combined with those of the Fund. On the acquired date, INVESCO Tax-Free Bond Fund had undistributed net investment income (loss) of $(61,039) and undistributed net realized gain (loss) of $(1,464,237). The aggregate net assets of the Fund immediately before the acquisition were $421,005,314.
FS-249
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
---------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY 31, SEVEN MONTHS YEAR ENDED
JANUARY 31, -------------------------------------- ENDED JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 7.96 $ 8.06 $ 8.06 $ 7.83 $ 7.74 $ 8.35
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.37 0.38(a) 0.40 0.24(b) 0.41
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.26 (0.09) 0.00 0.23 0.09 (0.61)
=================================================================================================================================
Total from investment
operations 0.44 0.28 0.38 0.63 0.33 (0.20)
=================================================================================================================================
Less dividends from net investment
income (0.18) (0.38) (0.38) (0.40) (0.24) (0.41)
=================================================================================================================================
Net asset value, end of period $ 8.22 $ 7.96 $ 8.06 $ 8.06 $ 7.83 $ 7.74
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.57% 3.43% 4.84% 8.28% 4.32% (2.45)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $306,861 $328,280 $339,545 $322,437 $283,416 $294,720
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 0.85%(d) 0.82% 0.81% 0.85% 0.85%(e) 0.84%
=================================================================================================================================
Ratio of net investment income to
average net assets 4.50%(d) 4.55% 4.79%(a) 5.06% 5.32%(e) 5.01%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 2% 20% 35% 28% 18% 28%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$313,247,603.
(e) Annualized.
(f) Not annualized for periods less than one year.
CLASS B
-------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY 31, SEVEN MONTHS YEAR ENDED
JANUARY 31, --------------------------------- ENDED JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.98 $ 8.07 $ 8.07 $ 7.84 $ 7.75 $ 8.37
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.31 0.32(a) 0.34 0.21(b) 0.35
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.26 (0.08) 0.00 0.23 0.08 (0.62)
=================================================================================================================================
Total from investment operations 0.41 0.23 0.32 0.57 0.29 (0.27)
=================================================================================================================================
Less dividends from net investment
income (0.15) (0.32) (0.32) (0.34) (0.20) (0.35)
=================================================================================================================================
Net asset value, end of period $ 8.24 $ 7.98 $ 8.07 $ 8.07 $ 7.84 $ 7.75
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.17% 2.79% 4.05% 7.46% 3.84% (3.28)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $84,582 $97,030 $104,150 $86,565 $67,363 $72,256
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.60%(d) 1.57% 1.56% 1.60% 1.61%(e) 1.59%
=================================================================================================================================
Ratio of net investment income to
average net assets 3.75%(d) 3.80% 4.04%(a) 4.31% 4.56%(e) 4.26%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 2% 20% 35% 28% 18% 28%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$89,828,644.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-250
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY 31, SEVEN MONTHS YEAR ENDED
JANUARY 31, -------------------------------- ENDED JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.96 $ 8.06 $ 8.05 $ 7.83 $ 7.74 $ 8.35
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.31 0.32(a) 0.34 0.21(b) 0.35
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.26 (0.09) 0.01 0.22 0.08 (0.61)
=================================================================================================================================
Total from investment operations 0.41 0.22 0.33 0.56 0.29 (0.26)
=================================================================================================================================
Less dividends from net investment
income (0.15) (0.32) (0.32) (0.34) (0.20) (0.35)
=================================================================================================================================
Net asset value, end of period $ 8.22 $ 7.96 $ 8.06 $ 8.05 $ 7.83 $ 7.74
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 5.19% 2.67% 4.19% 7.34% 3.85% (3.16)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,157 $25,425 $29,175 $17,889 $8,252 $9,652
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.60%(d) 1.57% 1.56% 1.60% 1.61%(e) 1.59%
=================================================================================================================================
Ratio of net investment income to
average net assets 3.75%(d) 3.80% 4.04%(a) 4.31% 4.56%(e) 4.26%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 2% 20% 35% 28% 18% 28%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$23,468,207.
(e) Annualized.
(f) Not annualized for periods less than one year.
INVESTOR CLASS
--------------
SEPTEMBER 30,
2003
(DATE SALES
COMMENCED) TO
JANUARY 31,
2004
------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.16
------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.07
==============================================================================
Total from investment operations 0.19
==============================================================================
Less dividends from net investment income (0.12)
==============================================================================
Net asset value, end of period $ 8.23
______________________________________________________________________________
==============================================================================
Total return(a) 2.35%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $179,886
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets 0.71%(b)
==============================================================================
Ratio of net investment income to average net assets 4.64%(b)
______________________________________________________________________________
==============================================================================
Portfolio turnover rate(c) 2%
______________________________________________________________________________
==============================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) Ratios are annualized based on average daily net assets of $102,252,970.
(c) Not annualized for periods less than one year.
FS-251
NOTE 10--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including purported class action and shareholder derivative suits, have been filed against various parties (including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain related entities and certain of their officers, including Mr. Cunningham). The allegations in the majority of the lawsuits are substantially similar to the allegations in the regulatory complaints against IFG described above. Certain other lawsuits allege that certain AIM and INVESCO Funds inadequately
FS-252
NOTE 10--LEGAL PROCEEDINGS (CONTINUED)
employed fair value pricing. Such lawsuits allege a variety of theories of recovery, including but not limited to: (i) violation of various provisions of the Federal and state securities laws; (ii) violation of various provisions of the Employee Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been filed in both Federal and state courts and seek such remedies as compensatory damages; restitution; rescission; accounting for wrongfully gotten gains, profits and compensation; injunctive relief; disgorgement; equitable relief; various corrective measures under ERISA; rescission of certain Funds' advisory agreements with AIM; declaration that the advisory agreement is unenforceable or void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-253
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
MARKET
SHARES VALUE
------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS, COMMON STOCKS
& OTHER EQUITY INTERESTS-91.46%
APARTMENTS-11.60%
Archstone-Smith Trust 383,817 $ 10,528,100
------------------------------------------------------------------------
Avalonbay Communities, Inc. 211,300 10,374,830
------------------------------------------------------------------------
BRE Properties, Inc.-Class A 170,700 5,643,342
------------------------------------------------------------------------
Camden Property Trust 119,300 5,189,550
------------------------------------------------------------------------
Canadian Apartment Properties Real Estate
Investment Trust (Canada) 183,200 2,108,608
------------------------------------------------------------------------
Essex Property Trust, Inc. 277,900 17,271,485
------------------------------------------------------------------------
Residential Equities Real Estate Investment
Trust (Canada) 180,200 2,101,279
------------------------------------------------------------------------
United Dominion Realty Trust, Inc. 914,700 16,921,950
========================================================================
70,139,144
========================================================================
DIVERSIFIED-5.66%
AEW Real Estate Income Fund 59,200 1,057,904
------------------------------------------------------------------------
British Land Co. PLC (United Kingdom) 109,200 1,155,945
------------------------------------------------------------------------
Canadian Real Estate Investment Trust
(Canada) 53,400 683,143
------------------------------------------------------------------------
Cominar Real Estate Investment Trust (Canada) 92,700 1,066,965
------------------------------------------------------------------------
H&R Real Estate Investment Trust (Canada) 82,800 1,041,757
------------------------------------------------------------------------
Klepierre (France) 26,800 1,622,020
------------------------------------------------------------------------
Morguard Corp. (Canada) 38,300 679,309
------------------------------------------------------------------------
Societe Fonciere Lyonnaise (France) 21,100 893,927
------------------------------------------------------------------------
Sophia (France) 10,800 543,271
------------------------------------------------------------------------
Unibail (France) 11,600 1,103,044
------------------------------------------------------------------------
Vornado Realty Trust 435,600 24,371,820
========================================================================
34,219,105
========================================================================
HEALTHCARE-3.60%
Health Care Property Investors, Inc. 105,700 5,943,511
------------------------------------------------------------------------
Health Care REIT, Inc. 160,400 6,207,480
------------------------------------------------------------------------
Nationwide Health Properties, Inc. 275,900 6,014,620
------------------------------------------------------------------------
Retirement Residences Real Estate Investment
Trust (Canada) 80,800 804,981
------------------------------------------------------------------------
Ventas, Inc. 112,800 2,820,000
========================================================================
21,790,592
========================================================================
INDUSTRIAL PROPERTIES-10.93%
Catellus Development Corp. 258,396 6,759,639
------------------------------------------------------------------------
CenterPoint Properties Trust 284,300 22,772,430
------------------------------------------------------------------------
ProLogis 1,119,470 36,539,501
========================================================================
66,071,570
========================================================================
|
------------------------------------------------------------------------
MARKET
SHARES VALUE
INDUSTRIAL/OFFICE MIXED-2.06%
Kilroy Realty Corp. 183,100 $ 5,996,525
------------------------------------------------------------------------
Kilroy Realty Corp.-Series E, 7.80% Pfd. 27,100 692,405
------------------------------------------------------------------------
Liberty Property Trust 150,350 5,800,503
========================================================================
12,489,433
========================================================================
LODGING-RESORTS-5.76%
Extended Stay America, Inc. 71,900 1,100,070
------------------------------------------------------------------------
Fairmont Hotels & Resorts Inc. (Canada) 229,300 5,881,545
------------------------------------------------------------------------
Hilton Hotels Corp. 476,600 7,625,600
------------------------------------------------------------------------
Host Marriott Corp.(a) 451,500 5,720,505
------------------------------------------------------------------------
LaSalle Hotel Properties 174,600 3,448,350
------------------------------------------------------------------------
LaSalle Hotel Properties-Series B, 8.38% Pfd. 35,800 950,490
------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 271,800 9,605,412
------------------------------------------------------------------------
Winston Hotels, Inc.-Series B, 8.00% Pfd.(a) 19,000 480,938
========================================================================
34,812,910
========================================================================
OFFICE PROPERTIES-12.49%
Alexandria Real Estate Equities, Inc. 260,200 16,093,370
------------------------------------------------------------------------
Arden Realty, Inc. 150,800 4,674,800
------------------------------------------------------------------------
Boston Properties, Inc. 475,500 23,789,265
------------------------------------------------------------------------
Brookfield Properties Corp. (Canada) 70,200 2,023,866
------------------------------------------------------------------------
Mack-Cali Realty Corp. 181,600 7,367,512
------------------------------------------------------------------------
Maguire Properties, Inc.-Series A, 7.63%
Pfd.(a) 57,000 1,431,840
------------------------------------------------------------------------
SL Green Realty Corp. 468,400 20,127,148
========================================================================
75,507,801
========================================================================
REGIONAL MALLS-22.06%
Borealis Retail Real Estate Investment Trust
(Canada)(b)(c) (Acquired 07/10/03;
Cost $1,740,799) 239,400 2,186,301
------------------------------------------------------------------------
Borealis Retail Real Estate Investment Trust
(Canada) 29,000 264,840
------------------------------------------------------------------------
CBL & Associates Properties, Inc. 303,300 18,334,485
------------------------------------------------------------------------
General Growth Properties, Inc. 1,426,200 42,786,000
------------------------------------------------------------------------
Macerich Co. (The) 440,700 21,210,891
------------------------------------------------------------------------
Mills Corp. (The) 139,800 6,576,192
------------------------------------------------------------------------
Rouse Co. (The) 41,800 2,058,232
------------------------------------------------------------------------
Simon Property Group, Inc. 767,900 39,969,195
========================================================================
133,386,136
========================================================================
SELF STORAGE FACILITIES-0.68%
Public Storage, Inc. 25,000 1,187,750
------------------------------------------------------------------------
Shurgard Storage Centers, Inc.-Class A 77,500 2,945,775
========================================================================
4,133,525
========================================================================
|
FS-254
MARKET
SHARES VALUE
------------------------------------------------------------------------
SHOPPING CENTERS-12.97%
Capital & Regional PLC (United Kingdom) 117,400 $ 945,988
------------------------------------------------------------------------
Chelsea Property Group, Inc. 444,900 24,700,848
------------------------------------------------------------------------
Developers Diversified Realty Corp. 579,100 19,909,458
------------------------------------------------------------------------
Eurocommercial Properties N.V. (Netherlands) 51,200 1,354,521
------------------------------------------------------------------------
Federal Realty Investment Trust 277,300 11,449,717
------------------------------------------------------------------------
New Plan Excel Realty Trust 26,500 668,065
------------------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 168,600 8,617,146
------------------------------------------------------------------------
Regency Centers Corp. 159,400 6,646,980
------------------------------------------------------------------------
Urstadt Biddle Properties-Class A 281,100 4,160,280
========================================================================
78,453,003
========================================================================
SPECIALTY PROPERTIES-3.65%
American Financial Realty Trust 230,500 4,176,660
------------------------------------------------------------------------
Capital Automotive REIT 104,000 3,670,160
------------------------------------------------------------------------
Capital Automotive REIT-Series A, 7.50% Pfd. 95,500 2,459,125
------------------------------------------------------------------------
|
------------------------------------------------------------------------
MARKET
SHARES VALUE
SPECIALTY PROPERTIES-(CONTINUED)
Entertainment Properties Trust 130,400 $ 4,616,160
------------------------------------------------------------------------
Plum Creek Timber Co., Inc. 236,200 7,133,240
========================================================================
22,055,345
========================================================================
Total Real Estate Investment Trusts,
Common Stocks & Other Equity Interests
(Cost $410,785,815) 553,058,564
========================================================================
MONEY MARKET FUNDS-8.80%
Liquid Assets Portfolio(d) 26,591,699 26,591,699
------------------------------------------------------------------------
STIC Prime Portfolio(d) 26,591,699 26,591,699
========================================================================
Total Money Market Funds (Cost
$53,183,398) 53,183,398
========================================================================
TOTAL INVESTMENTS-100.26% (Cost $463,969,213) 606,241,962
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.26%) (1,563,506)
========================================================================
NET ASSETS-100.00% $604,678,456
________________________________________________________________________
========================================================================
|
Investment Abbreviations:
Pfd. - Preferred |
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of this security. The
aggregate market value of this security at 01/31/04 represented 0.36% of the
Fund's net assets. This security is not considered to be illiquid.
(c) Security fair valued in accordance with procedures established by the Board
of Trustees.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-255
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$410,785,815) $553,058,564
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $53,183,398) 53,183,398
===========================================================
Total investments (Cost $463,969,213) 606,241,962
___________________________________________________________
===========================================================
Receivables for:
Investments sold 1,930,163
-----------------------------------------------------------
Fund shares sold 4,447,222
-----------------------------------------------------------
Dividends 1,221,715
-----------------------------------------------------------
Investment for deferred compensation and
retirement plans 43,656
-----------------------------------------------------------
Other assets 111,878
===========================================================
Total assets 613,996,596
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 6,259,470
-----------------------------------------------------------
Fund shares reacquired 2,499,301
-----------------------------------------------------------
Deferred compensation and retirement plans 48,760
-----------------------------------------------------------
Accrued distribution fees 297,724
-----------------------------------------------------------
Accrued trustee fees 729
-----------------------------------------------------------
Accrued transfer agent fees 199,292
-----------------------------------------------------------
Accrued operating expenses 12,864
===========================================================
Total liabilities 9,318,140
===========================================================
Net assets applicable to shares outstanding $604,678,456
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $469,924,799
-----------------------------------------------------------
Undistributed net investment income (62,960)
-----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and foreign currency contracts (7,455,305)
-----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 142,271,922
===========================================================
$604,678,456
___________________________________________________________
===========================================================
NET ASSETS:
Class A $313,618,957
___________________________________________________________
===========================================================
Class B $166,645,994
___________________________________________________________
===========================================================
Class C $ 95,790,858
___________________________________________________________
===========================================================
Investor Class $ 28,622,647
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 15,176,882
___________________________________________________________
===========================================================
Class B 8,038,325
___________________________________________________________
===========================================================
Class C 4,629,435
___________________________________________________________
===========================================================
Investor Class 1,385,201
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 20.66
-----------------------------------------------------------
Offering price per share:
(Net asset value of $20.66 divided by
95.25%) $ 21.69
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 20.73
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 20.69
___________________________________________________________
===========================================================
Investor Class:
Net asset value and offering price per
share $ 20.66
___________________________________________________________
===========================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-256
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $64,692) $ 9,728,311
-------------------------------------------------------------------------
Dividends from affiliated money market funds 156,356
=========================================================================
Total investment income 9,884,667
=========================================================================
EXPENSES:
Advisory fees 2,098,154
-------------------------------------------------------------------------
Administrative services fees 67,223
-------------------------------------------------------------------------
Custodian fees 38,769
-------------------------------------------------------------------------
Distribution fees:
Class A 405,405
-------------------------------------------------------------------------
Class B 713,205
-------------------------------------------------------------------------
Class C 389,242
-------------------------------------------------------------------------
Investor Class 11,991
-------------------------------------------------------------------------
Transfer agent fees 609,057
-------------------------------------------------------------------------
Trustees' fees 7,281
-------------------------------------------------------------------------
Other 200,750
=========================================================================
Total expenses 4,541,077
=========================================================================
Less: Fees waived and expense offset arrangements (4,527)
=========================================================================
Net expenses 4,536,550
=========================================================================
Net investment income 5,348,117
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FOREIGN CURRENCY
CONTRACTS:
Net realized gain (loss) from:
Investment securities 8,226,955
-------------------------------------------------------------------------
Foreign currencies (31,344)
=========================================================================
8,195,611
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 72,867,149
-------------------------------------------------------------------------
Foreign currencies (3,096)
=========================================================================
72,864,053
=========================================================================
Net gain from investment securities, foreign currencies and
foreign currency contracts 81,059,664
=========================================================================
Net increase in net assets resulting from operations $86,407,781
_________________________________________________________________________
=========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-257
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 5,348,117 $ 6,774,304
------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and foreign currency contracts 8,195,611 (4,106,860)
------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, and foreign currencies 72,864,053 48,777,546
==========================================================================================
Net increase in net assets resulting from operations 86,407,781 51,444,990
==========================================================================================
Distributions to shareholders from net investment income:
Class A (3,349,486) (3,329,708)
------------------------------------------------------------------------------------------
Class B (1,571,834) (2,034,884)
------------------------------------------------------------------------------------------
Class C (857,573) (1,070,734)
------------------------------------------------------------------------------------------
Investor Class (206,336) --
==========================================================================================
Decrease in net assets resulting from distributions (5,985,229) (6,435,326)
==========================================================================================
Share transactions-net:
Class A 95,836,538 70,728,483
------------------------------------------------------------------------------------------
Class B 19,478,875 37,706,329
------------------------------------------------------------------------------------------
Class C 17,899,645 18,496,500
------------------------------------------------------------------------------------------
Investor Class 25,399,064 --
==========================================================================================
Net increase in net assets resulting from share
transactions 158,614,122 126,931,312
==========================================================================================
Net increase in net assets 239,036,674 171,940,976
==========================================================================================
NET ASSETS:
Beginning of period 365,641,782 193,700,806
==========================================================================================
End of period (including undistributed net investment
income of $(62,960) and $574,152 for 2004 and 2003,
respectively) $604,678,456 $365,641,782
__________________________________________________________________________________________
==========================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-258
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Real Estate Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve high total return. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures and exchange-traded funds..
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.
The Fund recharacterizes distributions received from REIT investments based on information provided by the REIT into the following categories; ordinary income, long-term and short-term capital gains, and return of capital. If information is not available timely from the REIT, the recharacterization will be based on available information which may include the previous year's allocation. If new or additional information becomes available from the REIT at a later date, a recharacterization will be made in the following year. The Fund records as dividend income the amount recharacterized as ordinary income and as realized gain the amount recharacterized as capital gain in the Statement of Operations, and the amount recharacterized as return of capital in the Statement of Changes in Net Assets. These recharacterizations are reflected in the accompanying financial statements.
FS-259
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from, (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
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.
G. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.90% of the Fund's average daily net assets. AIM has entered into a sub-advisory agreement with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM pays INVESCO 40% of the fee paid by the Fund to AIM. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the six months ended January 31, 2004, AIM waived fees of $1,955.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $67,223 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $247,933 for such services.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C Investor Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, 0.25% of the average daily net assets of the Class A, Class B, or Class C shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A, Class B, Class C and Investor Class shares paid $405,405, $713,205, $389,242 and $17,634, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the six months ended January 31, 2004, AIM Distributors retained $158,106.19 in front-end sales commissions from the sale of Class A shares and $20,999, $0 and $8,051 from Class A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
FS-260
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order by the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees to invest daily available cash balances in affiliated money market funds. Each day the prior day's balance invested in the affiliated money market fund is redeemed in full and a new purchase amount is submitted to invest the current day's available cash. The table below shows the transactions in and earnings from investments in affiliated money market funds for the period ended January 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/2003 AT COST FROM SALES (DEPRECIATION) 01/31/2004 INCOME GAIN (LOSS)
-------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $ 9,094,930 $ 51,249,262 $(33,752,493) $ -- $26,591,699 $78,338 $ --
-------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio 9,094,930 51,249,262 (33,752,493) -- 26,591,699 78,018 --
=========================================================================================================================
Total $18,189,860 $102,498,524 $(67,504,986) $ -- $53,183,398 $156,356 $ --
_________________________________________________________________________________________________________________________
=========================================================================================================================
|
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts and custodian credits resulting from periodic overnight cash balances at the custodian. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $2,216 and reductions in custodian fees of $356 under expense offset arrangements, which resulted in a reduction of the Fund's total expenses of $2,572.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $2,956 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan.
NOTE 6--BORROWINGS (CONTINUED)
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2007 $ 9,612,829
----------------------------------------------------------
July 31, 2008 1,275,744
----------------------------------------------------------
July 31, 2011 2,462,074
==========================================================
Total capital loss carryforward $13,350,647
__________________________________________________________
==========================================================
|
FS-261
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $172,429,382 and $55,838,043, respectively.
UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $140,334,029
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (41,764)
==========================================================================
Net unrealized appreciation of investment securities $140,292,265
__________________________________________________________________________
==========================================================================
Cost of investments for tax purposes is $465,949,697.
|
NOTE 9--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares, Class B shares, Class C shares and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC.. Investor Class shares are sold at net asset value. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,351,245 $121,093,099 10,040,616 $153,310,327
----------------------------------------------------------------------------------------------------------------------
Class B 1,792,657 33,954,276 4,612,513 69,835,946
----------------------------------------------------------------------------------------------------------------------
Class C 1,304,961 24,839,548 2,144,150 32,601,275
----------------------------------------------------------------------------------------------------------------------
Investor Class* 252,896 4,865,886 -- --
======================================================================================================================
Issued as reinvestment of dividends:
Class A 165,056 3,116,673 199,768 3,041,849
----------------------------------------------------------------------------------------------------------------------
Class B 73,749 1,394,459 118,414 1,804,757
----------------------------------------------------------------------------------------------------------------------
Class C 40,231 759,695 60,550 921,382
----------------------------------------------------------------------------------------------------------------------
Investor Class 10,116 198,352 -- --
======================================================================================================================
Issued in connection with acquisitions:**
Class A 601,377 11,125,322 -- --
----------------------------------------------------------------------------------------------------------------------
Class B 14,428 267,736 -- --
----------------------------------------------------------------------------------------------------------------------
Class C 122,102 2,261,014 -- --
----------------------------------------------------------------------------------------------------------------------
Investor Class* 1,476,425 27,304,798 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 161,611 3,066,862 158,310 2,459,992
----------------------------------------------------------------------------------------------------------------------
Class B (161,104) (3,066,862) (157,917) (2,459,992)
======================================================================================================================
Reacquired:
Class A (2,266,349) (42,565,418) (5,900,039) (88,083,685)
----------------------------------------------------------------------------------------------------------------------
Class B (694,663) (13,070,734) (2,108,225) (31,474,382)
----------------------------------------------------------------------------------------------------------------------
Class C (528,249) (9,960,612) (986,180) (15,026,157)
----------------------------------------------------------------------------------------------------------------------
Investor Class* (354,236) (6,969,972) -- --
======================================================================================================================
8,362,253 $158,614,122 8,181,960 $126,931,312
______________________________________________________________________________________________________________________
======================================================================================================================
|
* Investor Class shares commenced sales on September 30, 2003. ** As of the open of business on November 24, 2003, the Fund acquired all of the net assets of INVESCO Real Estate Opportunity Fund pursuant to a plan of reorganization approved by INVESCO Real Estate Opportunity Fund shareholders on October 28, 2003. The acquisition was accomplished by a tax-free exchange of 2,214,332 shares of the Fund for 4,386,619 shares of INVESCO Real Estate Opportunity Fund outstanding as of the close of business November 21, 2003. INVESCO Real Estate Opportunity Fund's net assets at that date of $40,958,870 including $5,430,748 of unrealized appreciation, were combined with those of the Fund. On the acquisition date, INVESCO Real Estate Opportunity Fund had undistributed net investment income (loss) of $(91,313) and undistributed net realized gain (loss) of $(6,684,043). The aggregate net assets of the Fund immediately before the acquisition were $427,505,213.
FS-262
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
-------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.50 $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.25(a) 0.45(a) 0.47(a) 0.50 0.30(a) 0.42
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.19 2.24 1.68 0.54 2.38 (0.75)
=================================================================================================================================
Total from investment operations 3.44 2.69 2.15 1.04 2.68 (0.33)
=================================================================================================================================
Less dividends from net investment income (0.28) (0.44) (0.46) (0.52) (0.25) (0.52)
=================================================================================================================================
Net asset value, end of period $ 20.66 $ 17.50 $ 15.25 $ 13.56 $ 13.04 $ 10.61
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 19.87% 18.12% 16.10% 8.23% 25.61% (2.88)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $313,619 $177,901 $86,411 $28,400 $23,187 $16,279
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.65%(c) 1.72% 1.77% 1.63% 1.62%(d) 1.61%
---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.65%(c) 1.72% 1.77% 1.79% 2.05%(d) 1.73%
=================================================================================================================================
Ratio of net investment income to average net
assets 2.59%(c) 2.97% 3.25% 3.88% 4.49%(d) 3.70%
=================================================================================================================================
Portfolio turnover rate(e) 13% 87% 77% 85% 39% 52%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$230,400,839.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-263
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS
ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.55 $ 15.29 $ 13.59 $ 13.07 $ 10.64 $11.48
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.36(a) 0.38(a) 0.41 0.25(a) 0.32
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.20 2.24 1.68 0.53 2.39 (0.72)
=================================================================================================================================
Total from investment operations 3.39 2.60 2.06 0.94 2.64 (0.40)
=================================================================================================================================
Less dividends from net investment income (0.21) (0.34) (0.36) (0.42) (0.21) (0.44)
=================================================================================================================================
Net asset value, end of period $ 20.73 $ 17.55 $ 15.29 $ 13.59 $ 13.07 $10.64
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 19.43% 17.37% 15.40% 7.42% 25.08% (3.53)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $166,646 $123,093 $69,557 $16,917 $12,722 $9,839
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.30%(c) 2.37% 2.41% 2.36% 2.37%(d) 2.35%
---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.30%(c) 2.37% 2.41% 2.43% 2.70%(d) 2.37%
=================================================================================================================================
Ratio of net investment income to average net
assets 1.94%(c) 2.32% 2.61% 3.15% 3.73%(d) 2.96%
=================================================================================================================================
Portfolio turnover rate(e) 13% 87% 77% 85% 39% 52%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$141,865,770.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-264
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS
ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ----------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.52 $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46
--------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.36(a) 0.38(a) 0.41 0.25(a) 0.33(a)
--------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.19 2.24 1.67 0.53 2.39 (0.73)
================================================================================================================================
Total from investment operations 3.38 2.60 2.05 0.94 2.64 (0.40)
================================================================================================================================
Less dividends from net investment income (0.21) (0.34) (0.36) (0.42) (0.21) (0.44)
================================================================================================================================
Net asset value, end of period $ 20.69 $ 17.52 $ 15.26 $ 13.57 $ 13.05 $ 10.62
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 19.41% 17.41% 15.35% 7.43% 25.13% (3.54)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $95,791 $64,648 $37,733 $22,722 $20,306 $19,992
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.30%(c) 2.37% 2.41% 2.36% 2.37%(d) 2.35%
--------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.30%(c) 2.37% 2.41% 2.43% 2.70%(d) 2.37%
================================================================================================================================
Ratio of net investment income to average net
assets 1.94%(c) 2.32% 2.61% 3.15% 3.73%(d) 2.96%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 13% 87% 77% 85% 39% 52%
________________________________________________________________________________________________________________________________
================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$77,425,325.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-265
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR CLASS
--------------
SEPTEMBER 30,
2003
(DATE SALES
COMMENCED) TO
JANUARY 31,
2004
----------------------------------------------------------------------------
Net asset value, beginning of period $ 18.18
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a)
----------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.48
============================================================================
Total from investment operations 2.66
============================================================================
Less dividends from net investment income (0.18)
============================================================================
Net asset value, end of period $ 20.66
____________________________________________________________________________
============================================================================
Total return(b) 14.69%
____________________________________________________________________________
============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $28,623
____________________________________________________________________________
============================================================================
Ratio of expenses to average net assets:
With fee waivers 1.55%(c)
----------------------------------------------------------------------------
Without fee waivers 1.55%(c)
============================================================================
Ratio of net investment income to average net assets 2.69%(c)
____________________________________________________________________________
============================================================================
Portfolio turnover rate(d) 13%
____________________________________________________________________________
============================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$20,988,865.
(d) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida
FS-266
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-267
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
BONDS & NOTES-53.25%
AEROSPACE & DEFENSE-0.16%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06 $ 495,000 $ 565,889
=========================================================================
ALTERNATIVE CARRIERS-0.25%
Intelsat, Ltd, (Bermuda) Sr. Notes, 5.25%,
11/01/08 (Acquired 10/31/03; Cost
$849,788)(a) 850,000 884,442
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.47%
Bank of New York Institutional Capital Trust-
Series A, Bonds, 7.78%, 12/01/26 (Acquired
06/12/03; Cost $1,789,065)(a) 1,500,000 1,669,920
=========================================================================
AUTOMOBILE MANUFACTURERS-0.58%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 2,025,000 2,054,140
=========================================================================
BROADCASTING & CABLE TV-6.36%
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06 1,000,000 1,110,550
-------------------------------------------------------------------------
Comcast Corp., Sr. Unsec. Notes, 8.88%,
04/01/07 900,000 921,204
-------------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 4,900,000 5,671,064
-------------------------------------------------------------------------
Cox Communications, Inc.-Class A, Unsec.
Notes, 7.50%, 08/15/04 2,495,000 2,574,890
-------------------------------------------------------------------------
Cox Radio, Inc.-Class A, Sr. Unsec. Notes,
6.63%, 02/15/06 2,000,000 2,155,640
-------------------------------------------------------------------------
Liberty Media Corp., Global Notes, 3.50%,
09/25/06 1,500,000 1,510,275
-------------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 1,000,000 1,234,660
-------------------------------------------------------------------------
TCI Communications, Inc.,
Medium Term Notes, 8.35%, 02/15/05 822,000 873,794
-------------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 08/01/05 575,000 623,932
-------------------------------------------------------------------------
Time Warner Cos. Inc., Unsec. Notes, 7.75%,
06/15/05 5,495,000 5,924,214
=========================================================================
22,600,223
=========================================================================
CONSUMER FINANCE-6.30%
Capital One Bank., Sr. Global Notes, 8.25%,
06/15/05 3,900,000 4,202,406
-------------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Unsec. Notes,
7.25%, 05/01/06 3,000,000 3,248,370
-------------------------------------------------------------------------
8.75%, 02/01/07 1,100,000 1,249,457
-------------------------------------------------------------------------
Ford Motor Credit Co.,
Unsec. Global Notes,
6.70%, 07/16/04 2,000,000 2,044,640
-------------------------------------------------------------------------
6.88%, 02/01/06 400,000 426,712
-------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
7.50%, 03/15/05 $ 800,000 $ 844,480
-------------------------------------------------------------------------
Unsec. Notes, 7.75%, 03/15/05 550,000 581,894
-------------------------------------------------------------------------
General Motors Acceptance Corp.,
Floating Rate Global Notes,
1.40%, 04/05/04(b) 2,000,000 2,001,320
-------------------------------------------------------------------------
Floating Rate Medium Term Notes,
1.88%, 05/17/04(b) 450,000 450,225
-------------------------------------------------------------------------
3.18%, 03/04/05(b) 1,800,000 1,799,244
-------------------------------------------------------------------------
Global Notes, 4.50%, 07/15/06 1,600,000 1,643,648
-------------------------------------------------------------------------
Medium Term Notes,
4.38%, 05/15/04 850,000 853,646
-------------------------------------------------------------------------
5.25%, 05/16/05 1,200,000 1,243,524
-------------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%, 01/15/06 750,000 802,657
-------------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$1,046,330)(a) 1,000,000 1,021,150
=========================================================================
22,413,373
=========================================================================
DIVERSIFIED BANKS-1.68%
Abbey National PLC (United Kingdom), Sub.
Yankee Notes, 7.35%,(c) 800,000 890,664
-------------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $776,335)(a) 700,000 748,685
-------------------------------------------------------------------------
Bankers Trust Corp., Unsec. Sub. Notes,
8.25%, 05/01/05 1,200,000 1,294,992
-------------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$1,191,550)(a) 1,000,000 1,151,460
-------------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Notes, 6.38%,
06/15/08 (Acquired 08/30/02; Cost
$53,673)(a) 50,000 52,652
-------------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27 650,000 763,002
-------------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 900,000 1,067,031
=========================================================================
5,968,486
=========================================================================
DIVERSIFIED CAPITAL MARKETS-0.43%
Chase Manhattan Corp., Sub. Debs., 7.88%,
07/15/06 400,000 449,592
-------------------------------------------------------------------------
JPMorgan Chase Bank, Sub. Notes, 7.00%,
06/01/05 1,000,000 1,066,860
=========================================================================
1,516,452
=========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.31%
International Lease Finance Corp., Global
Notes, 2.95%, 05/23/06 1,110,000 1,120,600
=========================================================================
|
FS-268
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
ELECTRIC UTILITIES-5.99%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 $ 1,430,000 $ 1,561,775
-------------------------------------------------------------------------
CenterPoint Energy, Inc.-Series B, Sr. Global
Notes, 5.88%, 06/01/08 500,000 519,310
-------------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 2,015,000 2,065,032
-------------------------------------------------------------------------
Consolidated Edison Co. of New York, Unsec.
Deb., 7.75%, 06/01/26(d) 2,000,000 2,229,980
-------------------------------------------------------------------------
Dominion Resources, Inc., Notes, 2.80%,
02/15/05 4,300,000 4,352,202
-------------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 1,740,000 1,889,309
-------------------------------------------------------------------------
Niagara Mohawk Power Corp.,
First Mortgage Bonds, 8.00%, 06/01/04(d) 100,000 101,938
-------------------------------------------------------------------------
Series F, Sr. Unsec. Notes, 7.63%, 10/01/05 756,098 825,674
-------------------------------------------------------------------------
Public Service Electric & Gas Co.-Series TT,
Refunding First Mortgage Bonds, 7.38%,
03/01/14(d) 3,200,000 3,287,808
-------------------------------------------------------------------------
Wisconsin Energy Corp., Sr. Unsec. Unsub.
Notes, 5.50%, 12/01/08 250,000 267,653
-------------------------------------------------------------------------
WPD Holdings UK (United Kingdom), Unsec.
Unsub. Notes, 6.75%, 12/15/04 (Acquired
01/08/04; Cost $2,077,500)(a) 2,000,000 2,057,700
-------------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series B, Sr. Unsec. Gtd. Unsub. Global
Notes, 6.50%, 02/25/08 2,000,000 2,135,740
=========================================================================
21,294,121
=========================================================================
FOOD RETAIL-1.28%
Kroger Co., Sr. Unsec. Gtd. Notes, 7.38%,
03/01/05 3,150,000 3,347,474
-------------------------------------------------------------------------
Safeway Inc., Notes, 2.50%, 11/01/05 1,200,000 1,200,636
=========================================================================
4,548,110
=========================================================================
GAS UTILITIES-0.44%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 1,000,000 1,070,550
-------------------------------------------------------------------------
Kinder Morgan Energy Partners, L.P., Sr.
Unsec. Sub. Notes, 8.00%, 03/15/05 450,000 479,759
=========================================================================
1,550,309
=========================================================================
HEALTH CARE FACILITIES-0.99%
HCA Inc.,
Notes, 7.00%, 07/01/07 1,000,000 1,096,270
-------------------------------------------------------------------------
Sr. Sub. Notes, 6.91%, 06/15/05 2,300,000 2,428,386
=========================================================================
3,524,656
=========================================================================
HOMEBUILDING-1.01%
Lennar Corp.-Series B, Class A, Sr. Unsec.
Gtd. Global Notes, 9.95%, 05/01/10 3,150,000 3,598,875
=========================================================================
HYPERMARKETS & SUPER CENTERS-0.18%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 600,000 647,778
=========================================================================
INDUSTRIAL CONGLOMERATES-0.55%
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$1,981,473)(a) 1,750,000 1,947,348
=========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
INTEGRATED OIL & GAS-0.21%
Occidental Petroleum Corp., Sr. Unsec. Notes,
6.50%, 04/01/05 $ 700,000 $ 738,815
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-6.63%
AT&T Corp., Unsec. Unsub. Notes, 7.00%,
05/15/05 1,825,000 1,931,233
-------------------------------------------------------------------------
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 3,027,000 3,330,790
-------------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 7.75%, 06/15/05 1,750,000 1,893,815
-------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 300,000 326,589
-------------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 700,000 795,886
-------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 3,940,000 4,236,012
-------------------------------------------------------------------------
7.13%, 01/30/06 3,500,000 3,800,090
-------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 7.90%, 03/15/05 3,650,000 3,906,303
-------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07 2,500,000 2,806,825
-------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
6.36%, 04/15/06 500,000 540,665
=========================================================================
23,568,208
=========================================================================
INVESTMENT BANKING & BROKERAGE-1.18%
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03; Cost
$2,008,062)(a) 1,800,000 1,945,782
-------------------------------------------------------------------------
Lehman Brothers Inc., Sr. Sub. Deb., 11.63%,
05/15/05 125,000 138,710
-------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 700,000 782,362
-------------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes,
4.54%, 03/08/05 250,000 257,513
-------------------------------------------------------------------------
7.08%, 10/03/05 690,000 745,462
-------------------------------------------------------------------------
Morgan Stanley, Unsec. Notes, 6.30%, 01/15/06 300,000 321,270
=========================================================================
4,191,099
=========================================================================
LIFE & HEALTH INSURANCE-0.89%
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 500,000 541,780
-------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 2,340,000 2,620,777
=========================================================================
3,162,557
=========================================================================
MOVIES & ENTERTAINMENT-0.85%
Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06 750,000 805,890
-------------------------------------------------------------------------
Viacom Inc., Sr. Unsec. Gtd. Notes, 7.15%,
05/20/05 2,060,000 2,201,955
=========================================================================
3,007,845
=========================================================================
|
FS-269
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER-0.39%
Westar Energy, Inc., Sec. First Mortgage
Global Bonds, 7.88%, 05/01/07 $ 1,200,000 $ 1,376,256
=========================================================================
OIL & GAS DRILLING-0.61%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05 2,070,000 2,180,000
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.21%
Kerr-McGee Corp., Unsec. Gtd. Global Notes,
5.38%, 04/15/05 1,630,000 1,698,330
-------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Sr. Sub.
Notes, 9.25%, 06/15/04 1,850,000 1,896,028
-------------------------------------------------------------------------
Nexen Inc. (Canada), Unsec. Unsub. Yankee
Notes, 7.13%, 02/04/04 700,000 700,966
=========================================================================
4,295,324
=========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.50%
Petroleos Mexicanos (Mexico), Unsec. Gtd.
Unsub. Global Notes, 6.50%, 02/01/05 1,700,000 1,774,375
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.65%
CIT Group Inc.,
Sr. Unsec. Notes, 6.63%, 06/15/05 1,465,000 1,558,203
-------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 2,000,000 2,168,020
-------------------------------------------------------------------------
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%, 01/30/06 1,430,000 1,450,363
-------------------------------------------------------------------------
Household Finance Corp.,
Medium Term Notes, 3.38%, 02/21/06 1,400,000 1,432,970
-------------------------------------------------------------------------
Sr. Unsec. Global Notes, 6.50%, 01/24/06 100,000 108,112
-------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Sr. Unsec. Global Notes, 8.02%, 05/15/07 1,000,000 1,105,110
-------------------------------------------------------------------------
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09 1,350,000 1,587,087
=========================================================================
9,409,865
=========================================================================
PACKAGED FOODS & MEATS-0.59%
Nabisco Inc., Putable Notes, 6.38%, 02/01/05 2,000,000 2,095,240
=========================================================================
REAL ESTATE-0.55%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 1,750,000 1,958,950
=========================================================================
REGIONAL BANKS-0.71%
Popular, Inc., Unsec. Sub. Notes, 6.75%,
12/15/05 1,000,000 1,077,550
-------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Island), Sec. Sub. Euro Floating Rate
Notes, 2.19%(c)(e)(f) 1,500,000 1,443,750
=========================================================================
2,521,300
=========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
RESTAURANTS-0.83%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 $ 2,700,000 $ 2,953,800
=========================================================================
SOVEREIGN DEBT-1.55%
Export-Import Bank of Korea (The) (South
Korea), Unsec. Putable Global Notes, 6.50%,
11/15/06 2,000,000 2,159,000
-------------------------------------------------------------------------
Hydro-Quebec (Canada)-Series B, Gtd. Medium
Term Yankee Notes, 6.52%, 02/23/06(d) 1,150,000 1,239,988
-------------------------------------------------------------------------
Japan Bank for International Cooperation.
(Japan), Unsec. Gtd. Euro Bonds, 6.50%,
10/06/05 75,000 80,554
-------------------------------------------------------------------------
United Mexican States (Mexico), Global Notes,
4.63%, 10/08/08 2,000,000 2,017,500
=========================================================================
5,497,042
=========================================================================
THRIFTS & MORTGAGE FINANCE-1.41%
Countrywide Home Loans, Inc.-
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 1,175,000 1,255,794
-------------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 1,000,000 1,026,180
-------------------------------------------------------------------------
Washington Mutual Finance Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 2,500,000 2,715,225
=========================================================================
4,997,199
=========================================================================
TOBACCO-0.79%
Altria Group, Inc.,
Notes,
7.13%, 10/01/04 480,000 496,200
-------------------------------------------------------------------------
7.50%, 04/01/04 700,000 706,629
-------------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06 1,500,000 1,588,815
=========================================================================
2,791,644
=========================================================================
TRUCKING-1.49%
Hertz Corp. (The)-Class A, Floating Rate
Global Notes, 1.71%, 08/13/04(b) 2,535,000 2,535,000
-------------------------------------------------------------------------
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 2,400,000 2,766,360
=========================================================================
5,301,360
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.23%
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 6,445,000 7,653,438
-------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 3,180,000 3,835,875
=========================================================================
11,489,313
=========================================================================
Total Bonds & Notes (Cost $187,910,299) 189,214,914
=========================================================================
|
FS-270
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
ASSET-BACKED SECURITIES-2.03%
ELECTRIC UTILITIES-0.89%
Yorkshire Power Finance (Cayman Islands)-
Series 2000-1, Pass Through Ctfs., 8.25%,
02/15/05 (Acquired 06/19/03-11/12/03; Cost
$3,240,065)(a) $ 3,000,000 $ 3,172,920
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.14%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
10/03/02-09/23/03; Cost $2,032,068)(a) 1,885,041 2,013,375
-------------------------------------------------------------------------
First Industrial Realty Trust, Inc., Putable
PATS, 7.38%, 05/15/04 (Acquired 02/06/03;
Cost $2,097,000)(a) 2,000,000 2,029,720
=========================================================================
4,043,095
=========================================================================
Total Asset-Backed Securities (Cost
$7,178,792) 7,216,015
=========================================================================
U.S. MORTGAGE-BACKED SECURITIES-36.28%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-8.31%
Pass Through Ctfs.,
8.00%, 11/20/12 1,384,457 1,493,535
-------------------------------------------------------------------------
9.00%, 05/01/15 1,169,999 1,297,638
-------------------------------------------------------------------------
7.50%, 06/01/16 to 09/01/29 6,532,079 7,020,063
-------------------------------------------------------------------------
7.00%, 12/01/16 to 01/01/33 6,264,848 6,682,724
-------------------------------------------------------------------------
6.00%, 02/01/17 to 03/01/23 7,302,014 7,628,717
-------------------------------------------------------------------------
8.50%, 02/01/19 to 08/17/26 4,914,849 5,407,352
=========================================================================
29,530,029
=========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-17.30%
Pass Through Ctfs.,
7.50%, 02/01/15 to 02/01/31 6,586,661 7,060,600
-------------------------------------------------------------------------
7.00%, 04/01/15 to 02/01/33 29,307,926 31,293,295
-------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-(CONTINUED)
6.50%, 11/01/16 to 07/01/31 $ 5,063,734 $ 5,374,401
-------------------------------------------------------------------------
8.00%, 09/01/17 to 12/01/32 13,918,597 15,093,009
-------------------------------------------------------------------------
8.50%, 11/01/24 to 07/01/30 1,497,364 1,647,890
-------------------------------------------------------------------------
Unsec. Global Notes,
1.88%, 09/15/05 1,000,000 1,001,930
=========================================================================
61,471,125
=========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-10.67%
Pass Through Ctfs.,
7.00%, 05/15/17 to 06/15/32 11,102,534 11,919,327
-------------------------------------------------------------------------
6.00%, 06/15/18 to 07/15/33 7,705,527 8,077,367
-------------------------------------------------------------------------
7.50%, 06/15/23 to 01/15/32 6,154,703 6,647,565
-------------------------------------------------------------------------
6.50%, 07/15/23 to 04/15/33 10,636,634 11,268,407
=========================================================================
37,912,666
=========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $127,016,610) 128,913,820
=========================================================================
U.S. TREASURY NOTES-4.90%
1.50%, 02/28/05(g) 13,375,000 13,410,578
-------------------------------------------------------------------------
1.25%, 05/31/05 4,000,000 3,991,880
=========================================================================
Total U.S. Treasury Notes (Cost
$17,388,748) 17,402,458
=========================================================================
SHARES
MONEY MARKET FUNDS-1.90%
Liquid Assets Portfolio(h) 3,373,534 3,373,534
-------------------------------------------------------------------------
STIC Prime Portfolio(h) 3,373,534 3,373,534
=========================================================================
Total Money Market Funds (Cost
$6,747,068) 6,747,068
=========================================================================
TOTAL INVESTMENTS-98.36% (Cost $346,241,517) 349,494,275
=========================================================================
OTHER ASSETS LESS LIABILITIES-1.64% 5,835,415
=========================================================================
NET ASSETS-100.00% $355,329,690
_________________________________________________________________________
=========================================================================
|
Investment Abbreviations:
Ctfs - Certificates Deb. - Debentures Gtd. - Guaranteed PATS - Pass Through Asset Trust Securities Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated |
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/04 was $18,695,154,
which represented 5.26% of the Fund's net assets. These securities are
considered to be illiquid.
(b) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 01/31/04.
(c) Perpetual bond with no specified maturity date.
(d) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., Financial Security
Assurance Inc., or MBIA Insurance Corp.
(e) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 01/31/04.
(f) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(g) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1 section E and Note 7.
(h) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-271
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$339,494,449) $342,747,207
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $6,747,068) 6,747,068
===========================================================
Total investments (cost $346,241,517) 349,494,275
===========================================================
Receivables for:
Investments sold 461,700
-----------------------------------------------------------
Fund shares sold 6,231,100
-----------------------------------------------------------
Dividends and interest 3,880,080
-----------------------------------------------------------
Amount due from advisor 2,662
-----------------------------------------------------------
Investment for deferred compensation and
retirement plans 10,406
-----------------------------------------------------------
Other assets 37,280
===========================================================
Total assets 360,117,503
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 874,730
-----------------------------------------------------------
Fund shares reacquired 3,638,278
-----------------------------------------------------------
Dividends 106,894
-----------------------------------------------------------
Deferred compensation and retirement plans 12,174
-----------------------------------------------------------
Variation margin 41,406
-----------------------------------------------------------
Accrued distribution fees 75,347
-----------------------------------------------------------
Accrued trustees' fees 588
-----------------------------------------------------------
Accrued transfer agent fees 27,005
-----------------------------------------------------------
Accrued operating expenses 11,391
===========================================================
Total liabilities 4,787,813
===========================================================
Net assets applicable to shares outstanding $355,329,690
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $354,388,084
-----------------------------------------------------------
Undistributed net investment income (2,092,122)
-----------------------------------------------------------
Undistributed net realized gain from
investment securities and futures contracts 113,655
-----------------------------------------------------------
Unrealized appreciation of investment
securities and futures contracts 2,920,073
===========================================================
$355,329,690
___________________________________________________________
===========================================================
CLASS C:
Shares outstanding, $0.01 par value per
share, unlimited number of shares
authorized 35,211,921
===========================================================
Net asset value and offering price per share $ 10.09
___________________________________________________________
===========================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-272
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest $ 4,372,806
-------------------------------------------------------------------------
Dividends 31
-------------------------------------------------------------------------
Dividends from affiliated money market funds 15,530
=========================================================================
Total investment income 4,388,367
=========================================================================
EXPENSES:
Advisory fees 673,741
-------------------------------------------------------------------------
Administrative services fees 38,846
-------------------------------------------------------------------------
Custodian fees 29,395
-------------------------------------------------------------------------
Distribution fees 1,684,351
-------------------------------------------------------------------------
Transfer agent fees 143,669
-------------------------------------------------------------------------
Trustees' fees 6,787
-------------------------------------------------------------------------
Other 122,591
=========================================================================
Total expenses 2,699,380
=========================================================================
Less: Fees waived and expense offset arrangements (676,394)
=========================================================================
Net expenses 2,022,986
=========================================================================
Net investment income 2,365,381
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 863,235
-------------------------------------------------------------------------
Futures contracts 255,269
=========================================================================
1,118,504
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 3,669,361
-------------------------------------------------------------------------
Futures contracts (332,685)
=========================================================================
3,336,676
=========================================================================
Net gain from investment securities and futures contracts 4,455,180
=========================================================================
Net increase in net assets resulting from operations $ 6,820,561
_________________________________________________________________________
=========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-273
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the period August 30, 2002 (date
operations commenced) through July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
--------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,365,381 $ 1,922,542
--------------------------------------------------------------------------------------------
Net realized gain from investment securities and futures
contracts 1,118,504 722,466
--------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and futures contracts 3,336,676 (416,603)
============================================================================================
Net increase in net assets resulting from operations 6,820,561 2,228,405
============================================================================================
Distributions to shareholders from net investment income (4,453,065) (3,757,098)
--------------------------------------------------------------------------------------------
Return of capital -- (68,668)
--------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (4,453,065) (3,825,766)
--------------------------------------------------------------------------------------------
Share transactions-net: 15,482,212 339,077,343
============================================================================================
Net increase in net assets 17,849,708 337,479,982
============================================================================================
NET ASSETS:
Beginning of year 337,479,982 --
============================================================================================
End of year (including undistributed net investment income
of $(2,092,122) and $(4,438) for 2004 and 2003,
respectively) $355,329,690 $337,479,982
____________________________________________________________________________________________
============================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-274
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Short Term Bond Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers one class of shares. Matters affecting each portfolio will be voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income consistent with the preservation of capital. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures and exchange-traded funds.
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. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
FS-275
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.40% of the Fund's average daily net assets. AIM has contractually agreed to waive fees and/or reimburse expenses (excluding interest, taxes, fund merger and reorganization expenses, extraordinary items, including other items designated as such by the Board of Trustees and increases in expenses due to expense offset arrangements, if any) of Class C shares to the extent necessary to limit the total annual fund operating expenses of Class C shares to 1.20% committed until July 31, 2004. To the extent that the annualized expense ratio does not exceed the contractual expense limitation, AIM will retain the ability to be reimbursed for such fee waivers or reimbursements prior to the end of the committed period. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the six months ended January 31, 2004, AIM waived fees of $501.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $38,846 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES (CONTINUED)
and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $60,147 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class C shares (the "Plan"). The Fund, pursuant to the Plan, pays AIM Distributors compensation at the annual rate of 1.00% of the Fund's average daily net assets of Class C shares. Of this amount, up to 0.25% of the average daily net assets of the Class C shares may be paid to furnish continuing personal shareholder services to customers who purchase and own Class C shares of the Fund. Any amounts not paid as a service fee under the Plan would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the Fund. AIM Distributors has contractually agreed to waive 0.40% of the Rule 12b-1 plan fees on Class C shares. Pursuant to the Plans, for the six months ended January 31, 2004, the Class C shares paid $1,010,611 after AIM Distributors waived plan fees of $673,740.
Contingent deferred sales charges ("CDSC") are not recorded as an expense of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the six months ended January 31, 2004, AIM Distributors retained $2,589 from Class C shares for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees to invest daily available cash balances in affiliated money market funds. Each day the prior day's balance invested in the affiliated money market fund is redeemed in full and a new purchase amount is submitted to invest the current day's available cash. The table below shows the transactions in and earnings from investments in affiliated money market funds for the period ended January 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/2003 AT COST FROM SALES (DEPRECIATION) 01/31/2004 INCOME GAIN (LOSS)
------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $322,088 $ 45,158,037 $(42,106,591) -- $3,373,534 $ 7,643 --
------------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portoflio 322,088 45,158,037 (42,106,591) -- 3,373,534 7,887 --
====================================================================================================================================
Total $644,176 $ 90,316,074 $(84,213,182) $ -- $6,747,068 $15,530 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
|
FS-276
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts and custodian credits resulting from periodic overnight cash balances at the custodian. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $1,696 and reductions in custodian fees of $457 under expense offset arrangements, which resulted in a reduction of the Fund's total expenses of $2,153.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $2,871 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 7--FUTURES CONTRACTS
On January 31, 2004, $300,000 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts.
OPEN FUTURES CONTRACTS AT PERIOD END
-------------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ MARKET APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
-------------------------------------------------------------------------------
U.S. Treasury 2 Year
Notes 27 Mar.-04/Short $ 5,791,500 $ (47,017)
-------------------------------------------------------------------------------
U.S. Treasury 5 Year
Notes 140 Mar.-04/Short 15,725,938 (285,668)
===============================================================================
$21,517,438 $(332,685)
_______________________________________________________________________________
===============================================================================
|
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2011 $20,292
__________________________________________________________
==========================================================
|
FS-277
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004, was $183,841,122 and $180,655,602, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $3,924,342
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (671,584)
==========================================================================
Net unrealized appreciation of investment securities $3,252,758
__________________________________________________________________________
==========================================================================
Investments have the same cost for tax and financial statement purposes.
|
NOTE 10--SHARE INFORMATION
The Fund currently offers Class C shares. Class C shares are sold at net asset value. Under some circumstances, Class C shares are subject to CDSC.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
SIX MONTHS ENDED COMMENCED) TO
JANUARY 31, 2004 JULY 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold 19,365,296 $ 194,710,860 50,609,851 $ 509,493,749
--------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 373,080 3,754,119 317,302 3,197,003
--------------------------------------------------------------------------------------------------------------------------
Reacquired (18,214,376) (182,982,767) (17,239,232) (173,613,409)
==========================================================================================================================
1,524,000 $ 15,482,212 33,687,921 $ 339,077,343
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
FS-278
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS C
----------------------------------
AUGUST 30,
2002
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2004 2003
------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.02 $ 10.01
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.12(a)
------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.13 0.14
================================================================================================
Total from investment operations 0.20 0.26
================================================================================================
Less distributions:
Dividends from net investment income (0.13) (0.25)
------------------------------------------------------------------------------------------------
Return of capital -- (0.00)
================================================================================================
Total distributions (0.13) (0.25)
================================================================================================
Net asset value, end of period $ 10.09 $ 10.02
________________________________________________________________________________________________
================================================================================================
Total return(b) 2.05% 2.58%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $355,330 $337,480
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.20%(c) 1.20%(d)
------------------------------------------------------------------------------------------------
Without fee waivers 1.60%(c) 1.60%(d)
================================================================================================
Ratio of net investment income to average net assets 1.40%(c) 1.28%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 54% 88%
________________________________________________________________________________________________
================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does 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
$335,039,476.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
FS-279
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-280
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
BONDS & NOTES-48.53%
AEROSPACE & DEFENSE-0.30%
Lockheed Martin Corp.-Series A,
Medium Term Notes, 8.66%, 11/30/06 $ 225,000 $ 257,222
=======================================================================
ALTERNATIVE CARRIERS-0.31%
Intelsat Ltd. (Bermuda),
Sr. Notes, 6.50%, 11/01/13
(Acquired 10/31/03; Cost $124,618)(a) 125,000 133,411
-----------------------------------------------------------------------
Sr. Notes, 5.25%, 11/01/08
(Acquired 10/31/03; Cost $124,969)(a) 125,000 130,065
=======================================================================
263,476
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.26%
Bank of New York Institutional Capital Trust-
Series A, Bonds, 7.78%, 12/01/26 (Acquired
06/12/03; Cost $238,542)(a) 200,000 222,656
=======================================================================
AUTOMOBILE MANUFACTURERS-0.66%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 550,000 557,914
=======================================================================
BROADCASTING & CABLE TV-4.64%
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06 200,000 222,110
-----------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Notes, 8.88%, 04/01/07 150,000 153,534
-----------------------------------------------------------------------
Class A, Sr. Sub. Deb., 10.63%, 07/15/12 200,000 267,624
-----------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 1,000,000 1,157,360
-----------------------------------------------------------------------
Cox Radio, Inc.-Class A, Sr. Unsec. Notes,
6.63%, 02/15/06 125,000 134,727
-----------------------------------------------------------------------
Liberty Media Corp., Global Notes, 3.50%,
09/25/06 200,000 201,370
-----------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 600,000 740,796
-----------------------------------------------------------------------
TCI Communications, Inc., Medium Term Notes,
8.35%, 02/15/05 350,000 372,053
-----------------------------------------------------------------------
Time Warner Cos. Inc.,
Sr. Unsec. Gtd. Deb.,
6.88%, 06/15/18 125,000 139,265
-----------------------------------------------------------------------
7.25%, 10/15/17 75,000 86,178
-----------------------------------------------------------------------
7.57%, 02/01/24 200,000 227,300
-----------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 225,000 242,575
=======================================================================
3,944,892
=======================================================================
CONSUMER FINANCE-5.47%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18 100,000 117,296
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
CONSUMER FINANCE-(CONTINUED)
Associates Corp. of North America, Sub. Deb.,
8.15%, 08/01/09 $ 375,000 $ 454,706
-----------------------------------------------------------------------
Capital One Bank, Sr. Global Notes, 8.25%,
06/15/05 200,000 215,508
-----------------------------------------------------------------------
Capital One Financial Corp., Sr. Unsec.
Notes,
7.25%, 05/01/06 675,000 730,883
-----------------------------------------------------------------------
8.75%, 02/01/07 350,000 397,554
-----------------------------------------------------------------------
Ford Motor Credit Co.,
Unsec. Global Notes,
6.70%, 07/16/04 50,000 51,116
-----------------------------------------------------------------------
6.88%, 02/01/06 360,000 384,041
-----------------------------------------------------------------------
7.50%, 03/15/05 200,000 211,120
-----------------------------------------------------------------------
Unsec. Notes, 7.75%, 03/15/05 100,000 105,799
-----------------------------------------------------------------------
General Motors Acceptance Corp.,
Floating Rate Medium Term Notes,
1.88%, 05/17/04(b) 150,000 150,075
-----------------------------------------------------------------------
3.18%, 03/04/05(b) 200,000 199,916
-----------------------------------------------------------------------
Global Notes, 4.50%, 07/15/06 175,000 179,774
-----------------------------------------------------------------------
Medium Term Notes,
4.38%, 05/15/04 150,000 150,643
-----------------------------------------------------------------------
5.25%, 05/16/05 175,000 181,347
-----------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%, 01/15/06 550,000 588,615
-----------------------------------------------------------------------
Household Finance Corp., Sr. Unsec. Global
Notes, 7.63%, 05/17/32 345,000 423,615
-----------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$104,633)(a) 100,000 102,115
=======================================================================
4,644,123
=======================================================================
DIVERSIFIED BANKS-4.96%
Abbey National PLC (United Kingdom),
Sub. Yankee Notes, 7.35%(c) 100,000 111,333
-----------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $83,179)(a) 75,000 80,216
-----------------------------------------------------------------------
Bank of America Corp.,
Unsec. Sub. Notes, 7.13%, 03/01/09 125,000 144,071
-----------------------------------------------------------------------
Series B, Putable Sub. Medium Term Notes,
8.57%, 11/15/04 150,000 198,409
-----------------------------------------------------------------------
BankBoston Corp., Gtd. Floating Rate Notes,
1.78%, 06/08/28(b) 400,000 382,020
-----------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Bonds,
8.55% (Acquired 11/05/03; Cost
$209,209)(a)(c) 170,000 210,497
-----------------------------------------------------------------------
Barnett Capital I, Gtd. Bonds, 8.06%,
12/01/26 175,000 205,105
-----------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 400,000 452,876
-----------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$379,629)(a) 300,000 367,281
-----------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$178,733)(a) 150,000 172,719
-----------------------------------------------------------------------
|
FS-281
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Corporacion Andina de Fomento (Venezuela),
Global Notes, 5.20%, 05/21/13 $ 350,000 $ 349,461
-----------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Notes, 6.38%,
06/15/08 (Acquired 08/30/02; Cost
$107,346)(a) 100,000 105,305
-----------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27 160,000 187,816
-----------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 250,000 296,397
-----------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61% (Acquired 11/05/03; Cost
$74,602)(a)(c) 80,000 76,032
-----------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
1.50%(c)(d) 300,000 254,319
-----------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)- Series B, Unsec. Sub. Euro Notes,
1.44%(c)(d) 100,000 84,245
-----------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 250,000 322,157
-----------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate
Notes, 1.74%, 06/01/28(b) 150,000 140,788
-----------------------------------------------------------------------
RBS Capital Trust I, Bonds, 4.71%(c) 75,000 72,091
=======================================================================
4,213,138
=======================================================================
DIVERSIFIED CAPITAL MARKETS-0.79%
Chase Manhattan Corp., Sub. Debs., 7.88%,
07/15/06 100,000 112,398
-----------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%(c) 450,000 561,321
=======================================================================
673,719
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.12%
International Lease Finance Corp., Global
Notes, 2.95%, 05/23/06 100,000 100,955
=======================================================================
ELECTRIC UTILITIES-4.16%
AmerenEnergy Generating Co.-Series C,
Sr. Unsec. Global Notes, 7.75%, 11/01/05 50,000 54,607
-----------------------------------------------------------------------
American Electric Power Co., Inc.,
Sr. Unsec. Unsub. Notes, 5.25%, 06/01/15 150,000 149,467
-----------------------------------------------------------------------
CenterPoint Energy, Inc.-Series B, Sr. Global
Notes, 5.88%, 06/01/08 50,000 51,931
-----------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 100,000 102,483
-----------------------------------------------------------------------
Consolidated Edison Co. of New York, Unsec.
Deb., 7.75%, 06/01/26(e) 250,000 278,747
-----------------------------------------------------------------------
Consumers Energy Co., First Mortgage Bonds,
6.00%, 02/15/14 (Acquired 10/03/03; Cost
$255,575)(a) 250,000 264,385
-----------------------------------------------------------------------
Dominion Resources, Inc., Notes, 2.80%,
02/15/05 200,000 202,428
-----------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 650,000 705,776
-----------------------------------------------------------------------
Niagara Mohawk Power Corp., First Mortgage
Bonds, 8.00%, 06/01/04(e) 210,000 214,070
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-(CONTINUED)
Public Service Electric & Gas Co.-Series TT,
Refunding First Mortgage Bonds,
7.38%, 03/01/14(e) $ 250,000 $ 256,860
-----------------------------------------------------------------------
Southern Power Co.-Series D,
Sr. Unsec. Global Notes, 4.88%, 07/15/15 75,000 71,690
-----------------------------------------------------------------------
United Energy Distribution Holdings
Proprietary Ltd. (Australia), Sr. Unsec.
Unsub. Notes,
4.70%, 04/15/11 (Acquired 11/12/03; Cost
$119,879)(a) 120,000 122,396
-----------------------------------------------------------------------
WPD Holdings UK (United Kingdom),
Jr. Unsec. Unsub. Notes, 6.75%, 12/15/04
(Acquired 01/08/04; Cost $259,688)(a) 250,000 257,212
-----------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series B, Sr. Unsec. Gtd. Unsub. Global
Notes,
6.50%, 02/25/08 750,000 800,902
=======================================================================
3,532,954
=======================================================================
ENVIRONMENTAL SERVICES-0.41%
Waste Management, Inc., Sr. Unsec. Unsub.
Notes, 7.38%, 08/01/10 300,000 348,759
=======================================================================
FOOD RETAIL-0.21%
Kroger Co., Sr. Unsec. Gtd. Notes, 7.38%,
03/01/05 50,000 53,134
-----------------------------------------------------------------------
Safeway Inc., Notes, 2.50%, 11/01/05 125,000 125,066
=======================================================================
178,200
=======================================================================
GAS UTILITIES-0.70%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 200,000 214,110
-----------------------------------------------------------------------
Kinder Morgan Energy Partners, L.P.,
Sr. Unsec. Sub. Notes, 8.00%, 03/15/05 100,000 106,613
-----------------------------------------------------------------------
Kinder Morgan, Inc., Sr. Unsec. Notes, 6.80%,
03/01/08 250,000 276,777
=======================================================================
597,500
=======================================================================
HEALTH CARE FACILITIES-0.76%
HCA Inc.,
Notes,
6.25%, 02/15/13 100,000 105,270
-----------------------------------------------------------------------
7.00%, 07/01/07 300,000 328,881
-----------------------------------------------------------------------
Sr. Sub. Notes, 6.91%, 06/15/05 200,000 211,164
=======================================================================
645,315
=======================================================================
HOMEBUILDING-0.95%
Lennar Corp.-Series B, Class A,
Sr. Unsec. Gtd. Global Notes, 9.95%,
05/01/10 350,000 399,875
-----------------------------------------------------------------------
M.D.C. Holdings, Inc., Sr. Unsec. Gtd. Notes,
5.50%, 05/15/13 400,000 403,976
=======================================================================
803,851
=======================================================================
HOUSEWARES & SPECIALTIES-0.43%
American Greetings Corp., Unsec. Putable
Notes, 6.10%, 08/01/08 350,000 362,687
=======================================================================
|
FS-282
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-0.16%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 $ 125,000 $ 134,954
=======================================================================
INDUSTRIAL CONGLOMERATES-0.13%
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$113,227)(a) 100,000 111,277
=======================================================================
INTEGRATED OIL & GAS-0.35%
Occidental Petroleum Corp., Sr. Unsec. Notes,
6.50%, 04/01/05 250,000 263,863
-----------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 30,000 32,335
=======================================================================
296,198
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-5.55%
AT&T Corp., Unsec. Unsub. Notes, 7.00%,
05/15/05 150,000 158,732
-----------------------------------------------------------------------
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 200,000 220,072
-----------------------------------------------------------------------
Citizens Communications Co., Sr. Unsec.
Notes, 9.25%, 05/15/11 230,000 273,576
-----------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 7.75%, 06/15/05 125,000 135,273
-----------------------------------------------------------------------
France Telecom S.A. (France),
Sr. Unsec. Global Notes, 8.50%, 03/01/31 250,000 330,295
-----------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 75,000 81,647
-----------------------------------------------------------------------
New England Telephone & Telegraph Co.,
Sr. Unsec. Notes, 7.65%, 06/15/07 150,000 170,547
-----------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 410,000 440,803
-----------------------------------------------------------------------
7.13%, 01/30/06 550,000 597,157
-----------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes,
6.13%, 11/15/08 250,000 268,663
-----------------------------------------------------------------------
Unsec. Gtd. Global Notes,
7.90%, 03/15/05 450,000 481,599
-----------------------------------------------------------------------
8.75%, 03/15/32 120,000 145,841
-----------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07 850,000 954,321
-----------------------------------------------------------------------
8.00%, 06/01/11 75,000 88,688
-----------------------------------------------------------------------
Verizon Communications, Inc., Unsec. Deb.,
6.94%, 04/15/28 50,000 53,004
-----------------------------------------------------------------------
8.75%, 11/01/21 125,000 157,495
-----------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 150,000 159,014
=======================================================================
4,716,727
=======================================================================
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
INVESTMENT BANKING & BROKERAGE-1.27%
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03; Cost
$167,339)(a) $ 150,000 $ 162,149
-----------------------------------------------------------------------
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 250,000 277,420
-----------------------------------------------------------------------
Unsec. Sub. Notes, 7.63%, 06/01/06 150,000 167,649
-----------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B,
Medium Term Notes, 4.54%, 03/08/05 250,000 257,513
-----------------------------------------------------------------------
Morgan Stanley, Unsec. Notes, 6.30%, 01/15/06 200,000 214,180
=======================================================================
1,078,911
=======================================================================
LIFE & HEALTH INSURANCE-0.70%
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 120,000 130,027
-----------------------------------------------------------------------
Prudential Holdings, LLC-Series B, Bonds,
7.25%, 12/18/23 (Acquired 01/22/04; Cost
$355,113)(a)(e) 300,000 352,173
-----------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 100,000 111,999
=======================================================================
594,199
=======================================================================
MOVIES & ENTERTAINMENT-0.51%
Time Warner Inc.,
Sr. Unsec. Gtd. Unsub. Global Notes,
6.13%, 04/15/06 400,000 429,808
=======================================================================
MULTI-LINE INSURANCE-0.12%
MassMutual Global Funding II, Notes, 3.80%,
04/15/09 (Acquired 10/07/03; Cost
$99,867)(a) 100,000 100,244
=======================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.59%
Duke Energy Corp., First Mortgage Bonds,
3.75%, 03/05/08 100,000 101,079
-----------------------------------------------------------------------
Westar Energy, Inc.,
Sec. First Mortgage Global Bonds, 7.88%,
05/01/07 350,000 401,408
=======================================================================
502,487
=======================================================================
MUNICIPALITIES-0.87%
California (State of) Industry Urban
Development Agency; Project 3 Tax
Allocation, Series 2003B 6.10%,
05/01/24(e)(f) 450,000 460,490
-----------------------------------------------------------------------
Illinois (State of);
Unlimited Tax Pension Series 2003 GO,
5.10%, 06/01/33(f) 300,000 281,634
=======================================================================
742,124
=======================================================================
OIL & GAS DRILLING-0.30%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05 100,000 105,314
-----------------------------------------------------------------------
Transocean Inc.(Cayman Islands),
Sr. Unsec. Unsub. Global Deb., 8.00%,
04/15/27 125,000 152,163
=======================================================================
257,477
=======================================================================
|
FS-283
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-1.21%
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired 05/20/03; Cost
151,044)(a) $ 145,725 $ 145,638
-----------------------------------------------------------------------
Kerr-McGee Corp., Unsec. Gtd. Global Notes,
5.38%, 04/15/05 150,000 156,288
-----------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Sr. Sub.
Notes, 9.25%, 06/15/04 125,000 128,110
-----------------------------------------------------------------------
Pemex Project Funding Master Trust,
Unsec. Gtd. Unsub. Global Notes,
7.38%, 12/15/14 550,000 593,472
=======================================================================
1,023,508
=======================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.25%
Petroleos Mexicanos (Mexico),
Unsec. Gtd. Unsub. Global Notes, 6.50%,
02/01/05 150,000 156,563
-----------------------------------------------------------------------
Plains All American Pipeline L.P., Sr. Notes,
5.63%, 12/15/13 (Acquired 12/03/03; Cost
$49,867)(a) 50,000 51,412
=======================================================================
207,975
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.36%
CIT Group Inc.,
Sr. Unsec. Notes, 6.63%, 06/15/05 200,000 212,724
-----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 175,000 189,702
-----------------------------------------------------------------------
Citigroup Inc., Unsec. Sub. Global Bonds,
6.00%, 10/31/33 100,000 101,924
-----------------------------------------------------------------------
General Electric Capital Corp.,
Gtd. Sub. Notes, 8.13%, 05/15/12 215,000 261,584
-----------------------------------------------------------------------
Series A, Sr. Medium Term Global Notes,
4.25%, 12/01/10 50,000 49,987
-----------------------------------------------------------------------
Series A, Medium Term Global Notes,
2.85%, 01/30/06 25,000 25,356
-----------------------------------------------------------------------
5.88%, 02/15/12 75,000 81,219
-----------------------------------------------------------------------
6.00%, 06/15/12 100,000 109,064
-----------------------------------------------------------------------
Heller Financial, Inc.-Class A,
Sr. Unsec. Global Notes, 8.00%, 06/15/05 400,000 433,428
-----------------------------------------------------------------------
Household Finance Corp.,
Medium Term Notes, 3.38%, 02/21/06 50,000 51,178
-----------------------------------------------------------------------
Sr. Unsec. Global Notes, 6.50%, 01/24/06 100,000 108,112
-----------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(c) 75,000 92,185
-----------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands)- Series
1999-2, Class A1, Global Bonds, 9.69%,
08/15/09 100,000 117,562
-----------------------------------------------------------------------
Regional Diversified Funding, Sr. Notes,
9.25%, 03/15/30 (Acquired 01/10/03; Cost
$163,526)(a) 145,740 171,063
=======================================================================
2,005,088
=======================================================================
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
PROPERTY & CASUALTY INSURANCE-0.36%
Oil Insurance Ltd. (Bermuda), Unsec. Sub.
Deb., 5.15%, 08/15/33 (Acquired 01/21/04;
Cost $311,037)(a) $ 300,000 $ 303,786
=======================================================================
PUBLISHING-0.35%
News America Holdings,
Unsec. Gtd. Deb., 7.75%, 01/20/24 50,000 59,151
-----------------------------------------------------------------------
Sr. Unsec. Gtd. Deb., 7.70%, 10/30/25 200,000 235,876
=======================================================================
295,027
=======================================================================
REAL ESTATE-0.66%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 500,000 559,700
=======================================================================
REGIONAL BANKS-1.26%
Greater Bay Bancorp.-Series B, Sr. Notes,
5.25%, 03/31/08 500,000 506,775
-----------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands),
Sec. Sub. Notes, 2.19%(c)(d)(g) 500,000 481,250
-----------------------------------------------------------------------
Union Planters Corp., Notes, 4.38%, 12/01/10 85,000 85,703
=======================================================================
1,073,728
=======================================================================
REINSURANCE-0.23%
GE Global Insurance Holding Corp., Unsec.
Notes,
7.00%, 02/15/26 100,000 110,108
-----------------------------------------------------------------------
7.50%, 06/15/10 75,000 87,220
=======================================================================
197,328
=======================================================================
RESTAURANTS-0.10%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 75,000 82,051
=======================================================================
SOVEREIGN DEBT-1.53%
Japan Bank for International Cooperation
(Japan),
Unsec. Gtd. Euro Bonds, 6.50%, 10/06/05 100,000 107,406
-----------------------------------------------------------------------
United Mexican States (Mexico), Global Notes,
4.63%, 10/08/08 300,000 302,625
-----------------------------------------------------------------------
6.63%, 03/03/15 150,000 155,963
-----------------------------------------------------------------------
7.50%, 04/08/33 700,000 730,625
=======================================================================
1,296,619
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.86%
Bank United-Series A, Medium Term Notes,
8.00%, 03/15/09 50,000 58,803
-----------------------------------------------------------------------
Countrywide Home Loans, Inc.,
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 125,000 133,595
-----------------------------------------------------------------------
Series K, Medium Term Global Notes,
3.50%, 12/19/05 100,000 102,618
-----------------------------------------------------------------------
Washington Mutual Finance Corp.,
Sr. Unsec. Notes, 8.25%, 06/15/05 400,000 434,436
=======================================================================
729,452
=======================================================================
|
FS-284
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
TOBACCO-0.31%
Altria Group, Inc.,
Notes, 7.00%, 11/04/13 $ 75,000 $ 81,602
-----------------------------------------------------------------------
Altria Group, Inc.,
Notes, 7.13%, 10/01/04 100,000 103,375
-----------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06 75,000 79,441
=======================================================================
264,418
=======================================================================
TRUCKING-1.12%
Hertz Corp. (The)-Class A,
Floating Rate Global Notes, 1.71%,
08/13/04(b) 350,000 350,000
-----------------------------------------------------------------------
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 525,000 605,141
=======================================================================
955,141
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.25%
TeleCorp PCS, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
10.63%, 07/15/10 800,000 950,000
-----------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 800,000 965,000
=======================================================================
1,915,000
=======================================================================
Total Bonds & Notes (Cost $40,760,082) 41,220,588
=======================================================================
ASSET-BACKED SECURITIES-1.40%
ELECTRIC UTILITIES-0.50%
Yorkshire Power Finance (Cayman Islands)-
Series 2000-1, Pass Through Ctfs., 8.25%,
02/15/05 (Acquired 06/19/03-09/22/03; Cost
$434,413)(a) 400,000 423,056
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.90%
Citicorp Lease-Series 1999-1, Class A1,
Pass Through Ctfs., 7.22%, 06/15/05
(Acquired 05/08/02-09/23/03; Cost
$486,338)(a) 455,010 485,987
-----------------------------------------------------------------------
Citicorp Lease-Series 1999-1, Class A2,
Pass Through Ctfs., 8.04%, 12/15/19
(Acquired 08/20/02; Cost $166,614)(a) 150,000 177,853
-----------------------------------------------------------------------
First Industrial Realty Trust, Inc., Putable
PATS, 7.38%, 05/15/04 (Acquired 02/06/03;
Cost $104,850)(a) 100,000 101,486
=======================================================================
765,326
=======================================================================
Total Asset-Backed Securities (Cost
$1,164,491) 1,188,382
=======================================================================
U.S. MORTGAGE-BACKED SECURITIES-37.42%
FEDERAL HOME LOAN BANK-1.45%
Unsec. Bonds,
4.88%, 04/16/04 to 05/15/07 650,000 684,245
-----------------------------------------------------------------------
5.70%, 03/03/09 500,000 549,185
=======================================================================
1,233,430
=======================================================================
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-7.84%
Pass Through Ctfs.,
6.00%, 08/01/14 to 10/01/32 $2,738,413 $ 2,863,341
-----------------------------------------------------------------------
5.50%, 05/01/16 to 2/01/17 239,064 248,535
-----------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32 1,130,482 1,194,804
-----------------------------------------------------------------------
7.00%, 06/01/16 to 06/01/32 348,827 370,541
-----------------------------------------------------------------------
7.50%, 04/01/17 to 03/01/32 432,444 464,486
-----------------------------------------------------------------------
Unsec. Global Notes,
2.75%, 03/15/08 1,000,000 985,200
-----------------------------------------------------------------------
Unsec. Notes,
4.88%, 03/15/07 500,000 532,685
=======================================================================
6,659,592
=======================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-20.60%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 88,303 94,490
-----------------------------------------------------------------------
7.00%, 12/01/15 to 02/01/33 2,011,752 2,135,988
-----------------------------------------------------------------------
6.50%, 05/01/16 to 10/01/32 3,702,564 3,890,827
-----------------------------------------------------------------------
5.50%, 12/01/16 to 12/01/33 4,617,587 4,726,049
-----------------------------------------------------------------------
6.00%, 01/01/17 to 12/01/33 3,735,423 3,888,251
-----------------------------------------------------------------------
5.00%, 03/01/18 to 10/01/18 1,529,786 1,566,889
-----------------------------------------------------------------------
8.00%, 08/01/21 to 04/01/32 689,735 745,380
-----------------------------------------------------------------------
Unsec. Global Notes,
4.38%, 09/15/12 75,000 74,880
-----------------------------------------------------------------------
Unsec. Notes,
5.25%, 06/15/06 300,000 320,646
-----------------------------------------------------------------------
Unsec. Sub. Notes,
5.25%, 08/01/12 50,000 51,915
=======================================================================
17,495,315
=======================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-6.85%
Pass Through Ctfs.,
7.50%, 06/15/23 to 05/15/32 486,707 525,222
-----------------------------------------------------------------------
8.50%, 02/15/25 47,023 51,644
-----------------------------------------------------------------------
8.00%, 08/15/25 17,798 19,449
-----------------------------------------------------------------------
7.00%, 04/15/28 to 03/15/33 588,137 627,546
-----------------------------------------------------------------------
6.00%, 11/15/28 to 02/15/33 1,649,476 1,722,634
-----------------------------------------------------------------------
6.50%, 01/15/29 to 12/15/33 2,235,086 2,360,512
-----------------------------------------------------------------------
5.50%, 12/15/33 499,502 510,656
=======================================================================
5,817,663
=======================================================================
TENNESSEE VALLEY AUTHORITY-0.68%
Unsec. Bonds, 7.14%, 01/15/08 500,000 582,045
=======================================================================
Total U.S. Mortgage-Backed Securities
(Cost $31,252,200) 31,788,045
=======================================================================
|
FS-285
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
U.S. TREASURY SECURITIES-11.34%
U.S. TREASURY NOTES-6.69%
3.13%, 10/15/08 $ 400,000 $ 400,936
-----------------------------------------------------------------------
4.75%, 11/15/08 1,700,000 1,826,701
-----------------------------------------------------------------------
5.00%, 02/15/11 to 08/15/11(h) 3,200,000 3,452,624
=======================================================================
5,680,261
=======================================================================
U.S. TREASURY BONDS-4.65%
7.25%, 05/15/16 to 08/15/22 1,600,000 2,024,872
-----------------------------------------------------------------------
7.50%, 11/15/16 1,500,000 1,929,135
=======================================================================
3,954,007
=======================================================================
Total U.S. Treasury Securities (Cost
$9,584,527) 9,634,268
=======================================================================
|
-----------------------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------------------
MONEY MARKET FUNDS-0.05%
Liquid Assets Portfolio(i) 20,765 $ 20,765
-----------------------------------------------------------------------
STIC Prime Portfolio(i) 20,765 20,765
=======================================================================
Total Money Market Funds (Cost $41,530) 41,530
=======================================================================
TOTAL INVESTMENTS-98.74% (Cost $82,802,830) 83,872,813
=======================================================================
OTHER ASSETS LESS LIABILITIES-1.26% 1,069,816
=======================================================================
NET ASSETS-100.00% $84,942,629
_______________________________________________________________________
=======================================================================
|
Investment Abbreviations:
Ctfs - Certificates Deb. - Debentures GO - General Obligation Bonds Gtd. - Guaranteed Jr. - Junior PATS - Pass Through Asset Trust Securities Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated |
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The aggregate market value of these securities at 01/31/04 was
$4,830,414, which represented 5.69% of the Fund's net assets. These
securities are considered to be illiquid.
(b) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 01/31/04.
(c) Perpetual bond with no specified maturity date.
(d) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 01/31/04.
(e) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., Financial Security
Assurance Inc., or MBIA Insurance Corp.
(f) Interest on this security is taxable income to the Fund.
(g) Security fair valued in accordance with procedures established by the Board
of Trustees.
(h) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1 section G and Note 7.
(i) The money market fund and the Fund are affiliated by having the same
advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-286
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$82,761,300) $83,831,283
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $41,530) 41,530
-----------------------------------------------------------
Total Investments (cost $82,802,830) 83,872,813
===========================================================
Cash 479,218
-----------------------------------------------------------
Receivables for:
-----------------------------------------------------------
Investments sold 384,676
-----------------------------------------------------------
Fund shares sold 211,081
-----------------------------------------------------------
Dividends and interest 1,001,035
-----------------------------------------------------------
Amount due from advisor 25,472
-----------------------------------------------------------
Investment for deferred compensation and
retirement plans 7,982
-----------------------------------------------------------
Other assets 28,952
===========================================================
Total assets 86,011,229
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 605,034
-----------------------------------------------------------
Fund shares reacquired 325,138
-----------------------------------------------------------
Deferred compensation and retirement plans 8,251
-----------------------------------------------------------
Variation margin 4,766
-----------------------------------------------------------
Accrued distribution fees 52,022
-----------------------------------------------------------
Accrued trustees' fees 612
-----------------------------------------------------------
Accrued transfer agent fees 47,320
-----------------------------------------------------------
Accrued operating expenses 25,457
===========================================================
Total liabilities 1,068,600
===========================================================
Net assets applicable to shares outstanding $84,942,629
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $83,459,022
-----------------------------------------------------------
Undistributed net investment income (299,760)
-----------------------------------------------------------
Undistributed net realized gain from
investment securities 749,852
-----------------------------------------------------------
Unrealized appreciation of investment
securities and futures contracts 1,033,515
===========================================================
$84,942,629
___________________________________________________________
===========================================================
NET ASSETS:
Class A $30,565,076
___________________________________________________________
===========================================================
Class B $46,001,100
___________________________________________________________
===========================================================
Class C $ 8,376,453
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 2,897,046
___________________________________________________________
===========================================================
Class B 4,359,812
___________________________________________________________
===========================================================
Class C 793,826
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.55
-----------------------------------------------------------
Offering price per share:
(Net asset value of $10.55 divided by
95.25%) $ 11.08
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.55
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.55
___________________________________________________________
===========================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-287
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest 1,692,275
------------------------------------------------------------------------
Dividends from affiliated money market funds 6,633
========================================================================
Total investment income 1,698,908
========================================================================
EXPENSES:
Advisory fees 215,673
------------------------------------------------------------------------
Administrative services fees 25,137
------------------------------------------------------------------------
Custodian fees 17,350
------------------------------------------------------------------------
Distribution fees
Class A 53,967
------------------------------------------------------------------------
Class B 234,687
------------------------------------------------------------------------
Class C 42,469
------------------------------------------------------------------------
Transfer agent fees 153,291
------------------------------------------------------------------------
Trustees' fees 5,303
------------------------------------------------------------------------
Other 93,110
========================================================================
Total expenses 840,987
========================================================================
Less: Fees waived and expense offset arrangements (201,728)
========================================================================
Net expenses 639,259
========================================================================
Net investment income 1,059,649
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain from investment securities 751,202
------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 1,949,804
------------------------------------------------------------------------
Futures contracts (36,468)
========================================================================
1,913,336
========================================================================
Net gain from investment securities and futures contracts 2,664,538
========================================================================
Net increase in net assets resulting from operations $3,724,187
________________________________________________________________________
========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-288
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $1,059,649 $ 1,582,068
----------------------------------------------------------------------------------------
Net realized gain from investment securities and futures
contracts 751,202 1,445,148
----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and futures contracts 1,913,336 (1,022,343)
========================================================================================
Net increase in net assets resulting from operations 3,724,187 2,004,873
========================================================================================
Distributions to shareholders from net investment income:
Class A (558,382) (797,837)
----------------------------------------------------------------------------------------
Class B (673,301) (1,033,094)
----------------------------------------------------------------------------------------
Class C (122,253) (208,766)
========================================================================================
Total distributions from net investment income (1,353,936) (2,039,697)
========================================================================================
Distributions to shareholders from net realized gains:
Class A (275,860) (29,369)
----------------------------------------------------------------------------------------
Class B (409,961) (47,717)
----------------------------------------------------------------------------------------
Class C (73,758) (8,496)
========================================================================================
Total distributions from net realized gains (759,579) (85,582)
========================================================================================
Decrease in net assets resulting from distributions (2,113,515) (2,125,279)
========================================================================================
Share transactions-net:
Class A (344,839) 21,104,305
----------------------------------------------------------------------------------------
Class B (2,530,668) 33,005,431
----------------------------------------------------------------------------------------
Class C (967,814) 6,138,256
========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (3,843,321) 60,247,992
========================================================================================
Net increase (decrease) in net assets (2,232,649) 60,127,586
========================================================================================
NET ASSETS:
Beginning of period 87,175,278 27,047,692
========================================================================================
End of period (including undistributed net investment
income of $(299,760) and $(5,473) for 2004 and 2003,
respectively) $84,942,629 $87,175,278
________________________________________________________________________________________
========================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-289
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Total Return Bond Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve maximum total return consistent with preservation of capital. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures and exchange-traded funds.
B. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements. 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. Eligible securities for collateral are U.S. Government Securities, U.S. Government Agency Securities and/or Investment Grade Debt Securities. Collateral consisting of U.S. Government Securities and U.S. Government Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. Collateral consisting of Investment Grade Debt Securities is marked to market daily to ensure its market value is at least 105% of the sales price of the repurchase agreement. The investments in some repurchase
FS-290
agreements are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates ("Joint repurchase agreements"). 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.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
D. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar security (same type, coupon and maturity) from the institution at an agreed upon price. The mortgage-backed securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on securities sold. Proceeds of the sale may be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. The difference between the selling price and the future repurchase price is recorded as realized gain (loss). At the time the Fund enters into the dollar roll, it will segregate liquid assets having a dollar value equal to the repurchase price.
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed transaction costs.
E. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
F. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
G. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts.
H. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $500 million of the Fund's average daily net assets, plus 0.45% on the next $500 million of the Fund's average daily net assets, plus 0.40% on the Fund's average daily net assets in excess of $1 billion. AIM has contractually agreed to waive advisory fees and/or reimburse expenses (excluding interest, taxes, fund merger and reorganization expenses, extraordinary items, including other items designated as such by the Board of Trustees 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 total annual operating expenses of Class A shares to 1.25% and has voluntarily agreed to waive advisory fees and/or reimburse expenses (excluding interest, taxes, fund merger and reorganization expenses, extraordinary items, including other items designated as such by the Board of Trustees and increases in expenses due to expense offset arrangements, if any) of Class A, Class B and Class C shares to the extent necessary to limit total annual operating expenses of Class A shares to 1.00%. Voluntary fee waivers or reimbursements may be modified or discontinued at any time without further notice to investors. During periods of fee waivers and reimbursements, to the extent that the annualized expense ratio does not
FS-291
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES (CONTINUED)
TOTAL RETURN BOND FUND
exceed the limit, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the six months ended January 31, 2004, AIM waived fees of $185,849.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $25,137 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $76,236 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the average daily net assets of the Class A, Class B or Class C shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. AIM Distributors has contractually agreed to waive up to 0.10% of Rule 12b-1 plan fees on Class A shares. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A, Class B and Class C shares paid AIM Distributors $38,548, $234,687 and $42,469, respectively after AIM Distributors waived Class A plan fees of $15,419.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the six months ended January 31, 2004, AIM Distributors retained $23,827 in front-end sales commissions from the sale of Class A shares and $54, $0 and $1,818 from Class A, Class B shares and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees to invest daily available cash balances in affiliated money market funds. Each day the prior day's balance invested in the affiliated money market fund is redeemed in full and a new purchase amount is submitted to invest the current day's available cash. The table below shows the transactions in and earnings from investments in affiliated money market funds for the period ended January 31, 2004.
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/2003 AT COST SALES (DEPRECIATION) 01/31/2004 INCOME GAIN (LOSS)
------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 750,113 $13,933,411 $(14,662,759) $-- $20,765 $ 3,290 $ --
------------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 750,113 13,933,411 (14,662,759) -- $20,765 3,343 --
====================================================================================================================================
$1,500,226 $27,866,822 $(29,325,518) $-- $41,530 $ 6,633 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
|
FS-292
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts and custodian credits resulting from periodic overnight cash balances at the custodian. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $460 under an expense offset arrangement, which resulted in a reduction of the Fund's total expenses of $460.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $2,473 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund did not borrow or lend under the facility during the six months ended January 31, 2004.
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 7--FUTURES CONTRACTS
On January 31, 2004, $100,000 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts.
OPEN FUTURES CONTRACTS AT PERIOD END
-----------------------------------------------------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ MARKET APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 5 Mar-04/Short $1,072,500 $ (8,707)
-----------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 15 Mar-04/Short 1,684,922 (27,761)
=======================================================================================================================
$2,757,422 $(36,468)
_______________________________________________________________________________________________________________________
=======================================================================================================================
|
FS-293
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $152,045,037 and $156,208,525, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $1,293,588
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (223,605)
===========================================================
Net unrealized appreciation of investment
securities $1,069,983
___________________________________________________________
===========================================================
Investments have same cost for tax and financial statement
purposes.
|
NOTE 10--SHARE INFORMATION
The Fund currently offers three classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
------------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 744,170 $ 7,795,463 3,675,553 $ 38,439,296
--------------------------------------------------------------------------------------------------------------------------
Class B 906,558 9,502,449 4,564,339 47,687,420
--------------------------------------------------------------------------------------------------------------------------
Class C 243,131 2,551,178 1,230,567 12,857,366
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 71,965 754,928 72,052 755,569
--------------------------------------------------------------------------------------------------------------------------
Class B 89,214 935,747 88,787 931,209
--------------------------------------------------------------------------------------------------------------------------
Class C 17,159 179,968 18,930 198,523
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 119,748 1,257,676 79,038 832,366
--------------------------------------------------------------------------------------------------------------------------
Class B (119,748) (1,257,676) (79,022) (832,366)
==========================================================================================================================
Reacquired:
Class A (969,004) (10,152,906) (1,811,444) (18,922,926)
--------------------------------------------------------------------------------------------------------------------------
Class B (1,119,194) (11,711,188) (1,411,242) (14,780,832)
--------------------------------------------------------------------------------------------------------------------------
Class C (353,550) (3,698,960) (661,171) (6,917,633)
==========================================================================================================================
(369,551) $ (3,843,321) 5,766,387 $ 60,247,992
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
FS-294
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
-------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.35 $ 10.19 $10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.32(a) 0.18(a)
===============================================================================================================
Net gains on securities (both realized and unrealized) 0.33 0.26 0.23
===============================================================================================================
Total from investment operations 0.48 0.58 0.41
===============================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.40) (0.22)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.09) (0.02) --
===============================================================================================================
Total distributions (0.28) (0.42) (0.22)
===============================================================================================================
Net asset value, end of period $ 10.55 $ 10.35 $10.19
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 4.72% 5.77% 4.09%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,565 $30,336 $9,325
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.00%(c) 1.00% 1.00%(d)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 1.53%(c) 1.54% 3.21%(d)
===============================================================================================================
Ratio of net investment income to average net assets 2.94%(c) 3.07% 3.10%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 181% 284% 215%
_______________________________________________________________________________________________________________
===============================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$30,670,406.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-295
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.35 $ 10.19 $ 10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11 0.24(a) 0.14(a)
===============================================================================================================
Net gains on securities (both realized and unrealized) 0.33 0.27 0.22
===============================================================================================================
Total from investment operations 0.44 0.51 0.36
===============================================================================================================
Less distributions:
Dividends from net investment income (0.15) (0.33) (0.17)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.09) (0.02) --
===============================================================================================================
Total distributions (0.24) (0.35) (0.17)
===============================================================================================================
Net asset value, end of period $ 10.55 $ 10.35 $ 10.19
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 4.34% 4.98% 3.65%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,001 $47,655 $14,678
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c) 1.75% 1.75%(d)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 2.18%(c) 2.19% 3.86%(d)
===============================================================================================================
Ratio of net investment income to average net assets 2.19%(c) 2.32% 2.35%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 181% 284% 215%
_______________________________________________________________________________________________________________
===============================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$46,682,387.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-296
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
-------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.35 $ 10.19 $ 10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11 0.24(a) 0.14(a)
---------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.33 0.27 0.22
===============================================================================================================
Total from investment operations 0.44 0.51 0.36
===============================================================================================================
Less distributions:
Dividends from net investment income (0.15) (0.33) (0.17)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.09) (0.02) --
===============================================================================================================
Total distributions (0.24) (0.35) (0.17)
===============================================================================================================
Net asset value, end of period $ 10.55 $ 10.35 $ 10.19
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 4.34% 4.98% 3.65%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 8,376 $ 9,185 $ 3,045
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c) 1.75% 1.75%(d)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 2.18%(c) 2.19% 3.86%(d)
===============================================================================================================
Ratio of net investment income to average net assets 2.19%(c) 2.32% 2.35%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 181% 284% 215%
_______________________________________________________________________________________________________________
===============================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$8,447,585.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all
FS-297
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-298
AIM HIGH YIELD FUND
AIM LIMITED MATURITY TREASURY FUND
AIM MONEY MARKET FUND
AIM REAL ESTATE FUND
AIM SHORT TERM BOND FUND
AIM TOTAL RETURN BOND FUND
PROSPECTUS
APRIL 30, 2004
INSTITUTIONAL CLASSES
AIM High Yield Fund seeks to achieve a high level of current income.
AIM Limited Maturity Treasury Fund seeks liquidity with minimum fluctuation of principal value, and, consistent with this objective, the highest total return achievable.
AIM Money Market Fund seeks to provide as high a level of current income as is consistent with the preservation of capital and liquidity.
AIM Real Estate Fund seeks to achieve high total return.
AIM Short Term Bond Fund seeks to achieve a high level of current income consistent with preservation of capital.
This prospectus contains important information about the Institutional Class shares of the funds. 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.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
Institutional Class shares of the Money Market Fund are not currently available for public sale. Investors may not purchase Institutional shares of the Fund through exchanges from other AIM Funds or through automatic dividend reinvestment from another AIM Fund.
INVESTMENT OBJECTIVES AND STRATEGIES 1 ------------------------------------------------------ AIM High Yield Fund 1 AIM Limited Maturity Treasury Fund 1 AIM Money Market Fund 1 AIM Real Estate Fund 1 AIM Short Term Bond Fund 2 AIM Total Return Bond Fund 2 All Funds 2 Limited Maturity, Short Term Bond and Total Return Bond 2 ------------------------------------------------------ PRINCIPAL RISKS OF INVESTING IN THE FUNDS 3 ------------------------------------------------------ PERFORMANCE INFORMATION 5 ------------------------------------------------------ Annual Total Returns 5 Performance Table 9 FEE TABLE AND EXPENSE EXAMPLE 11 ------------------------------------------------------ Fee Table 11 Expense Example 12 FUND MANAGEMENT 13 ------------------------------------------------------ The Advisors 13 Advisor Compensation 13 Portfolio Managers 13 OTHER INFORMATION 14 ------------------------------------------------------ Dividends and Distributions 14 Suitability for Investors 14 FINANCIAL HIGHLIGHTS 15 ------------------------------------------------------ SHAREHOLDER INFORMATION A-1 ------------------------------------------------------ Purchasing Shares A-1 Redeeming Shares A-2 Pricing of Shares A-2 Taxes A-3 OBTAINING ADDITIONAL INFORMATION Back Cover ------------------------------------------------------ |
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design, Invierta Con DISCIPLINA and Invest with DISCIPLINE are registered service marks and AIM Bank Connection, Internet Connect, AIM Private Asset Management, AIM Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. are service marks of A I M Management Group Inc. AIM Trimark is a service mark of A I M Management Inc. and AIM Funds Management Inc.
No dealer, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus, and you should not rely on such other information or representations.
AIM HIGH YIELD FUND (HIGH YIELD)
The fund's investment objective is to achieve a high level of current income.
The fund will attempt to achieve its objective by investing primarily in
publicly traded non-investment grade securities. The fund's investment
objective may be changed by the Board of Trustees without shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 80% of its assets in non-investment grade debt securities, i.e., "junk bonds." In complying with this 80% investment requirement, the fund's investments may include investments in synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the fund's direct investments, and may include futures and options. The fund considers a bond to be a junk bond if it is rated Ba or lower by Moody's Investors Service, Inc. or BB or lower by Standard & Poor's Rating Services. The fund will principally invest in junk bonds rated B or above by Moody's Investors Service, Inc. or Standard & Poor's Ratings Services or deemed by the portfolio managers to be of comparable quality. The fund may also invest in preferred stock. The fund may invest up to 25% of its total assets in foreign securities.
Although the portfolio managers focus on debt securities that they believe have favorable prospects for high current income, they also consider the possibility of growth of capital of the security. The portfolio managers consider whether to sell a particular security when any of these factors materially changes.
AIM LIMITED MATURITY TREASURY FUND
(LIMITED MATURITY)
The fund's investment objective is to seek liquidity with minimum fluctuation of
principal value, and, consistent with this objective, the highest total return
achievable. The fund's investment objective may be changed by the Board of
Trustees without shareholder approval.
The fund attempts to meet its objective by investing, normally, at least 80% of its assets in direct obligations of the U.S. Treasury, including bills, notes and bonds. The fund will only purchase securities with maturities of three years or less.
The portfolio managers focus on U.S. Treasury obligations they believe have favorable prospects for total return consistent with the fund's investment objective. The portfolio managers usually sell a particular security when any of these factors materially changes.
AIM MONEY MARKET FUND (MONEY MARKET)
The fund's investment objective is to is to provide as high a level of current
income as is consistent with the preservation of capital and liquidity. The
fund's investment objective may be changed by the Board of Trustees without
shareholder approval.
The fund attempts to meet its objective by investing only in high-quality U.S. dollar-denominated short-term obligations, including:
- securities issued by the U.S. Government or its agencies;
- bankers' acceptances, certificates of deposit, and time deposits from U.S. or foreign banks;
- repurchase agreements;
- commercial paper;
- taxable municipal securities;
- master notes; and
- cash equivalents The fund may invest up to 50% of its assets in U.S. dollar-denominated foreign securities.
The portfolio managers focus on securities that they believe have favorable prospects for current income, consistent with their concerns for preservation of capital and liquidity. The portfolio managers usually hold portfolio securities to maturity, but may sell a particular security when they deem it advisable, such as when any of the factors above materially changes.
AIM REAL ESTATE FUND (REAL ESTATE)
The fund's investment objective is to achieve high total return. The investment objective of the fund may be changed by the Board of Trustees without shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 80% of its assets in securities of real estate and real estate-related companies. In complying with this 80% investment requirement, the fund may invest in debt and equity securities, including convertible securities, and its investments may include other securities, such as synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the fund's direct investments, and may include warrants, futures, options, exchange-traded funds and American Depositary Receipts. The fund considers a company to be a real estate-related company if at least 50% of its assets, gross income or net profits are attributable to ownership, construction, management or sale of residential, commercial or industrial real estate. These companies include equity real estate investment trusts (REITs) that own property and mortgage REITs that make short-term construction and development mortgage loans or that invest in long-term mortgages or mortgage pools, or companies whose products and services are related to the real estate industry, such as manufacturers and distributors of building supplies and financial institutions that issue or service mortgages.
The fund may invest in equity, debt or convertible securities of companies unrelated to the real estate industry that the portfolio managers believe are undervalued and have potential for growth of capital. The fund will limit its investment in debt securities to those that are investment-grade or deemed by the fund's portfolio manager to be of comparable quality. The fund may invest up to 25% of its total assets in foreign securities.
The portfolio managers utilize fundamental real estate analysis and quantitative securities analysis to select investments for the fund, including analyzing a company's management and strategic focus, evaluating the location, physical attributes and cash flow generating capacity of a company's properties and calculating expected returns,
among other things. The portfolio managers consider whether to sell a particular security when any of these factors materially changes.
AIM SHORT TERM BOND FUND (SHORT TERM BOND)
The fund's investment objective is to achieve a high level of current income 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 assets in a diversified portfolio of investment-grade fixed income securities. These securities may include U.S. Treasury and agency securities, mortgage-backed and asset-backed securities and corporate bonds of varying maturities. In complying with this 80% investment requirement, the fund's investments may include investments in synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the fund's direct investments, and may include futures and options. 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 effective duration and weighted average effective maturity, as estimated by the fund's portfolio managers, will be less than three years.
The fund may invest up to 15% of its total assets in foreign securities. The fund will not invest in non-U.S. dollar denominated securities.
The portfolio managers focus on securities that they believe have favorable prospects for a high level of current income, 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 these factors materially changes.
AIM TOTAL RETURN BOND FUND (TOTAL RETURN BOND)
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 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 fixed income securities may include U.S. Treasury and agency securities, mortgage-backed and asset-backed securities and corporate bonds of varying maturities. In complying with this 80% investment requirement, the fund's investments may include investments in synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the fund's direct investments, and may include futures and options. 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 effective duration, as estimated by the fund's portfolio managers, will be within +/-1.5 years of that of the Lehman Brothers Aggregate Bond Index and the fund will generally maintain a weighted average effective maturity, as estimated by the fund's portfolio managers, 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.
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 these factors materially changes.
ALL FUNDS
For cash management purposes, the funds may also hold a portion of their assets in cash or cash equivalents, including shares of affiliated money market funds. Any percentage limitations with respect to assets of a fund are applied at the time of purchase.
In anticipation of or in response to adverse market or other conditions, or atypical circumstances such as unusually large cash inflows or redemptions, the funds may temporarily hold all or a portion of their assets in cash, cash equivalents or high-quality debt instruments. As a result, a fund may not achieve its investment objective.
LIMITED MATURITY, SHORT TERM BOND AND
TOTAL RETURN BOND
Each fund may engage in active and frequent trading of portfolio securities to achieve its investment objective. If a 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.
ALL FUNDS
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.
An investment in the fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
HIGH YIELD
Debt securities are particularly vulnerable to credit risk and interest rate fluctuations. Interest rate increases can cause the price of a debt security to decrease; junk bonds are less sensitive to this risk than are higher-quality bonds. The prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Compared to higher-quality debt securities, junk bonds involve greater risk of default or price changes due to changes in the credit quality of the issuer and because they are generally unsecured and may be subordinated to other creditors' claims. The value of junk bonds often fluctuates in response to company, political or economic developments and can decline significantly over short periods of time or during periods of general or regional economic difficulty. During those times, the bonds could be difficult to value or to sell at a fair price. Credit ratings on junk bonds do not necessarily reflect their actual market risk.
LIMITED MATURITY
Interest rate increases can cause the price of a debt security to decrease; the longer the debt security's duration, the more sensitive it is to this risk.
MONEY MARKET
Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Additionally, the fund's yield will vary as the short-term securities in its portfolio mature and the proceeds are reinvested in securities with different interest rates.
The following factors could reduce the fund's income and/or share price:
- sharply rising interest rates;
- downgrades of credit ratings or default of any of the fund's holdings;
- the risks generally associated with concentrating investments in the banking industry, such as interest rate risk, credit risk and regulatory developments relating to the banking and financial services industries; or
- the risks generally associated with U.S. dollar-denominated foreign investments, including political and economic upheaval, seizure or nationalization of deposits, impositions of taxes or other restrictions on the payment of principal and interest.
If the seller of a repurchase agreement in which the fund invests defaults on its obligation or declares bankruptcy, the fund may experience delays in selling the securities underlying the repurchase agreement. As a result, the fund may incur losses arising from decline in the value of those securities, reduced levels of income and expenses of enforcing its rights.
REAL ESTATE
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. Debt securities are particularly vulnerable to credit risk and interest rate fluctuations. Interest rate increases can cause the price of a debt security to decrease. The longer a debt security's duration, the more sensitive it is to this risk. The issuer of a debt security may default or otherwise be unable to honor a financial obligation.
The fund could conceivably hold real estate directly if a company defaults on debt securities the fund owns. In that event, an investment in the fund may have additional risks relating to direct ownership in real estate, including difficulties in valuing and trading real estate, declines in value of the properties, risks relating to general and local economic conditions, changes in the climate for real estate, increases in taxes, expenses and costs, changes in laws, casualty and condemnation losses, rent control limitations and increases in interest rates.
The value of the fund's investment in REITs is affected by the factors listed above, as well as the management skill of the persons managing the REIT. Since REITs have expenses of their own, you will bear a proportionate share of those expenses in addition to those of the fund. Because the fund focuses its investments in REITs and other companies related to the real estate industry, the value of your shares may rise and fall more than the value of shares of a fund that invests in a broader range of companies.
The fund may participate in the initial public offering (IPO) market in some market cycles. Because of the fund's small asset base, any investment the fund may make in IPOs may significantly increase the fund's total return. As the fund's assets grow, the impact of IPO investments will decline, which may reduce the effect of IPO investments on the fund's total return.
SHORT TERM BOND AND TOTAL RETURN BOND
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.
HIGH YIELD, REAL ESTATE, SHORT TERM BOND AND TOTAL RETURN BOND
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, the relative lack of information about issuers, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
The bar charts and tables shown below provide an indication of the risks of investing in each of the funds. A fund's past performance (before and after taxes) is not necessarily an indication of its future performance. The returns shown for High Yield and Total Return Bond are those of each fund's Class A shares, the returns shown for Real Estate and Short Term Bond are those of each fund's Class C shares, and the returns shown for Money Market are those of the fund's AIM Cash Reserve Shares, none of which are offered in this prospectus. Institutional Class shares would have higher annual returns because, although the shares are invested in the same portfolio of securities, Institutional Class shares have lower expenses. As of the date of this prospectus, the Institutional Classes of High Yield, Money Market, Real Estate, Short Term Bond and Total Return Bond have not yet commenced operations.
The following bar charts show changes in the performance of High Yield's and Total Return Bond's Class A shares, Real Estate's and Short Term Bond's Class C shares, Money Market's AIM Cash Reserve Shares and Limited Maturity's Institutional Class shares from year to year. The bar charts do not reflect sales loads. If they did, the annual total returns shown would be lower. Institutional Class shares are not subject to front-end or back-end sales loads.
HIGH YIELD--CLASS A
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
----------- -------
1994................................................................... (1.68)%
1995................................................................... 16.86%
1996................................................................... 15.44%
1997................................................................... 12.52%
1998................................................................... (5.1)%
1999................................................................... 2.08%
2000................................................................... (23.81)%
2001................................................................... (3.59)%
2002................................................................... (10.38)%
2003................................................................... 30.19%
|
LIMITED MATURITY--INSTITUTIONAL CLASS
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
----------- -------
1994................................................................... 1.08%
1995................................................................... 9.67%
1996................................................................... 5.01%
1997................................................................... 6.22%
1998................................................................... 6.33%
1999................................................................... 2.88%
2000................................................................... 7.21%
2001................................................................... 7.75%
2002................................................................... 5.01%
2003................................................................... 1.65%
|
MONEY MARKET--AIM CASH RESERVE SHARES
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
----------- -------
1994................................................................... 3.44%
1995................................................................... 5.04%
1996................................................................... 4.41%
1997................................................................... 4.66%
1998................................................................... 4.62%
1999................................................................... 4.22%
2000................................................................... 5.45%
2001................................................................... 3.21%
2002................................................................... 0.91%
2003................................................................... 0.55%
|
REAL ESTATE--CLASS C SHARES
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
----------- -------
1996................................................................... 36.44%
1997................................................................... 18.88%
1998................................................................... (23.16)%
1999................................................................... (3.54)%
2000................................................................... 28.25%
2001................................................................... 9.49%
2002................................................................... 8.06%
2003................................................................... 38.33%
|
SHORT TERM BOND--CLASS C SHARES
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
----------- -------
2003................................................................... 2.79%
|
TOTAL RETURN BOND--CLASS A SHARES
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
----------- -------
2002................................................................... 8.54%
2003................................................................... 5.12%
|
The year-to-date total return for each fund as of March 31, 2004 was as follows:
High Yield--Class A 1.96% Limited Maturity--Institutional Class 0.72% Money Market--AIM Cash Reserve Shares 0.14% Real Estate--Class C 12.26% Short Term Bond--Class C 1.03% Total Return Bond--Class A 2.78% |
During the periods shown in the bar charts, the highest quarterly returns and the lowest quarterly returns were as follows:
HIGHEST QUARTERLY RETURN LOWEST QUARTERLY RETURN
FUND (QUARTER ENDED) (QUARTER ENDED)
--------------------------------------------------------------------------------------------------------------
High Yield--Class A 10.17% (6/30/03) (13.88)% (12/31/00)
Limited Maturity--Institutional Class 3.13% (9/30/01) (0.15)% (3/31/94)
Money Market--AIM Cash Reserve Shares 1.41% (9/30/00 0.14% (3/31/03,
and 12/31/00) 6/30/03, 9/30/03
and 12/31/03)
Real Estate--Class C 19.39% (12/31/96) (15.54)% (9/30/98)
Short Term Bond--Class C 1.23% (6/30/03) 0.21% (9/30/03)
Total Return Bond--Class A 3.70% (9/30/02) (0.11)% (9/30/03)
|
PERFORMANCE TABLE
The following performance table compares each fund's performance to that of a broad-based securities market index, a style specific index, and a peer group index. High Yield's and Total Return's performance reflects payments of sales loads. The indices may not reflect payment of fees, expenses or taxes.
AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2003) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
-----------------------------------------------------------------------------------
High Yield--Class A 07/11/78
Return Before Taxes 24.13% (3.58)% 1.67% --
Return After Taxes on
Distributions 20.48 (7.54) (2.32) --
Return After Taxes on
Distributions and Sale of
Fund Shares 15.43 (5.33) (0.93) --
-----------------------------------------------------------------------------------
Lehman Brothers U.S. Aggregate
Bond Index(2,3) 4.10 6.62 6.95 --
Lehman Brothers High Yield
Index(3,4,5) 28.97 5.23 6.89 --
Lipper High Yield Bonds Fund
Index(4,6) 26.36 2.92 5.25 --
-----------------------------------------------------------------------------------
Limited Maturity
Treasury--Institutional
Class 07/13/87
Return Before Taxes 1.65 4.87 5.25 --
Return After Taxes on
Distributions 0.50 3.10 3.25 --
Return After Taxes on
Distributions and Sale of
Fund Shares 1.07 3.05 3.21 --
-----------------------------------------------------------------------------------
Lehman Brothers U.S. Aggregate
Bond Index(2,3) 4.10 6.62 6.95 --
Lehman Brothers 1- to 2-Year
U.S. Government Bond
Index(3,7,8) 1.89 5.16 5.51 --
Lipper Short U.S. Treasury
Category Average(7,9) 1.59 4.89 5.13 --
-----------------------------------------------------------------------------------
Money Market--AIM Cash Reserve
Shares 0.55 2.85 3.64 -- 10/16/93
-----------------------------------------------------------------------------------
Real Estate--Class C 05/01/95
Return Before Taxes 37.33 15.16 N/A 12.40%
Return After Taxes on
Distributions 36.32 13.83 N/A 10.88
Return After Taxes on
Distributions and Sale of
Fund Shares 24.18 12.36 N/A 9.94
-----------------------------------------------------------------------------------
S&P 500 Index(10) 28.67 (0.57) N/A 11.13(18) 4/30/95(18)
Morgan Stanley REIT
Index(10,11) 36.74 14.12 N/A 13.53(18) 4/30/95(18)
Lipper Real Estate Fund
Index(10,12) 37.21 13.66 N/A N/A(18) 4/30/95(18)
-----------------------------------------------------------------------------------
Short Term Bond--Class C
Return Before Taxes 2.79 N/A N/A 3.17 8/30/02
Return After Taxes on
Distributions 1.86 N/A N/A 2.19
Return After Taxes on
Distributions and Sale of
Fund Shares 1.81 N/A N/A 2.12
-----------------------------------------------------------------------------------
|
AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2003) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
-----------------------------------------------------------------------------------
Lehman Brothers U.S. Aggregate
Bond Index(2,13) 4.10 N/A N/A 5.54(18) 8/31/02(18)
Lehman Brothers 1-3 Year
Government/Credit
Index(13,14) 2.81 N/A N/A 3.70(18) 8/31/02(18)
Lipper Short Investment Grade
Debt Fund Index(13,15) 2.65 N/A N/A 3.32(18) 8/31/02(18)
-----------------------------------------------------------------------------------
Total Return Bond--Class A 12/31/01
Return Before Taxes 0.12% N/A N/A 4.24%
Return After Taxes on
Distributions (1.48) N/A N/A 2.61
Return After Taxes on
Distributions and Sale of
Fund Shares 0.06 N/A N/A 2.63
-----------------------------------------------------------------------------------
Lehman Brothers U.S. Aggregate
Bond Index(2,16) 4.10 N/A N/A 7.14(18) 12/31/01(18)
Lipper Intermediate Investment
Grade Debt Fund Index(16,17) 5.41 N/A N/A 6.84(18) 12/31/01(18)
-----------------------------------------------------------------------------------
|
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
(1) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) The Lehman Brothers U.S. Aggregate Bond Index measures the performance of
U.S. investment-grade fixed rate bonds with components for government and
corporate securities, mortgage pass-throughs and asset-backed securities of
treasury issues, agency issues, corporate bond issues and mortgage-backed
securities.
(3) Each of High Yield and Limited Maturity Treasury have elected to use the Lehman Brothers U.S. Aggregate Bond Index as its broad-based index rather than the Lehman Brothers High Yield Index and Lehman Brothers 1- to 2-Year U.S. Government Bond Index, respectively, because the Lehman Brothers U.S. Aggregate Bond Index is such a widely recognized gauge of U.S. bond market performance.
(4) High Yield has also included the Lehman Brothers High Yield Index, which the fund believes more closely reflects the performance of the securities in which the fund invests. In addition, the Lipper High Yield Bonds Fund Index (which may or may not include the fund) is included for comparison to a peer group.
(5) The Lehman Brothers High Yield Index measures the performance of all fixed-rate, non-investment grade debt-securities excluding pay-in-kind bonds, Eurobonds and debt issues from emerging countries.
(6) The Lipper High Yield Bonds Fund Index is an equally weighted representation of the 30 largest funds within the Lipper High Yield funds category. The funds have no credit rating restriction, but tend to invest in fixed-income securities with lower credit ratings.
(7) Limited Maturity Treasury has also included the Lehman Brothers 1- to 2-Year U.S. Government Bond Index, which the fund believes more closely reflects the performance of the securities in which the fund invests. In addition, the Lipper Short U.S. Treasury Category Average (which may or may not include the fund) is included for comparison to a peer group.
(8) The Lehman Brothers 1- to 2-Year U.S. Government Bond Index measures the performance of U.S. government issues with maturities of one to two years.
(9) The Lipper Short U.S. Treasury Category Average represents an average of all the short-term U.S. treasury funds tracked by Lipper.
(10) The Standard & Poor's 500 Index measures the performance of the 500 most widely held common stocks and is considered one of the best indicators of U.S. stock market performance. The fund has also included the Morgan Stanley REIT Index, which the fund believes more closely reflects the performance of the types of securities in which the fund invests. In addition, the Lipper Real Estate Fund Index (which may or may not include the fund) is included for comparison to a peer group.
(11) The Morgan Stanley REIT Index is a total-return index comprised of the most actively traded real estate investment trusts and is designed to be a measure of real estate equity performance.
(12) The Lipper Real Estate Fund Index is an equally weighted representation of the 30 largest funds within the Lipper Real Estate category.
(13) Short Term Bond has also included the Lehman Brothers 1-3 Year Government/Credit Index, which the fund believes more closely reflects the performance of the types of securities in which the fund invests. In addition, the Lipper Short Investment Grade Debt Fund Index (which may or may not include the fund) is included for comparison to a peer group.
(14) The Lehman Brothers 1-3 Year Government/Credit Index is a subset of the Lehman Brothers Government/Corporate Bond Index that only includes those securities with maturities between 1 and 3 years.
(15) Lipper Short Investment Grade Debt Fund Index is an equally weighted representation of the 30 largest funds that make up the Lipper Short Investment Grade Debt category. These funds invest primarily in investment grade debt issues with dollar-weighted average maturities of less than three years.
(16) In addition, the Lipper Intermediate Investment Grade Fund Index (which may or may not include the fund) is included for comparison to a peer group.
(17) The Lipper Intermediate Investment Grade Debt Fund Index is an equally weighted representation of the 30 largest funds in the Lipper Intermediate Investment Grade Debt category. These funds invest primarily in investment grade debt issues with average maturities of five to ten years.
(18) The average annual total return given is since the month-end closest to the inception date of the class with the longest performance history.
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold Institutional Class shares of the funds:
SHAREHOLDER FEES ------------------------------------------------------------------------------------------------------------------------------- (fees paid directly from your investment) HIGH YIELD LIMITED MATURITY MONEY MARKET REAL ESTATE SHORT TERM BOND TOTAL RETURN BOND ------------------------------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None None None None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, whichever is less) None None None None None None ------------------------------------------------------------------------------------------------------------------------------- |
ANNUAL FUND OPERATING EXPENSES(1) ------------------------------------------------------------------------------------------------------------------------------- (expenses that are deducted from fund assets) HIGH YIELD LIMITED MATURITY MONEY MARKET REAL ESTATE SHORT TERM BOND TOTAL RETURN BOND ------------------------------------------------------------------------------------------------------------------------------- Management Fees 0.54% 0.19% 0.53% 0.90% 0.40% 0.50% Distribution and/or Service (12b-1) Fees None None None None None None Other Expenses 0.18(2) 0.11 0.16(2) 0.23(2) 0.20(2) 0.46(2) Total Annual Fund Operating Expenses 0.72 0.30 0.69(3) 1.13 0.60 0.96 Waiver N/A N/A N/A N/A N/A 0.19(4) Net Expenses 0.72 0.30 0.69 1.13 0.60(5) 0.77(6) ------------------------------------------------------------------------------------------------------------------------------- |
(1) There is no guarantee that actual expenses will be the same as those shown in the table.
(2) Other Expenses are based on estimated average net assets for the current fiscal year.
(3) The fund's advisor has voluntarily agreed to waive fees and/or reimburse expenses in order to increase the fund's yield. Total Annual Fund Operating Expenses net of waivers and/or reimbursements are 0.54%. The expense limitation agreement may be modified or discontinued without further notice to investors.
(4) The fund's advisor has contractually agreed to waive advisory fees or reimburse expenses to the extent necessary to limit Total Annual Fund Operating Expenses (excluding certain items discussed below) for Class A shares to 1.25% (e.g., if the advisor waives 0.19% of Class A share expenses, the advisor will also waive 0.19% of Institutional Class share expenses). In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Fund Operating Expenses to exceed the limits: (i) interest; (ii) taxes; (iii) extraordinary items (these are expenses that are not anticipated to arise from the fund's day-to-day operations), as defined in the Financial Accounting Standard's Board's Generally Accepted Accounting Principles or as approved by the fund's Board of Trustees; (iv) expenses related to a merger or reorganization, as approved by the fund's Board of Trustees; and (v) expenses that the fund has incurred but did not actually pay because of an expense offset arrangement. Currently, the only expense offset arrangements from which the fund benefits are in the form of credits that the fund receives from banks where the fund or its transfer agent has deposit accounts in which it holds uninvested cash. These credits are used to pay certain expenses incurred by the fund. The expense limitation agreement is in effect through July 31, 2004.
(5) The fund's advisor has contractually agreed to waive advisory fees or reimburse expenses to the extent necessary to limit Total Annual Fund Operating Expenses (excluding certain items discussed above) to 0.60%. The expense limitation agreement is in effect through July 31, 2004.
(6) The fund's advisor has voluntarily agreed to waive advisory fees or reimburse expenses to the extent necessary to limit Total Annual Fund Operating Expenses (excluding certain items discussed above) for Class A shares to 1.00% (e.g., if the advisor waives 0.25% of Class A share expenses, the advisor will also waive 0.25% of Institutional Class share expenses. These expense limitation agreements may be modified or discontinued without further notice to investors. Total Annual Fund Operating expenses net of this agreement are 0.52%.
You should also consider the effect of any account fees charged by the financial institution managing the account.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the funds with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in a 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 each fund's operating expenses remain the same. To the extent fees are waived and/or expenses are reimbursed, your expenses will be lower. Although your actual returns and costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------------------------------------------------------------
High Yield $74 $230 $401 $ 894
Limited Maturity 31 97 169 381
Money Market 70 221 384 859
Real Estate 115 359 622 1,375
Short Term Bond 61 192 335 750
Total Return Bond 79 287 512 1,161
---------------------------------------------------------------------------------------------------------------------------------
|
THE ADVISORS
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. INVESCO Institutional (N.A.), Inc. (INVESCO Alternatives Group division) (the subadvisor for Real Estate) is located at Three Galleria Tower, Suite 500, 13155 Noel Road, Dallas, TX 75240. The subadvisor is responsible for Real Estate Fund's day-to-day management, including the Real Estate Fund's investment decisions and the execution of securities transactions with respect to the fund.
The advisor has acted as an investment advisor since its organization in 1976 and the subadvisor has acted as an investment adviser and qualified professional asset manager since 1979. Today, the advisor, together with its subsidiaries, advises or manages over 200 investment portfolios, including the funds, encompassing a broad range of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2003, the advisor received compensation from the funds at the following rates:
ANNUAL RATE
(AS A PERCENTAGE
OF AVERAGE DAILY
FUND NET ASSETS)
---- ----------------
High Yield 0.54%
Limited Maturity 0.19%
Money Market 0.38%
Real Estate 0.90%
Short Term Bond 0.40%
Total Return Bond 0.06%
|
PORTFOLIO MANAGERS
The advisor (subadvisor for Real Estate) uses a team approach to investment management. The individual members of the team who are primarily responsible for the management of each fund's portfolio are
HIGH YIELD
- Peter Ehret, Senior Portfolio Manager, who has been responsible for the fund since 2001 and has been associated with the advisor and/or its affiliates since 2001. From 1999 to 2001, he was director of high yield research and portfolio manager for Van Kampen Investment Advisory Corp. where he was associated since 1992.
- Carolyn L. Gibbs, Senior Portfolio Manager, who has been responsible for the fund since 2000 and has been associated with the advisor and/or its affiliates since 1992.
They are assisted by the High Yield Taxable Team. More information on the fund's management team may be found on our website (http://www.aiminvestments.com/teams). The website is not a part of this prospectus.
LIMITED MATURITY
- Scot W. Johnson (lead manager), Portfolio Manager, who has been responsible for the fund since 1998 and has been associated with the advisor and/or its affiliates since 1994.
- Clint W. Dudley, Portfolio Manager, who has been responsible for the fund since 2001 and has been associated with the advisor and/or its affiliates since 1998.
More information on the fund's management team may be found on our website (http://www.aiminvestments.com/teams). The website is not a part of this prospectus.
REAL ESTATE
- Joe V. Rodriguez, Jr. (lead manager), Portfolio Manager, who has been responsible for the fund since 1995 and has been associated with the subadvisor and/or its affiliates since 1990.
- Mark Blackburn, Portfolio Manager, who has been responsible for the fund since 2000 and has been associated with the subadvisor and/or its affiliates since 1998.
- James W. Trowbridge, Portfolio Manager, who has been responsible for the fund since 1995 and has been associated with the subadvisor and/or its affiliates since 1989.
They are assisted by the Real Estate Team. More information on the fund's management team may be found on our website (http://www.aiminvestments.com/teams). The website is not a part of this prospectus.
SHORT TERM BOND
- Jan H. Friedli, Senior Portfolio Manager, who has been responsible for the fund since 2002 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, Portfolio Manager, who has been responsible for the fund since 2002 and has been associated with the advisor and/or its affiliates since 1994.
They are assisted by the Investment Grade Team. More information on the fund's management team may be found on our website (http://www.aiminvestments.com/teams). The website is not a part of this prospectus.
TOTAL RETURN BOND
- 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, Portfolio Manager, who has been responsible for the fund since 2001 and has been associated with the advisor and/or its affiliates since 1994.
They are assisted by the Investment Grade Team. More information on the fund's management team may be found on our website (http://www.aiminvestments.com/teams). The website is not a part of this prospectus.
DIVIDENDS AND DISTRIBUTIONS
Each of the funds expects that its distributions, if any, will consist primarily of ordinary income.
DIVIDENDS
Each of the funds, except Real Estate, generally declares dividends daily and pays dividends, if any, monthly. Real Estate generally declares and pays dividends, if any, quarterly.
DIVIDENDS (FOR MONEY MARKET ONLY)
In order to earn dividends on a purchase of fund shares on the day of the purchase, the transfer agent must receive payment in federal funds before 12:00 noon Eastern Time on that day. Purchases made by payments in other forms, or payments in federal funds received after 12:00 noon Eastern Time but before the close of the customary trading session of the New York Stock Exchange, will begin to earn dividends on the next business day.
CAPITAL GAINS DISTRIBUTIONS
The funds generally distributes long-term and short-term capital gains, if any, annually.
SUITABILITY FOR INVESTORS
The Institutional Classes of the funds are intended for use by institutional investors. Shares of the Institutional Classes of the funds are available for banks and trust companies acting in a fiduciary or similar capacity, bank and trust company common and collective trust funds, banks and trust companies investing for their own account, entities acting for the account of a public entity (e.g. Taft-Hartley funds, states, cities or government agencies), defined benefit plans, endowments, foundations and defined contribution plans offered pursuant to Sections 401, 457, 403(a), or 403(b) or (c) (defined contribution plans offered pursuant to Section 403(b) must be sponsored by a Section 501(c)(3) organization). For defined contribution plans for which the sponsor has combined defined contribution and defined benefit assets of at least $100 million there is no minimum initial investment requirement, otherwise the minimum initial investment requirement for defined contribution plans is $10 million. There is no minimum initial investment requirement for defined benefit plans, and the minimum initial investment requirement for all other investors for which the Institutional Classes of funds are available is $1 million.
The Institutional Classes of the funds are designed to be a convenient and economical vehicle in which institutions can invest in a portfolio of securities as the case may be. An investment in the funds may relieve the institution of many of the investment and administrative burdens encountered when investing in securities directly. These include: selection and diversification of portfolio investments; surveying the market for the best price at which to buy and sell; valuation of portfolio securities; receipt, delivery and safekeeping of securities; and portfolio recordkeeping.
The Institutional Class of Limited Maturity may be particularly appropriate for institutions investing short-term cash reserves for the benefit of customer accounts. Prospective investors should determine if an investment in the fund is consistent with the objectives of its customer account and with applicable state and federal laws and regulations.
The price per share of Limited Maturity's shares will fluctuate inversely with changes in interest rates. However the price changes in the fund's shares due to changes in interest rates should be more moderate than the per share fluctuations of a fund which invests in longer-term obligations. The fund is designed for the investor who seeks a higher yield and greater stability of income than a money market fund offers, but with less capital fluctuation than a long-term bond fund might provide. Unlike a money market fund, the fund does not seek to maintain a stable net asset value and may not be able to return dollar-for-dollar the money invested.
The financial highlights tables are intended to help you understand each fund's financial performance. Certain information reflects financial results for a single fund share.
The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in each fund (assuming reinvestment of all dividends and distributions).
The information for the fiscal years 2003, 2002 and 2001 has been audited by Ernst & Young LLP, whose report, along with each fund's financial statements, is included in the fund's annual report, which is available upon request. Information prior to fiscal year 2001 was audited by other public accountants.
As of the date of this prospectus High Yield's, Money Market's, Real Estate's, Short Term Bond's and Total Return Bond's Institutional Class had not yet commenced operations and therefore, financial information for the Institutional Class is not available.
HIGH YIELD -- CLASS A
-----------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
----------- -------- -------- -------- ------------ ------------
Net asset value, beginning of period $ 4.10 $ 3.70 $ 4.92 $ 7.00 $ 8.07 $ 8.77
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.37(a) 0.49(b) 0.68 0.47 0.85
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.40 0.40 (1.19) (2.03) (1.03) (0.66)
=================================================================================================================================
Total from investment operations 0.57 0.77 (0.70) (1.35) (0.56) 0.19
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.37) (0.52) (0.69) (0.49) (0.87)
---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income -- -- -- (0.01) -- --
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (0.03) (0.02) (0.02)
=================================================================================================================================
Total distributions (0.18) (0.37) (0.52) (0.73) (0.51) (0.89)
=================================================================================================================================
Redemption fees added to beneficial
interest 0.00 -- -- -- -- --
=================================================================================================================================
Net asset value, end of period $ 4.49 $ 4.10 $ 3.70 $ 4.92 $ 7.00 $ 8.07
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 14.24% 22.10% (15.36)% (19.98)% (7.12)% 2.21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $632,986 $547,092 $417,974 $683,845 $1,056,453 $1,364,502
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.08%(d) 1.16% 1.07% 0.99% 0.93%(e) 0.92%
=================================================================================================================================
Ratio of net investment income to
average net assets 8.06%(d) 9.64% 11.15%(b) 11.98% 10.79%(e) 10.06%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 42% 101% 59% 55% 23% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. Had the Fund not amortized premiums on debt securities, the net investment income per share would have remained the same and the ratio of net investment income to average net assets would have been 11.22%. In accordance with the AICPA Audit and Accounting Guide for Investment Companies, per share and ratios for periods prior to August 1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $615,756,735.
(e) Annualized.
(f) Not annualized for periods less than one year.
LIMITED MATURITY -- INSTITUTIONAL CLASS
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY 31,
JANUARY 31, --------------------------------------------------------
2004 2003 2002 2001 2000 1999
----------- ------ ------ ------ ------ -------
Net asset value, beginning of period $10.46 $10.53 $10.26 $ 9.96 $10.03 $ 10.07
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.22 0.34(a) 0.54(b) 0.54 0.49
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.04 0.03 0.27 0.31 (0.07) (0.04)
=================================================================================================================================
Total from investment operations 0.11 0.25 0.61 0.85 0.47 0.45
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.07) (0.22) (0.34) (0.55) (0.54) (0.49)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.17) (0.10) -- -- -- --
=================================================================================================================================
Total distributions (0.24) (0.32) (0.34) (0.55) (0.54) (0.49)
=================================================================================================================================
Net asset value, end of period $10.33 $10.46 $10.53 $10.26 $ 9.96 $ 10.03
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.08% 2.42% 6.05% 8.80% 4.78% 4.55%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,786 $3,913 $2,970 $1,812 $2,455 $17,131
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.32%(d) 0.30% 0.34% 0.33%(e) 0.29% 0.31%
=================================================================================================================================
Ratio of net investment income to average net assets 1.36%(d) 2.08% 3.26%(a) 5.38% 5.31% 4.84%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 50% 124% 149% 137% 122% 184%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions of the AICPA Audit and the Accounting Guide for Investment Companies and began amortizing premiums on debt securities. Had the Fund not amortized premiums on debt securities, the net investment income per share would have been $0.35, and the ratio of net investment income to average assets would have been 3.43%. In accordance with the AICPA Audit and Accounting Guide for Investment Companies, per share and ratios for periods prior to August 1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $4,148,863.
(e) Including expense reimbursement. Ratio of expenses to average net assets excluding reimbursement is 0.41%
(f) Not annualized for periods less than one year.
MONEY MARKET -- AIM CASH RESERVE
--------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
----------- ---------- ---------- -------- ------------ ------------
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 0.0027 0.0064 0.0141 0.0467 0.0300(a) 0.0414
---------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (realized) 0.0001 0.0000 -- -- -- --
=================================================================================================================================
Total from investment operations 0.0028 0.0064 0.0141 0.0467 0.0300 0.0414
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.0028) (0.0064) (0.0141) (0.0467) (0.0300) (0.0414)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.0000) (0.0000) -- -- -- --
=================================================================================================================================
Total distributions (0.0028) (0.0064) (0.0141) (0.0467) (0.0300) (0.0414)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.28% 0.64% 1.42% 4.77% 3.03% 4.22%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $731,948 $1,188,876 $1,121,879 $937,532 $912,042 $989,478
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets(c) 0.58%(d) 0.88% 1.01% 1.06% 1.07%(e) 1.04%
=================================================================================================================================
Ratio of net investment income to average
net assets 0.53%(d) 0.64% 1.40% 4.61% 5.15%(e) 4.16%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.03% for the six months ended January 31, 2004 and for the year ended July 31, 2003, respectively.
(d) Ratios are annualized and based on average net assets of $886,996,828.
(e) Annualized.
REAL ESTATE -- CLASS C
-----------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS YEAR ENDED
ENDED YEAR ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, -------------------------------- JULY 31, ------------------
2004 2003 2002 2001 2000 1999 1998
------------ ------- ------- ------- ------------ ------- -------
Net asset value, beginning
of period $ 17.52 $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46 $ 15.74
----------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.19(a) 0.36(a) 0.38(a) 0.41 0.25(a) 0.33(a) 0.50(a)
----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 3.19 2.24 1.67 0.53 2.39 (0.73) (4.13)
======================================================================================================================
Total from investment
operations 3.38 2.60 2.05 0.94 2.64 (0.40) (3.63)
======================================================================================================================
Less distributions:
Dividends from net
investment income (0.21) (0.34) (0.36) (0.42) (0.21) (0.44) (0.40)
----------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- -- -- -- -- -- (0.25)
======================================================================================================================
Total distributions (0.21) (0.34) (0.36) (0.42) (0.21) (0.44) (0.65)
======================================================================================================================
Net asset value, end of
period $ 20.69 $ 17.52 $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 19.41% 17.41% 15.35% 7.43% 25.13% (3.54)% (23.16)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $95,791 $64,648 $37,733 $22,722 $20,306 $19,992 $32,921
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to
average net assets:
With fee waivers 2.30%(c) 2.37% 2.41% 2.36% 2.37%(d) 2.35% 2.31%
----------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.30%(c) 2.37% 2.41% 2.43% 2.70%(d) 2.37% 2.37%
======================================================================================================================
Ratio of net investment
income to average net
assets 1.94%(c) 2.32% 2.61% 3.15% 3.73%(d) 2.96% 3.62%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(e) 13% 87% 77% 85% 39% 52% 69%
______________________________________________________________________________________________________________________
======================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $77,425,325.
(d) Annualized.
(e) Not annualized for periods less than one year.
SHORT TERM BOND -- CLASS C
----------------------------------
AUGUST 30,
2002
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2004 2003
----------- ----------------
Net asset value, beginning of period $ 10.02 $ 10.01
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.12(a)
------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.13 0.14
================================================================================================
Total from investment operations 0.20 0.26
================================================================================================
Less distributions:
Dividends from net investment income (0.13) (0.25)
------------------------------------------------------------------------------------------------
Return of capital -- (0.00)
================================================================================================
Total distributions (0.13) (0.25)
================================================================================================
Net asset value, end of period $ 10.09 $ 10.02
________________________________________________________________________________________________
================================================================================================
Total return(b) 2.05% 2.58%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $355,330 $337,480
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.20%(c) 1.20%(d)
------------------------------------------------------------------------------------------------
Without fee waivers 1.60%(c) 1.60%(d)
================================================================================================
Ratio of net investment income to average net assets 1.40%(c) 1.28%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 54% 88%
________________________________________________________________________________________________
================================================================================================
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(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $335,039,476.
(d) Annualized.
(e) Not annualized for periods less than one year.
TOTAL RETURN BOND -- CLASS A
-------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
----------- ---------- -----------------
Net asset value, beginning of period $ 10.35 $ 10.19 $10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.32(a) 0.18(a)
===============================================================================================================
Net gains on securities (both realized and unrealized) 0.33 0.26 0.23
===============================================================================================================
Total from investment operations 0.48 0.58 0.41
===============================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.40) (0.22)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.09) (0.02) --
===============================================================================================================
Total distributions (0.28) (0.42) (0.22)
===============================================================================================================
Net asset value, end of period $ 10.55 $ 10.35 $10.19
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 4.72% 5.77% 4.09%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,565 $30,336 $9,325
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.00%(c) 1.00% 1.00%(d)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 1.53%(c) 1.54% 3.21%(d)
===============================================================================================================
Ratio of net investment income to average net assets 2.94%(c) 3.07% 3.10%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 181% 284% 215%
_______________________________________________________________________________________________________________
===============================================================================================================
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(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $30,670,406.
(d) Annualized.
(e) Not annualized for periods less than one year.
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 Institutional Classes of the AIM funds.
SHARES SOLD WITHOUT SALES CHARGES
You will not pay an initial or contingent deferred sales charge on purchases of any Institutional Class of shares.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM fund Institutional Class accounts are as follows:
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
----------------------------------------------------------------------------------------
Defined Benefit Plans or Platform Sponsors for Defined
Contribution Plans $ 0 no minimum
Banks acting in a fiduciary or similar capacity, Collective
and Common Trust Funds, Banks and Broker-Dealers acting for
their own account or Foundations and Endowments 1 million no minimum
Defined Contribution Plans (Corporate, Non-profit or
Governmental) 10 million no minimum
----------------------------------------------------------------------------------------
|
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not be processed unless the account application and purchase payment are received in good order. In accordance with the USA PATRIOT Act, if you fail to provide all the required information requested in the current account application, your purchase order will not be processed. Additionally, Federal law requires that the AIM fund verify and record your identifying information.
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
----------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
The financial consultant should mail your
completed account application to the
transfer agent,
AIM Investment Services, Inc.,
P.O. Box 0843,
Houston, TX 77210-0843.
The financial consultant should call the
transfer agent at (800) 659-1005 to
receive a reference number.
Then, use the following wire instructions:
Beneficiary Bank
ABA/Routing #: 113000609
Beneficiary Account Number: 00100366732
Beneficiary Account Name: AIM Investment
Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account as described above. Call the transfer agent at (800) 659-1005
and wire payment for your purchase order
in accordance with the wire instructions
noted above.
----------------------------------------------------------------------------------------------------------------------------
|
SPECIAL PLANS
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in the same AIM fund at net asset value. Unless you specify otherwise, your dividends and distributions will automatically be reinvested in the same AIM fund.
INSTCL--04/04
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.
Through a Financial Consultant Contact your financial consultant.
Redemption proceeds will be sent in accordance with the wire
instructions specified in the account application provided
to the transfer agent. The transfer agent must receive your
financial intermediary's call before the close of the
customary trading session of the New York Stock Exchange
(NYSE) on days the NYSE is open for business in order to
effect the redemption at the day's closing price.
By Telephone A person who has been authorized in the account application
to effect transactions may make redemptions by telephone.
You must call the transfer agent before the close of the
customary trading session of the NYSE on days the NYSE is
open for business in order to effect the redemption at that
day's closing price.
|
TIMING AND METHOD OF PAYMENT
We normally will send out redemption proceeds within one business day, and in any event no more than seven days, after we accept your request to redeem.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will transmit the amount of the redemption
proceeds 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.
REDEMPTIONS IN KIND
Although the AIM funds and the INVESCO funds generally intend to pay redemption
proceeds solely in cash, the AIM funds and the INVESCO funds reserve the right
to satisfy redemption requests by making payment in securities or other property
(known as a redemption in kind).
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 fund's short-term investments are valued at amortized cost when the security has 60 days or less to maturity.
The AIM funds value all other securities and assets at their fair value.
Foreign securities are converted into U.S. dollar amounts using exchange rates
as of the close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value of the
AIM funds' shares are determined as of the close of the respective markets.
Events affecting the values of such securities may occur between the times at
which the particular foreign market closes and the close of the customary
trading session of the NYSE which would not ordinarily be reflected in the
computation of the AIM fund's net asset value. If a development/ event is so
significant such that there is a reasonably high degree of certainty as to both
the effect and the degree of the effect that the development/event has actually
caused that closing price to no longer reflect actual value, the closing prices,
as determined at the close of the applicable foreign market, may be adjusted to
reflect the fair value of the affected foreign securities as of the close of the
NYSE as determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to sector
indices, ADRs, domestic and foreign index futures, and exchange-traded funds.
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.
INSTCL--04/04
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.
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 and the type of income that the fund earns. Different tax rates apply to ordinary income, qualified dividend income, and long-term capital gain distributions, regardless of how long you have held your shares. Every year, you will be sent information showing the amount of dividends and distributions you received from each AIM fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM fund shares will be subject to federal income tax. Exchanges of shares for shares of another AIM fund are treated as a sale, and any gain realized on the transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM fund shares may differ materially from the federal income tax consequences described above. In addition, the preceding discussion concerning the taxability of fund dividends and distributions and of redemptions and exchanges of AIM and/or INVESCO fund shares is inapplicable to investors that are generally exempt from federal income tax, such as retirement plans that are qualified under Section 401 of the Internal Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should consult your tax advisor before investing.
INSTCL--04/04
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: AIM Investment Services, Inc.
P.O. Box 0843
Houston, TX 77001-0843
BY TELEPHONE: (800) 659-1005
ON THE INTERNET: YOU CAN SEND US A REQUEST
BY E-MAIL OR DOWNLOAD
PROSPECTUSES, ANNUAL OR
SEMIANNUAL REPORTS
VIA OUR WEBSITE:
http://www.aiminvestments.com
|
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.
AIMinvestments.com AIS-PRO-1
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT SECURITIES FUNDS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE INSTITUTIONAL CLASS SHARES OF EACH PORTFOLIO (EACH A "FUND", COLLECTIVELY THE "FUNDS")OF AIM INVESTMENT SECURITIES FUNDS LISTED BELOW. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, AND IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INSTITUTIONAL CLASS SHARES OF THE FUND LISTED BELOW. YOU MAY OBTAIN A COPY OF THE PROSPECTUS FOR THE FUNDS LISTED BELOW FROM AN AUTHORIZED DEALER OR BY WRITING TO:
AIM INVESTMENT SERVICES, INC.
P.O. BOX 0843
HOUSTON, TEXAS 77001-0843
OR BY CALLING
(800) 659-1005
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED APRIL 30, 2004, RELATES TO THE FOLLOWING PROSPECTUS:
FUND DATED
---- -----
AIM HIGH YIELD FUND - INSTITUTIONAL CLASS APRIL 30, 2004
AIM LIMITED MATURITY TREASURY FUND - INSTITUTIONAL CLASS APRIL 30, 2004
AIM MONEY MARKET FUND - INSTITUTIONAL CLASS APRIL 30, 2004
AIM REAL ESTATE FUND - INSTITUTIONAL CLASS APRIL 30, 2004
AIM SHORT TERM BOND FUND - INSTITUTIONAL CLASS APRIL 30, 2004
AIM TOTAL RETURN BOND FUND - INSTITUTIONAL CLASS APRIL 30, 2004
|
INSTITUTIONAL SHARES OF THE MONEY MARKET FUND ARE NOT CURRENTLY AVAILABLE FOR PUBLIC SALE. INVESTORS MAY NOT PURCHASE INSTITUTIONAL SHARES OF THE FUND THROUGH EXCHANGES FROM OTHER AIM FUNDS, OR THROUGH AUTOMATIC DIVIDEND REINVESTMENT FROM ANOTHER AIM FUND.
AIM INVESTMENT SECURITIES FUNDS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION ABOUT THE TRUST ................................................................ 1
Fund History ............................................................................. 1
Shares of Beneficial Interest ............................................................ 1
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS .............................................. 3
Classification ........................................................................... 3
Investment Strategies and Risks .......................................................... 3
Equity Investments ........................................................... 8
Foreign Investments .......................................................... 8
Debt Investments ............................................................. 11
Other Investments ............................................................ 17
Investment Techniques ........................................................ 19
Derivatives .................................................................. 23
Fund Policies ............................................................................ 30
Temporary Defensive Positions ............................................................ 33
MANAGEMENT OF THE TRUST ............................................................................ 33
Board of Trustees ........................................................................ 33
Management Information ................................................................... 33
Trustee Ownership of Fund Shares ............................................. 35
Factors Considered in Approving the Investment Advisory Agreement ............ 35
Compensation ............................................................................. 36
Retirement Plan For Trustees ................................................. 36
Deferred Compensation Agreements ............................................. 36
Purchase of Class A Shares of the Funds at Net Asset Value ................... 37
Codes of Ethics .......................................................................... 37
Proxy Voting Policies .................................................................... 37
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES ................................................ 37
INVESTMENT ADVISORY AND OTHER SERVICES ............................................................. 38
Investment Advisor ....................................................................... 38
Investment Sub-Advisor ................................................................... 40
Service Agreements ....................................................................... 40
Other Service Providers .................................................................. 41
BROKERAGE ALLOCATION AND OTHER PRACTICES ........................................................... 42
Brokerage Transactions ................................................................... 42
Commissions .............................................................................. 42
Brokerage Selection ...................................................................... 43
Directed Brokerage (Research Services) ................................................... 44
Regular Brokers or Dealers ............................................................... 44
Allocation of Portfolio Transactions ..................................................... 44
Allocation of Initial Public Offering ("IPO") Transactions ............................... 44
PURCHASE, REDEMPTION AND PRICING OF SHARES ......................................................... 45
Purchase and Redemption of Shares ........................................................ 45
Redemptions by the Fund .................................................................. 46
Calculation of Net Asset Value ........................................................... 46
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Redemption In Kind ....................................................................... 48
Backup Withholding ....................................................................... 48
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS ........................................................... 49
Dividends and Distributions .............................................................. 49
Tax Matters .............................................................................. 50
DISTRIBUTION OF SECURITIES ......................................................................... 57
Distributor .............................................................................. 57
CALCULATION OF PERFORMANCE DATA .................................................................... 58
PENDING LITIGATION ................................................................................. 64
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APPENDICES: RATINGS OF DEBT SECURITIES.......................................................................... A-1 TRUSTEES AND OFFICERS............................................................................... B-1 TRUSTEES COMPENSATION TABLE......................................................................... C-1 PROXY VOTING POLICIES............................................................................... D-1 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES................................................. E-1 MANAGEMENT FEES..................................................................................... F-1 ADMINISTRATIVE SERVICES FEES........................................................................ G-1 BROKERAGE COMMISIONS................................................................................ H-1 DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASE OF SECURITIES REGULAR BROKERS OR DEALERS.......................................................................... I-1 PERFORMANCE DATA.................................................................................... J-1 PENDING LITIGATION.................................................................................. K-1 FINANCIAL STATEMENTS................................................................................ FS |
GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Investment Securities Fund (the "Trust") is a Delaware statutory 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 nine 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, AIM Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund (each a "Fund" and collectively, the "Funds"). Under the Amended and Restated Agreement and Declaration of Trust, dated May 15, 2002, as amended (the "Trust Agreement"), the Board of Trustees of the Trust (the "Board") is authorized to create new series of shares without the necessity of a vote of shareholders of the Trust.
The Trust was originally organized as a Maryland corporation on November 4, 1988. Pursuant to an Agreement and Plan of Reorganization, AIM Limited Maturity Treasury Fund was reorganized on October 15, 1993 as a series portfolio of the Trust. Pursuant to another Agreement and Plan of Reorganization, AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund were reorganized on June 1, 2000 as series portfolios of the Trust. In connection with their reorganization as series portfolios of the Trust, the fiscal year end of each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund changed from December 31 to July 31. Pursuant to another Agreement and Plan of Reorganization, AIM Real Estate Fund was reorganized on October 29, 2003 as a series portfolio of the Trust.
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). AIM Real Estate Fund succeeded to the assets and assumed the liabilities of a series portfolio with a corresponding name (the "Real Estate Predecessor Fund") of AIM Advisor Funds, a Delaware statutory trust, on October 29, 2003. All historical information and other information contained in this Statement of Additional Information for periods prior to October 29, 2003, relating to AIM Real Estate Fund (or a class thereof) is that of the Real Estate Predecessor Fund (or a corresponding class 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 or redemption fee) 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, primarily on the basis of relative net assets, or other relevant factors.
Each share of each Fund represents an equal proportionate interest in that Fund with each other share and is entitled to such dividends and distributions out of the income belonging to such Fund as are declared by the Board. Each Fund offers separate classes of shares as follows:
AIM CASH RESERVE
FUND CLASS A CLASS A3 SHARES CLASS B CLASS C CLASS R INSTITUTIONAL CLASS INVESTOR CLASS
-----------------------------------------------------------------------------------------------------------------------------------
AIM High Yield Fund x x x X x
AIM Income Fund x x x x x
AIM Intermediate Government Fund x x x x x
AIM Limited Maturity Treasury Fund x x x
AIM Money Market Fund x x x x X x
AIM Municipal Bond Fund x x x x
AIM Real Estate Fund X X X X X X
AIM Short Term Bond Fund X x X X
AIM Total Return Bond Fund X x x X X
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This Statement of Additional Information relates solely to the Institutional Class of these six Funds.
Each class of shares represents an interest in the same portfolio of investments. Upon any liquidation of the Trust, shareholders of each class are entitled to share pro rata in the net assets belonging to the applicable Fund allocable to such class available for distribution after satisfaction of outstanding liabilities of the Fund allocable to such class.
Each share of a Fund generally has the same voting, dividend, liquidation and other rights; however, each class of shares of a Fund is subject to different sales loads, conversion features, exchange privileges and class-specific expenses. Only shareholders of a specific class may vote on matters relating to that class' distribution plan.
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. Shares do not have cumulative voting rights, which means that in situations in which shareholders elect trustees, holders of more than 50% of the shares voting for the election of trustees can elect all of the trustees of the Trust, and the holders of less than 50% of the shares voting for the election of trustees will not be able to elect any trustees.
Under Delaware law, shareholders of a Delaware statutory trust shall be entitled to the same limitations of liability extended to shareholders of private for-profit corporations. There is a remote possibility, however, that shareholders could, under certain circumstances, be held liable for the obligations of the Trust to the extent the courts of another state which does not recognize such limited liability were to apply the laws of such state to a controversy involving such obligations. The Trust Agreement disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the trustees to all parties, and each party thereto must expressly waive all rights of action directly against shareholders of the Trust. The Trust Agreement provides for indemnification out of the property of a Fund for all losses and expenses of any shareholder of such Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss due to shareholder liability is limited to circumstances in which a Fund is unable to meet its obligations and the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act, omission or obligation of the Trust or any Trustee or officer; however, a trustee or officer is not protected against any liability to the Trust or to the shareholders to which a trustee or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office with the Trust ("Disabling Conduct"). The Trust Agreement provides for indemnification by the Trust of the trustees, the officers and employees or agents of the Trust, provided that such persons have not engaged in Disabling Conduct. The Trust Agreement also authorizes the purchase of liability insurance on behalf of trustees and officers.
SHARE CERTIFICATES. Shareholders of the Funds do not have the right to demand or require the Trust to issue share certificates.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. Each of the Funds is "diversified" for purposes of the 1940 Act.
INVESTMENT STRATEGIES AND RISKS
The table on the following pages identifies various securities and investment techniques used by AIM in managing The AIM Family of Funds Registered Trademark. The table has been marked to indicate those securities and investment techniques that AIM may use to manage a Fund. A Fund may not use all of these techniques at any one time. A Fund's transactions in a particular security or use of a particular technique is subject to limitations imposed by a Fund's investment objective, policies and restrictions described in that Fund's Prospectus and/or this Statement of Additional Information, as well as federal securities laws. The Fund's investment objectives, policies, strategies and practices are non-fundamental unless otherwise indicated. A more detailed description of the securities and investment techniques, as well as the risks associated with those securities and investment techniques that the Fund utilizes, follows the table. The descriptions of the securities and investment techniques in this section supplement the discussion of principal investment strategies contained in the Fund's Prospectus; where a particular type of security or
investment technique is not discussed in the 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
SECURITY/ HIGH AIM LIMITED AIM AIM AIM TOTAL
INVESTMENT YIELD MATURITY AIM MONEY REAL ESTATE SHORT TERM RETURN BOND
TECHNIQUE FUND TREASURY FUND MARKET FUND FUND BOND FUND FUND
--------------------------------------------------------------------------------------------------------------------------
EQUITY INVESTMENTS
Common Stock X
Preferred Stock X X X X
Convertible Securities X X X X
Alternative Entity Securities X
FOREIGN INVESTMENTS
Foreign Securities X X X X X
Foreign Government Obligations X X X X X
Foreign Exchange Transactions X X X
DEBT INVESTMENTS FOR FIXED INCOME FUNDS
U.S. Government Obligations X X X X X
Rule 2a-7 Requirements X X X X X
Mortgage-Backed and Asset-Backed X X X
Securities
Collateralized Mortgage X
Obligations
Bank Instruments X X
Commercial Instruments X
Participation Interests X
Municipal Securities X X X X
Municipal Lease Obligations
Investment Grade Corporate Debt X X X X
Obligations
Junk Bonds X
DEBT INVESTMENTS FOR EQUITY FUNDS
U.S. Government X
Obligations
Mortgage-Backed X
and Asset-Backed
Securities
Collateralized Mortgage X
Obligations
Investment Grade X
Corporate Debt
Obligations
Liquid Assets X
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AIM INVESTMENT SECURITIES FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUE
FUND
------------------------------------- AIM
SECURITY/ HIGH AIM LIMITED AIM AIM AIM TOTAL
INVESTMENT YIELD MATURITY AIM MONEY REAL ESTATE SHORT TERM RETURN BOND
TECHNIQUE FUND TREASURY FUND MARKET FUND FUND BOND FUND FUND
----------------------------------------------------------------------------------------------------------------------------------
Junk Bonds X
OTHER INVESTMENTS
REITs X X X X X X
Other Investment X X X X X X
Companies
Defaulted Securities X
Municipal Forward Contracts
Variable or Floating Rate Instruments X X X
Indexed Securities
Zero-Coupon and Pay-in-Kind X X X
Securities
Synthetic Municipal Instruments
INVESTMENT TECHNIQUES
Delayed Delivery Transactions X X X X X X
When-Issued Securities X X X X X X
Short Sales X X X X
Margin Transactions
Swap Agreements X X X
Interfund Loans X X X X X X
Borrowing X X X X X X
Lending Portfolio Securities X X X X X X
Repurchase Agreements X X X X X X
Reverse Repurchase Agreements X X X X X X
Dollar Rolls X X
Illiquid Securities X X X X X X
Rule 144A Securities X X X X X
Unseasoned Issuers X X X
Sale of Money Market Securities X
Standby Commitments
DERIVATIVES
Equity-Linked Derivatives X
Put Options X X X X
Call Options X X X X
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AIM INVESTMENT SECURITIES FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUE
FUND
------------------------------------- AIM
SECURITY/ HIGH AIM LIMITED AIM AIM AIM TOTAL
INVESTMENT YIELD MATURITY AIM MONEY REAL ESTATE SHORT TERM RETURN BOND
TECHNIQUE FUND TREASURY FUND MARKET FUND FUND BOND FUND FUND
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Straddles X X X X
Warrants X X X X
Futures Contracts and Options on X X X X
Futures Contracts
Forward Currency Contracts X X X
Cover 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.
AIM High Yield Fund will not acquire equity securities, other than preferred stocks, except when (a) attached to or included in a unit with income-generating securities that otherwise would be attractive to the Fund; (b) acquired through the exercise of equity features accompanying convertible securities held by the Fund, such as conversion or exchange privileges or warrants for the acquisition of stock or equity interests of the same or a different issuer; or (c) in the case of an exchange offer whereby the equity security would be acquired with the intention of exchanging it for a debt security issued on a "when-issued" basis.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures, notes, preferred stocks and other securities that may be converted into a prescribed amount of common stock or other equity securities at a specified price and time. The holder of convertible securities is entitled to receive interest paid or accrued on debt, or dividends paid or accrued on preferred stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer and the seniority of the security in the issuer's capital structure. Convertible securities may be illiquid, and may be required to convert at a time and at a price that is unfavorable to a 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.
ALTERNATIVE ENTITY SECURITIES. Companies that are formed as limited partnerships, limited liability companies, business trusts or other non-corporate entities may issue equity securities that are similar to common or preferred stock of corporations.
Foreign Investments
FOREIGN SECURITIES. Foreign securities are equity or debt securities issued by issuers outside the United States, and include securities in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), or other securities representing underlying securities of foreign issuers.
Depositary receipts are typically issued by a bank or trust company and evidence ownership of underlying securities issued by foreign corporations.
AIM High Yield Fund, AIM Real Estate Fund and AIM Total Return Bond Fund may invest up to 25% of their total assets, AIM Money Market Fund may invest up to 50% of its total assets and AIM Short Term Bond Fund may invest up to 15% of its total assets in foreign securities; however, AIM Money Market Fund and AIM Short Term Bond Fund may only invest in foreign securities denominated in U.S. dollars. In addition, AIM Total Return Bond Fund may only invest up to 5% of its total assets in foreign securities that are non-U.S. dollar denominated.
Investments by a Fund in foreign securities, whether denominated in U.S. dollars or foreign currencies, may entail all of the risks set forth below. Investments by a Fund in ADRs, EDRs or similar securities also may entail some or all of the risks described below.
Currency Risk. The value of the Funds' foreign investments will be affected by changes in currency exchange rates. The U.S. dollar value of a foreign security decreases when the value of the U.S. dollar rises against the foreign currency in which the security is denominated, and increases when the value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in which the Funds may invest may not be as developed as the United States' economy and may be subject to significantly different forces. Political or social instability, expropriation or confiscatory taxation, and limitations on the removal of funds or other assets could also adversely affect the value of the Funds' investments.
Regulatory Risk. Foreign companies are not registered with the Securities and Exchange Commission ("SEC") and are generally not subject to the regulatory controls imposed on United States issuers and, as a consequence, there is generally less publicly available information about foreign securities than is available about domestic securities. Foreign companies are not subject to uniform accounting, auditing and financial reporting standards, corporate governance practices and requirements comparable to those applicable to domestic companies. Income from foreign securities owned by the Funds may be reduced by a withholding tax at the source, which tax would reduce dividend income payable to the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which the Funds invest will have substantially less trading volume than the major United States markets. As a result, the securities of some foreign companies may be less liquid and experience more price volatility than comparable domestic securities. Increased custodian costs as well as administrative costs (such as the need to use foreign custodians) may be associated with the maintenance of assets in foreign jurisdictions. There is generally less government regulation and supervision of foreign stock exchanges, brokers and issuers which may make it difficult to enforce contractual obligations. In addition, transaction costs in foreign securities markets are likely to be higher, since brokerage commission rates in foreign countries are likely to be higher than in the United States.
Risk of Developing Countries. AIM High Yield Fund, AIM Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund may each invest up to 5% of their total assets in securities of companies located in developing countries. Developing countries are those countries which are not included in the MSCI World Index. The Funds consider various factors when determining whether a company is in a developing country, including whether (1) it is organized under the laws of a developing country; (2) it has a principal office in a developing country; (3) it derives 50% or more of its total revenues from business in a developing country; or (4) its securities are traded principally on a stock exchange, or in an over-the-counter market, in a developing country. Investments in developing countries present risks greater than, and in addition to, those presented by investments in foreign issuers in general. A number of developing countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and the proceeds of sales by foreign investors may require governmental registration and/or approval in some developing countries. A number of the currencies of developing countries have experienced significant declines against the U.S. dollar in recent years, and
devaluation may occur subsequent to investments in these currencies by the Funds. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain emerging market countries. Many of the developing securities markets are relatively small or less diverse, have low trading volumes, suffer periods of relative liquidity, and are characterized by significant price volatility. There is a risk in developing countries that a future economic or political crisis could lead to price controls, forced mergers of companies, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies, any of which may have a detrimental effect on the Fund's investments. AIM High Yield Fund, AIM Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund may each invest up to 5% of their total assets in securities of companies located in developing countries. Investments in developing countries present risks greater than, and in addition to, those presented by investments in foreign issuers in general. A number of developing countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and the proceeds of sales by foreign investors may require governmental registration and/or approval in some developing countries. A number of the currencies of developing countries have experienced significant declines against the U.S. dollar in recent years, and devaluation may occur subsequent to investments in these currencies by the Funds. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain emerging market countries. Many of the developing securities markets are relatively small or less diverse, have low trading volumes, suffer periods of relative liquidity, and are characterized by significant price volatility. There is a risk in developing countries that a future economic or political crisis could lead to price controls, forced mergers of companies, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies, any of which may have a detrimental effect on a Fund's investments.
FOREIGN GOVERNMENT OBLIGATIONS. Debt securities issued by foreign governments are often, but not always, supported by the full faith and credit of the foreign governments, or their subdivisions, agencies or instrumentalities, that issue them. These securities involve the risks discussed above with respect to foreign securities. Additionally the issuer of the debt or the governmental authorities that control repayment of the debt may be unwilling or unable to pay interest or repay principal when due. Political or economic changes or the balance of trade may affect a country's willingness or ability to service its debt obligations. Periods of economic uncertainty may result in the volatility of market prices of sovereign debt obligations, especially debt obligations issued by the governments of developing countries. Foreign government obligations of developing countries and some structures of emerging market debt securities, both of which are generally below investment grade, are sometimes referred to as "Brady Bonds."
FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include direct purchases of futures contracts with respect to foreign currency, and contractual agreements to purchase or sell a specified currency at a specified future date (up to one year) at a price set at the time of the contract. Such contractual commitments may be forward contracts entered into directly with another party or exchange traded futures contracts.
Each Fund has authority to deal in foreign exchange between currencies of the different countries in which it will invest as a hedge against possible variations in the foreign exchange rates between those currencies. A Fund may commit the same percentage of its assets to foreign exchange hedges as it can invest in foreign securities.
The Funds may utilize either specific transactions ("transaction hedging") or portfolio positions ("position hedging") to hedge foreign currency exposure through foreign exchange transactions. Transaction hedging is the purchase or sale of foreign currency with respect to specific receivables or payables of a Fund accruing in connection with the purchase or sale of its portfolio securities, the sale and redemption of shares of the Fund, or the payment of dividends and distributions by the Fund. Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions (or underlying portfolio security positions, such as in an ADR) denominated or quoted in a foreign currency. Additionally, foreign exchange transactions may involve some of the risks of investments in foreign securities.
Debt Investments
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities include bills, notes and bonds issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S. Treasury obligations representing future interest or principal payments on U.S. Treasury notes or bonds. Stripped securities are sold at a discount to their "face value," and may exhibit greater price volatility than interest-bearing securities since investors receive no payment until maturity. Obligations of certain agencies and instrumentalities of the U.S. Government, such as the Government National Mortgage Association ("GNMA"), are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal National Mortgage Association ("FNMA"), are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the Student Loan Marketing Association ("SLMA"), are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, though issued by an instrumentality chartered by the U.S. Government, like the Federal Farm Credit Bureau ("FFCB"), are supported only by the credit of the instrumentality. The U.S. Government may choose not to provide financial support to U.S. Government-sponsored agencies or instrumentalities if it is not legally obligated to do so.
RULE 2a-7 REQUIREMENTS. Money market instruments in which the Fund will invest will be "Eligible Securities" as defined in Rule 2a-7 under the 1940 Act, as such Rule may be amended from time to time. An Eligible Security is generally a rated security with a remaining maturity of 397 calendar days or less that has been rated by the Requisite NRSROs (as defined below) in one of the two highest short-term rating categories, or a security issued by an issuer that has received a rating by the Requisite NRSROs in one of the two highest short-term rating categories with respect to a class of debt obligations (or any debt obligation within that class). Eligible Securities may also include unrated securities determined by AIM (under the supervision of and pursuant to guidelines established by the Board ) to be of comparable quality to such rated securities. If an unrated security is subject to a guarantee, to be an Eligible Security, the guarantee generally must have received a rating from a NRSRO in one of the two highest short-term rating categories or be issued by a guarantor that has received a rating from a NRSRO in one of the two highest short-term rating categories with respect to a class of debt obligations (or any debt obligation within that class). Since the Fund may invest in securities backed by banks and other financial institutions, changes in the credit quality of these institutions could cause losses to the Fund and affect their share price. The term "Requisite NRSRO" means (a) any two nationally recognized statistical rating organizations (NRSROs) that have issued a rating with respect to a security or class of debt obligations of an issuer, or (b) if only one NRSRO has issued a rating with respect to such security or issuer at the time a Fund acquires the security, that NRSRO.
AIM Money Market Fund will limit investments in money market obligations to those which are denominated in U.S. dollars and which at the date of purchase are "First Tier" securities as defined in Rule 2a-7 under the 1940 Act, as such Rule may be amended from time to time. Briefly, "First Tier" securities are securities that are rated in the highest rating category for short-term debt obligations by two NRSROs, or, if only rated by one NRSRO, are rated in the highest rating category by the NRSRO, or if unrated, are determined by the Fund's investment advisor (under the supervision of and pursuant to guidelines established by the Board ) to be of comparable quality to a rated security that meets the foregoing quality standards, as well as securities issued by a registered investment company that is a money market fund and U.S. Government securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed securities are mortgage-related securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, or issued by nongovernment entities. Mortgage-related securities represent pools of mortgage loans assembled for sale to investors by various government agencies such as GNMA and government-related organizations such as FNMA and the Federal Home Loan Mortgage Corporation ("FHLMC"), as well as by nongovernment issuers such as commercial banks, savings and loan institutions, mortgage bankers and private mortgage insurance companies. Although certain mortgage-related securities are guaranteed by a third party or otherwise similarly secured, the market value of the security, which may fluctuate, is not so secured.
There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities they issue. Mortgage-related securities issued by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as to the timely payment of principal and interest. That guarantee is backed by the full faith and credit of the U.S. Treasury. GNMA is a corporation wholly owned by the U.S. Government within the Department of Housing and Urban Development. Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") and are guaranteed as to payment of principal and interest by FNMA itself and backed by a line of credit with the U.S. Treasury. FNMA is a government-sponsored entity wholly owned by public stockholders. Mortgage-related securities issued by FHLMC include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs") guaranteed as to payment of principal and interest by FHLMC itself and backed by a line of credit with the U.S. Treasury. FHLMC is a government-sponsored entity wholly owned by public stockholders.
Other asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. Regular payments received in respect of such securities include both interest and principal. Asset-backed securities typically have no U.S. Government backing. Additionally, the ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited.
If a Fund purchases a mortgage-backed or other asset-backed security at a premium, that portion may be lost if there is a decline in the market value of the security whether resulting from changes in interest rates or prepayments in the underlying collateral. As with other interest-bearing securities, the prices of such securities are inversely affected by changes in interest rates. However, though the value of a mortgage-backed or other asset-backed security may decline when interest rates rise, the converse is not necessarily true, since in periods of declining interest rates the mortgages and loans underlying the securities are prone to prepayment, thereby shortening the average life of the security and shortening the period of time over which income at the higher rate is received. When interest rates are rising, though, the rate of prepayment tends to decrease, thereby lengthening the period of time over which income at the lower rate is received. For these and other reasons, a mortgage-backed or other asset-backed security's average maturity may be shortened or lengthened as a result of interest rate fluctuations and, therefore, it is not possible to predict accurately the security's return.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). AIM Total Return Bond Fund and AIM Real Estate Fund may invest in CMOs. These Funds can also invest in mortgage-backed bonds and asset-backed securities. A CMO is a hybrid between a mortgage-backed bond and a mortgage pass-through security. Similar to a bond, interest and prepaid principal is paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payment of principal received from the pool of underlying mortgages, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. An investor is partially guarded against a sooner than desired return of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase mortgages or mortgage pass-through certificates ("Collateral"). The Collateral is pledged to a third party trustee as security for the Bonds. Principal and interest payments from the Collateral are used to pay principal on the Bonds in
the order A, B, C, Z. The Series A, B, and C Bonds all bear current interest. Interest on Series Z Bond is accrued and added to principal and a like amount is paid as principal on the Series A, B, or C Bond currently being paid off. When the Series A, B, and C Bonds are paid in full, interest and principal on the Series Z Bond begins to be paid currently. With some CMOs, the issuer serves as a conduit to allow loan originators (primarily builders or savings and loan associations) to borrow against their loan portfolios.
CMOs that are issued or guaranteed by the U.S. government or by any of its agencies or instrumentalities will be considered U.S. government securities by the Funds, while other CMOs, even if collateralized by U.S. government securities, will have the same status as other privately issued securities for purposes of applying the Fund's diversification tests.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple classes having different maturity dates which are secured by the pledge of a pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC Participation Certificates ("PCs"), payments of principal and interest on the CMOs are made semiannually, as opposed to monthly. The amount of principal payable on each semiannual payment date is determined in accordance with FHLMC's mandatory sinking fund schedule, which, in turn, is equal to approximately 100% of FHA prepayment experience applied to the mortgage collateral pool. All sinking fund payments in the CMOs are allocated to the retirement of the individual classes of bonds in the order of their stated maturities. Payment of principal on the mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum sinking fund obligation for any payment date are paid to the holders of the CMOs as additional sinking fund payments. Because of the "pass-through" nature of all principal payments received on the collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate at which principal of the CMOs is actually repaid is likely to be such that each class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans during any semiannual payment period is not sufficient to meet FHLMC's minimum sinking fund obligation on the next sinking fund payment date, FHLMC agrees to make up the deficiency from its general funds.
Risks of Mortgage-Related Securities. Investment in mortgage-backed securities poses several risks, including prepayment, market, and credit risk. Prepayment risk reflects the risk that borrowers may prepay their mortgages faster than expected, thereby affecting the investment's average life and perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely controlled by the borrower. Borrowers are most likely to exercise prepayment options at the time when it is least advantageous to investors, generally prepaying mortgages as interest rates fall, and slowing payments as interest rates rise. Besides the effect of prevailing interest rates, the rate of prepayment and refinancing of mortgages may also be affected by home value appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate over time. The price of mortgage-backed securities may be particularly sensitive to prevailing interest rates, the length of time the security is expected to be outstanding, and the liquidity of the issue. In a period of unstable interest rates, there may be decreased demand for certain types of mortgage-backed securities, and the Fund invested in such securities wishing to sell them may find it difficult to find a buyer, which may in turn decrease the price at which they may be sold.
Credit risk reflects the risk that the Fund may not receive all or part of its principal because the issuer or credit enhancer has defaulted on its obligations. Obligations issued by U.S. government-related entities are guaranteed as to the payment of principal and interest, but are not backed by the full faith and credit of the U.S. government. The performance of private label mortgage-backed securities, issued by private institutions, is based on the financial health of those institutions. With respect to GNMA certificates, although GNMA guarantees timely payment even if homeowners delay or default, tracking the "pass-through" payments may, at times, be difficult.
BANK INSTRUMENTS. AIM Money Market Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund may invest in certificates of deposits, time deposits, and bankers' acceptances from U.S. or
foreign banks. A bankers' acceptance is a bill of exchange or time draft drawn on and accepted by a commercial bank. A certificate of deposit is a negotiable interest-bearing instrument with a specific maturity. Certificates of deposit are issued by banks and savings and loan institutions in exchange for the deposit of funds, and normally can be traded in the secondary market prior to maturity. A time deposit is a non-negotiable receipt issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market.
AIM Money Market Fund may invest in certificates of deposit ("Eurodollar CDs") and time deposits ("Eurodollar time deposits") of foreign branches of domestic banks. Accordingly, an investment in the Fund may involve risks that are different in some respects from those incurred by an investment company which invests only in debt obligations of U.S. domestic issuers. Such risks include future political and economic developments, the possible seizure or nationalization of foreign deposits and the possible imposition of foreign country withholding taxes on interest income.
COMMERCIAL INSTRUMENTS. AIM Money Market Fund intends to invest in commercial instruments, including commercial paper, master notes and other short-term corporate instruments, that are denominated in U.S. dollars. Commercial paper consists of short-term promissory notes issued by corporations. Commercial paper may be traded in the secondary market after its issuance. Master notes are demand notes that permit the investment of fluctuating amounts of money at varying rates of interest pursuant to arrangements with issuers who meet the quality criteria of the Fund. The interest rate on a master note may fluctuate based upon changes in specified interest rates or be reset periodically according to a prescribed formula or may be a set rate. Although there is no secondary market in master demand notes, if such notes have a demand feature, the payee may demand payment of the principal amount of the note upon relatively short notice.
PARTICIPATION INTERESTS. AIM Money Market Fund may purchase participations in corporate loans. Participation interests generally will be acquired from a commercial bank or other financial institution (a "Lender") or from other holders of a participation interest (a "Participant"). The purchase of a participation interest either from a Lender or a Participant will not result in any direct contractual relationship with the borrowing company ("the Borrower"). Instead, the Fund will be required to rely on the Lender or the Participant that sold the participation interest both for the enforcement of the Fund's rights against the Borrower and for the receipt and processing of payments due to the Fund under the loans. The Fund is thus subject to the credit risk of both the Borrower and a Participant. Participation interests are generally subject to restrictions on resale. The Fund considers participation interests to be illiquid and therefore subject to the Fund's percentage limitation for investments in illiquid securities.
MUNICIPAL SECURITIES. "Municipal Securities" include debt obligations of states, territories or possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include the refunding of outstanding obligations, obtaining funds for general operating expenses and lending such funds to other public institutions and facilities. In addition, certain types of industrial development bonds are issued by or on behalf of public authorities to obtain funds to provide for the construction, equipment, repair or improvement of privately operated housing facilities, airport, mass transit, industrial, port or parking facilities, air or water pollution control facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. The principal and interest payments for industrial development bonds or pollution control bonds are often the sole responsibility of the industrial user and therefore may not be backed by the taxing power of the issuing municipality. The interest paid on such bonds may be exempt from federal income tax, although current federal tax laws place substantial limitations on the purposes and size of such issues. Such obligations are considered to be Municipal Securities provided that the interest paid thereon, in the opinion of bond counsel, qualifies as exempt from federal income tax. However, interest on Municipal Securities may give rise to a federal alternative minimum tax liability and
may have other collateral federal income tax consequences. See "Dividends, Distributions and Tax Matters - Tax Matters."
The two major classifications of Municipal Securities are bonds and notes. Bonds may be further classified as "general obligation" or "revenue" issues. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenues derived from a particular facility or class of facilities, and in some cases, from the proceeds of a special excise or other specific revenue source, but not from the general taxing power. Tax-exempt industrial development bonds are in most cases revenue bonds and do not generally carry the pledge of the credit of the issuing municipality. Notes are short-term instruments which usually mature in less than two years. Most notes are general obligations of the issuing municipalities or agencies and are sold in anticipation of a bond sale, collection of taxes or receipt of other revenues. There are, of course, variations in the risks associated with Municipal Securities, both within a particular classification and between classifications. The Funds' assets may consist of any combination of general obligation bonds, revenue bonds, industrial revenue bonds and notes. The percentage of such Municipal Securities held by a Fund will vary from time to time.
Municipal Securities also include the following securities:
- 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.
- 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.
- 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.
- Tax-Exempt Commercial Paper (Municipal Paper) is similar to taxable commercial paper, except that tax-exempt commercial paper is issued by states, municipalities and their agencies.
The Funds also may purchase participation interests or custodial receipts from financial institutions. These participation interests give the purchaser an undivided interest in one or more underlying Municipal Securities.
Subsequent to its purchase by a Fund, an issue of Municipal Securities may cease to be rated by Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's Ratings Services ("S&P"), or another nationally recognized statistical rating organization ("NRSRO"), or the rating of such a security may be reduced below the minimum rating required for purchase by a Fund. Neither event would require a Fund to dispose of the security, but AIM will consider such events to be relevant in determining whether the Fund should continue to hold the security. To the extent that the ratings applied by Moody's, S&P or another NRSRO to Municipal Securities may change as a result of changes in these rating systems, a Fund will attempt to use comparable ratings as standards for its investments in Municipal Securities in accordance with the investment policies described herein.
Quality Standards. The following quality standards apply at the time a security is purchased. Information concerning the ratings criteria of Moody's, S&P, and Fitch Investors Service, Inc. ("Fitch") appears herein under "Appendix A - Ratings of Debt Securities".
At least 80% of AIM Municipal Bond Fund's total assets will be invested in municipal securities rated within the four highest ratings for municipal obligations by Moody's (Aaa, Aa, A, or Baa), S&P (AAA, AA, A, or BBB), or have received a comparable rating from another NRSRO. The Fund may invest up to
20% of its total assets in municipal securities that are rated below Baa/BBB (or a comparable rating of any other NRSRO) or that are unrated. For purposes of the foregoing percentage limitations, municipal securities (i) which have been collateralized with U.S. Government obligations held in escrow until the municipal securities' scheduled redemption date or final maturity, but (ii) which have not been rated by a NRSRO subsequent to the date of escrow collateralization, will be treated by the Fund as the equivalent of Aaa/AAA rated securities.
Since the Fund invests in securities backed by insurance companies and other financial institutions, changes in the financial condition of these institutions could cause losses to the Fund and affect its share price.
The Fund may invest in securities which are insured by financial insurance companies. Since a limited number of entities provide such insurance, the Fund may invest more than 25% of its assets in securities insured by the same insurance company.
Other Considerations. The ability of the Fund to achieve its investment objective depends upon the continuing ability of the issuers or guarantors of Municipal Securities held by the Fund to meet their obligations for the payment of interest and principal when due. The securities in which the Fund invests may not yield as high a level of current income as longer term or lower grade securities, which generally have less liquidity and greater fluctuation in value.
There is a risk that some or all of the interest received by the Fund from Municipal Securities might become taxable as a result of tax law changes or determinations of the Internal Revenue Service ("IRS").
The yields on Municipal Securities are dependent on a variety of factors, including general economic and monetary conditions, money market factors, conditions of the Municipal Securities market, size of a particular offering, and maturity and rating of the obligation. Generally, the yield realized by a Fund's shareholders will be the yield realized by the Fund on its investments, reduced by the general expenses of the Fund and the Trust. The market values of the Municipal Securities held by the Fund will be affected by changes in the yields available on similar securities. If yields increase following the purchase of a Municipal Security, the market value of such Municipal Security will generally decrease. Conversely, if yields decrease, the market value of a Municipal Security will generally increase.
INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. Each Fund (except AIM Limited Maturity Treasury Fund) may invest in U.S. dollar-denominated debt obligations issued or guaranteed by U.S. corporations or U.S. commercial banks, U.S. dollar-denominated obligations of foreign issuers and debt obligations of foreign issuers denominated in foreign currencies. Such debt obligations include, among others, bonds, notes, debentures and variable rate demand notes. In choosing corporate debt securities on behalf of a Fund, its investment adviser may consider (i) general economic and financial conditions; (ii) the specific issuer's (a) business and management, (b) cash flow, (c) earnings coverage of interest and dividends, (d) ability to operate under adverse economic conditions, (e) fair market value of assets, and (f) in the case of foreign issuers, unique political, economic or social conditions applicable to such issuer's country; and, (iii) other considerations deemed appropriate.
A portion of each Fund's assets may be held in cash and high quality, short-term money market instruments such as certificates of deposit, commercial paper, bankers' acceptances, short-term U.S. Government obligations, taxable municipal securities, master notes, and repurchase agreements, pending investment in portfolio securities, to meet anticipated short-term cash needs such as dividend payments or redemptions of shares, or for temporary defensive purposes. The Funds, other than AIM High Yield Fund, 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 may have difficulty selling certain junk bonds because they may have a thin trading market. The lack of a liquid secondary market may have an adverse effect on the market price and a Fund's ability to dispose of particular issues and may also make it more difficult for each Fund to obtain accurate market quotations of valuing these assets. In the event a Fund experiences an unexpected level of net redemptions, the Fund could be forced to sell its junk bonds at an unfavorable price. Prices of junk bonds have been found to be less sensitive to fluctuations in interest rates, and more sensitive to adverse economic changes and individual corporate developments than those of higher-rated debt securities.
LIQUID ASSETS. Cash equivalents include money market instruments (such as certificates of deposit, time deposits, bankers' acceptances from U.S. or foreign banks, and repurchase agreements), shares of affiliated money market funds or high-quality debt obligations (such as U.S. Government obligations, commercial paper, master notes and other short-term corporate instruments and municipal obligations).
Descriptions of debt securities ratings are found in Appendix A.
Other Investments
REAL ESTATE INVESTMENT TRUSTS ("REITs"). REITs are trusts that sell equity or debt securities to investors and use the proceeds to invest in real estate or interests therein. A REIT may focus on particular projects, such as apartment complexes, or geographic regions, such as the southeastern United States, or both.
To the extent consistent with their respective investment objectives and policies, each Fund (except AIM Real Estate Fund) may invest up to 15% of its total assets in equity and/or debt securities issued by REITs. AIM Real Estate Fund may invest all 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.
The following restrictions apply to investments in other investment companies other than Affiliated Money Market Funds: (i) a Fund may not purchase more than 3% of the total outstanding voting stock of another investment company; (ii) a Fund may not invest more than 5% of its total assets in securities issued by another investment company; and (iii) a Fund may not invest more than 10% of its total assets in securities issued by other investment companies.
DEFAULTED SECURITIES. AIM High Yield Fund may invest in defaulted securities. In order to enforce its rights in defaulted securities, the Fund 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 the Fund's operating expenses and adversely affect its net asset value. Any investments by the Fund 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.
VARIABLE OR FLOATING RATE INSTRUMENTS. A Fund may invest in securities which have variable or floating interest rates which are readjusted on set dates (such as the last day of the month or calendar quarter) in the case of variable rates or whenever a specified interest rate change occurs in the case of a floating rate instrument. Variable or floating interest rates generally reduce changes in the market price of securities from their original purchase price because, upon readjustment, such rates approximate market rates. Accordingly, as interest rates decrease or increase, the potential for capital appreciation or depreciation is less for variable or floating rate securities than for fixed rate obligations. Many securities with variable or floating interest rates purchased by a Fund are subject to payment of principal and accrued interest (usually within seven days) on the Fund's demand. The terms of such demand instruments require payment of principal and accrued interest by the issuer, a guarantor, and/or a liquidity provider. All variable or floating rate instruments will meet the applicable quality standards of a Fund. AIM will monitor the pricing, quality and liquidity of the variable or floating rate securities held by the Funds.
ZERO-COUPON AND PAY-IN-KIND SECURITIES. A Fund may invest in zero-coupon or pay-in-kind securities. These securities are debt securities that do not make regular cash interest payments. Zero-coupon securities are sold at a deep discount to their face value. Pay-in-kind securities pay interest through the issuance of additional securities. Because zero-coupon and pay-in-kind securities do not pay current cash income, the price of these securities can be volatile when interest rates fluctuate. While these securities do not pay current cash income, federal tax law requires the holders of zero-coupon and pay-in-kind securities to include in income each year the portion of the original issue discount (or deemed discount) and other non-cash income on such securities accrued during that year. In order to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code") and to avoid certain excise taxes, AIM Short Term Bond Fund and AIM Total Return Bond Fund may be required to distribute a portion of such discount and income, and may be required to dispose of other portfolio securities, which could occur during periods of adverse market prices, in order to generate sufficient cash to meet these distribution requirements.
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions, also referred to as forward commitments, involve commitments by a Fund to dealers or issuers to acquire or sell securities at a specified future date beyond the customary settlement for such securities. These commitments may fix the payment price and interest rate to be received or paid on the investment. A Fund may purchase securities on a delayed delivery basis to the extent it can anticipate having available cash on settlement date. Delayed delivery agreements will not be used as a speculative or leveraging technique.
Investment in securities on a delayed delivery basis may increase a Fund's exposure to market fluctuation and may increase the possibility that the Fund will incur short-term gains subject to federal taxation or short-term losses if the Fund must engage in portfolio transactions in order to honor a delayed delivery commitment. Until the settlement date, a Fund will segregate liquid assets of a dollar value sufficient at all times to make payment for the delayed delivery transactions. Such segregated liquid assets will be marked-to-market daily, and the amount segregated will be increased if necessary to maintain adequate coverage of the delayed delivery commitments. No additional delayed delivery agreements or when-issued commitments (as described below) will be made by a Fund if, as a result, more than 25% of the Fund's total assets would become so committed.
The delayed delivery securities, which will not begin to accrue interest or dividends until the settlement date, will be recorded as an asset of a Fund and will be subject to the risk of market fluctuation. The purchase price of the delayed delivery securities is a liability of a Fund until settlement. Absent extraordinary circumstances, a Fund will not sell or otherwise transfer the delayed delivery securities prior to settlement.
A Fund may enter into buy/sell back transactions (a form of delayed delivery agreement). In a buy/sell back transaction, a Fund enters a trade to sell securities at one price and simultaneously enters a trade to buy the same securities at another price for settlement at a future date.
WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis means that the date for delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued. The payment obligation and, if applicable, the interest rate that will be received on the securities are fixed at the time the buyer enters into the commitment. A Fund will only make commitments to purchase such securities with the intention of actually acquiring such securities, but the Fund may sell these securities before the settlement date if it is deemed advisable.
Securities purchased on a when-issued basis and the securities held in a Fund's portfolio are subject to changes in market value based upon the public's perception of the creditworthiness of the issuer and, if applicable, changes in the level of interest rates. Therefore, if a Fund is to remain substantially fully invested at the same time that it has purchased securities on a when-issued basis, there will be a possibility that the market value of the Fund's assets will fluctuate to a greater degree. Furthermore, when the time comes for the Fund to meet its obligations under when-issued commitments, the Fund will do so by using then available cash flow, by sale of the segregated liquid assets, by sale of other securities or, although it would not normally expect to do so, by directing the sale of the when-issued securities themselves (which may have a market value greater or less than the Fund's payment obligation).
Investment in securities on a when-issued basis may increase a Fund's exposure to market fluctuation and may increase the possibility that the Fund will incur short-term gains subject to federal taxation or short-term losses if the Fund must sell another security in order to honor a when-issued commitment. If a Fund purchases a when-issued security, the Fund will segregate liquid assets in an amount equal to the when-issued commitment. If the market value of such segregated assets declines, additional liquid assets will be segregated on a daily basis so that the market value of the segregated assets will equal the amount of the Fund's when-issued commitments. No additional delayed delivery agreements (as described above) or when-issued commitments will be made by a Fund if, as a result, more than 25% of the Fund's total assets would become so committed.
SHORT SALES. In a short sale, a Fund does not immediately deliver the securities sold and does not receive the proceeds from the sale. A Fund is said to have a short position in the securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale. A Fund will make a short sale, as a hedge, when it believes that the price of a security may decline, causing a decline in the value of a security owned by the Fund or a security convertible into or exchangeable for such security, or when the Fund does not want to sell the security it owns, because it wishes to defer recognition of gain or loss for federal income tax purposes. In such case, any future losses in a Fund's long position should be reduced by a gain in the short position. Conversely, any gain in the long position should be reduced by a loss in the short position. The extent to which such gains or losses are reduced will depend upon the amount of the security sold short relative to the amount a Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. In determining the number of shares to be sold short against a Fund's position in a convertible security, the anticipated fluctuation in the conversion premium is considered. A Fund may also make short sales to generate additional income from the investment of the cash proceeds of short sales.
A Fund will only make short sales "against the box," meaning that at all times when a short position is open, the Fund owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and in an amount equal to, the securities sold short. To secure its obligation to deliver the securities sold short, a Fund will segregate with its custodian an equal amount to the securities sold short or securities convertible into or exchangeable for such securities. Each Fund (except for AIM Limited Maturity Treasury Fund and AIM Money Market Fund) may pledge no more than 10% of its total assets as collateral for short sales against the box.
MARGIN TRANSACTIONS. None of the Funds will purchase any security on margin, except that each Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of portfolio securities. The payment by a Fund of initial or variation margin in connection with futures or related options transactions will not be considered the purchase of a security on margin.
SWAP AGREEMENTS. AIM Real Estate Fund, AIM Short Term Bond Fund and 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: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap"; (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor"; and (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictitious basis on which to calculate the obligations which the parties to a swap agreement have agreed to exchange. Most swap agreements entered into by the Fund would calculate the obligations on a "net basis." Consequently, the Fund's obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). Obligations under a swap agreement will be accrued daily (offset against amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by segregating liquid assets, to avoid any potential leveraging of the Fund. The Fund will not enter into a swap agreement with any single party if the net amount owed to or to be received under
existing contracts with that party would exceed 5% of the Fund's total assets. For a discussion of the tax considerations relating to swap agreements, see "Dividends, Distributions and Tax Matters - Swap Agreements."
INTERFUND LOANS. Each Fund may lend uninvested cash up to 15% of its net assets to other, funds advised by AIM (the "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 borrowings are outstanding, the Fund cannot make any additional investments. If a Fund has borrowed from other AIM Funds and has aggregate borrowings from all sources that exceed 10% of such Fund's total assets, such Fund will secure all of its loans from other AIM Funds. The ability of the Funds to lend its securities to other AIM Funds is subject to certain other terms and conditions.
BORROWING. The Funds may borrow money to a limited extent for temporary or emergency purposes. If there are unusually heavy redemptions because of changes in interest rates or for any other reason, a Fund may have to sell a portion of its investment portfolio at a time when it may be disadvantageous to do so. Selling fund securities under these circumstances may result in a lower net asset value per share or decreased dividend income, or both. The Trust believes that, in the event of abnormally heavy redemption requests, a Fund's borrowing ability would help to mitigate any such effects and could make the forced sale of their portfolio securities less likely.
LENDING PORTFOLIO SECURITIES. The Funds may each lend their portfolio securities (principally to broker-dealers) where such loans are callable at any time and are continuously secured by segregated collateral equal to no less than the market value, determined daily, of the loaned securities. Such collateral will be cash, letters of credit, or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Each Fund may lend portfolio securities to the extent of one-third of its total assets.
The Funds would continue to receive the income on loaned securities and would, at the same time, earn interest on the loan collateral or on the investment of any cash collateral. A Fund will not have the right to vote securities while they are lent, but it can call a loan in anticipation of an important vote. Any cash collateral pursuant to these loans would be invested in short-term money market instruments or Affiliated Money Market Funds. Lending securities entails a risk of loss to the Funds if and to the extent that the market value of the securities loaned increases and the collateral is not increased accordingly or in the event of default by the borrower. The Fund could also experience delays and costs in gaining access to the collateral.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which a Fund acquires ownership of a security from a broker-dealer or bank that agrees to repurchase the security at a mutually agreed upon time and price (which is higher than the purchase price), thereby determining the yield during a Fund's holding period. A Fund may, however, enter into a "continuing contract" or "open" repurchase agreement under which the seller is under a continuing obligation to repurchase the underlying obligation from the Fund on demand and the effective interest rate is negotiated on a daily basis. Each of the Funds may engage in repurchase agreement transactions involving the types of securities in which it is permitted to invest.
If the seller of a repurchase agreement fails to repurchase the security in accordance with the terms of the agreement, a Fund might incur expenses in enforcing its rights, and could experience losses, including a decline in the value of the underlying security and loss of income. The securities underlying a repurchase agreement will be marked-to-market every business day so that the value of such securities is at least equal to the investment value of the repurchase agreement, including any accrued interest thereon.
The Funds may invest their cash balances in joint accounts with other AIM Funds for the purpose of investing in repurchase agreements with maturities not to exceed 60 days, and in certain other money market instruments with remaining maturities not to exceed 90 days. Repurchase agreements are considered loans by a Fund under the 1940 Act.
AIM Limited Maturity Treasury Fund's investment policies permit it to invest in repurchase agreements with banks and broker-dealers pertaining to U.S. Treasury obligations. However, in order to maximize the Fund's dividends which are exempt from state income taxation, as a matter of operating policy, the Fund does not currently invest in repurchase agreements.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are agreements that involve the sale of securities held by a Fund to financial institutions such as banks and broker-dealers, with an agreement that the Fund will repurchase the securities at an agreed upon price and date. A Fund may employ reverse repurchase agreements (i) for temporary emergency purposes, such as to meet unanticipated net redemptions so as to avoid liquidating other portfolio securities during unfavorable market conditions; (ii) to cover short-term cash requirements resulting from the timing of trade settlements (except AIM Limited Maturity Treasury Fund); or (iii) to take advantage of market situations where the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. At the time it enters into a reverse repurchase agreement, a Fund will segregate liquid assets (U.S. Treasury obligations in the case of AIM Limited Maturity Treasury Fund) having a dollar value equal to the repurchase price, and will subsequently continually monitor the account to ensure that such equivalent value is maintained at all times. Reverse repurchase agreements involve the risk that the market value of securities to be purchased by the Fund may decline below the price at which it is obligated to repurchase the securities, or that the other party may default on its obligation, so that the Fund is delayed or prevented from completing the transaction. Reverse repurchase agreements are considered borrowings by a Fund under the 1940 Act.
DOLLAR ROLLS. AIM Short Term Bond Fund and AIM Total Return Bond Fund may engage in dollar roll transactions with respect to mortgage securities issued by GNMA, FNMA and FHLMC. A dollar roll involves the sale of a security, with an agreement to repurchase a substantially similar (i.e., same type, coupon and maturity) security at an agreed upon price and date. The mortgage securities that are purchased will bear the same interest rate as those sold, but will generally be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, a Fund will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for a Fund exceeding the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event the buyer of securities under a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. At the time a Fund enters into a dollar roll, it will segregate liquid assets having a dollar value equal to the repurchase price, and will monitor the account to ensure that such equivalent value is maintained. The Funds typically enter into dollar roll transactions on mortgage securities to enhance their return either on an income or total return basis or to manage pre-payment risk. Dollar rolls are considered borrowings by a Fund under the 1940 Act.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be disposed of within seven days in the normal course of business at the price at which they are valued. Illiquid securities may include securities that are subject to restrictions on resale because they have not been registered under the Securities Act of 1933 (the "1933 Act"). Restricted securities may, in certain circumstances, be resold pursuant to Rule 144A under the 1933 Act, 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 , 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.
UNSEASONED ISSUERS. Investments in the equity securities of companies having less than three years' continuous operations (including operations of any predecessor) involve more risk than investments in the securities of more established companies because unseasoned issuers have only a brief operating history and may have more limited markets and financial resources. As a result, securities of unseasoned issuers tend to be more volatile than securities of more established companies.
SALE OF MONEY MARKET SECURITIES. AIM Money Market Fund does not seek profits through short-term trading and will generally hold portfolio securities to maturity. However, AIM may seek to enhance the yield of the Fund by taking advantage of yield disparities that occur in the money markets. For example, market conditions frequently result in similar securities trading at different prices. AIM may dispose of any portfolio security prior to its maturity if such disposition and reinvestment of proceeds are expected to enhance yield consistent with AIM's judgment as to desirable portfolio maturity structure. AIM may also dispose of any portfolio security prior to maturity to meet redemption requests, and as a result of a revised credit evaluation of the issuer or other circumstances or considerations. The Fund's policy of investing in securities with maturities of 397 days or less will result in high portfolio turnover. Since brokerage commissions are not normally paid on investments of the type made by the Fund, the high turnover should not adversely affect the Fund's net income.
Derivatives
AIM High Yield Fund, AIM Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund may each invest in forward currency contracts (except for AIM Short Term Bond Fund), futures contracts, options on securities, options on indices, options on currencies, and options on futures contracts to attempt to hedge against the overall level of investment and currency risk normally associated with each Fund's investments. AIM Real Estate Fund may also invest in equity-linked derivative products designed to replicate the composition and performance of particular indices. 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 and AIM Money Market Fund may not invest in puts, calls, straddles, spreads or any combination thereof.
EQUITY-LINKED DERIVATIVES. Equity-Linked Derivatives are interests in a securities portfolio designed to replicate the composition and performance of a particular index. Equity-Linked Derivatives are exchange traded. The performance results of Equity-Linked Derivatives will not replicate exactly the performance of the pertinent index due to transaction and other expenses, including fees to service providers, borne by the Equity-Linked Derivatives. Examples of such products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed Securities ("OPALS"). Investments in Equity-Linked Derivatives involve the same risks associated with a direct investment in the types of securities included in the indices such products are designed to track. There can be no assurance that the trading price of the Equity-Linked Derivatives will equal the underlying value of the basket of securities purchased to replicate a particular index or that such basket will replicate the index. Investments in Equity-Linked Derivatives may constitute investments in other investment companies and, therefore, a Fund may be subject to the same investment restrictions with Equity-Linked Derivatives as with other investment companies. See "Other Investment Companies."
PUT AND CALL OPTIONS. A call option gives the purchaser the right to buy the underlying security, contract or foreign currency at the stated exercise price at any time prior to the expiration of the option (or on a specified date if the option is a European style option), regardless of the market price or exchange rate of the security, contract or foreign currency, as the case may be at the time of exercise. If the purchaser exercises the call option, the writer of a call option is obligated to sell the underlying security, contract or foreign currency. A put option gives the purchaser the right to write (sell) the underlying security, contract or foreign currency at the stated exercise price at any time prior to the expiration date of the option (or on a specified date if the option is a European style option), regardless of the market price or exchange rate of the security, contract or foreign currency, as the case may be at the time of exercise. If the purchaser exercises the put option, the writer of a put option is obligated to buy the underlying security, contract or foreign currency. The premium paid to the writer is consideration for undertaking the obligations under the option contract. Until an option expires or is offset, the option is said to be "open." When an option expires or is offset, the option is said to be "closed."
A Fund will not write (sell) options if, immediately after such sale, the aggregate value of securities or obligations underlying the outstanding options exceeds 20% of the Fund's total assets. A Fund will not purchase options if, at any time of the investment, the aggregate premiums paid for the options will exceed 5% of the Fund's total assets.
Pursuant to federal securities rules and regulations, if a Fund writes options it may be required to set aside assets to reduce the risks associated with writing those options. This process is described in more detail below in the section "Cover."
Writing Options. A Fund may write put and call options in an attempt to realize, through the receipt of premiums, a greater current return than would be realized on the underlying security, contract, or foreign currency alone. A Fund may only write a call option on a security if it owns an equal amount of such securities or securities convertible into, or exchangeable, without payment of further consideration, for securities of the same issue as, and equal in amount to, the securities subject to the call option. In return for the premium received for writing a call option, the Fund foregoes the opportunity for profit from a price increase in the underlying security, contract, or foreign currency above the exercise price so long as the option remains open, but retains the risk of loss should the price of the security, contract, or foreign currency decline.
A Fund may write a put option without owning the underlying security if it covers the option as described below in the section "Cover." A Fund may only write a put option on a security as part of an investment strategy, and not for speculative purposes. In return for the premium received for writing a put option, the Fund assumes the risk that the price of the underlying security, contract, or foreign currency will decline below the exercise price, in which case the put would be exercised and the Fund would suffer a loss.
If an option that a Fund has written expires, it will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security, contract or currency during the option period. If the call option is exercised, a Fund will realize a gain or loss from the sale of the underlying security, contract or currency, which will be increased or offset by the premium received. A Fund would write a put option at an exercise price that, reduced by the premium received on the option, reflects the price it is willing to pay for the underlying security, contract or currency. The obligation imposed upon the writer of an option is terminated upon the expiration of the option, or such earlier time at which a Fund effects a closing purchase transaction by purchasing an option (put or call as the case may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. Closing transactions may be effected in order to realize a profit on an outstanding call option, to prevent an underlying security, contract or currency from being called or to permit the sale of the underlying security, contract or currency. Furthermore, effecting a closing transaction will permit a Fund to write another call option on the underlying security, contract or currency with either a different exercise price or expiration date, or both.
Purchasing Options. A Fund may purchase a call option for the purpose of acquiring the underlying security, contract or currency for its portfolio. The Fund is not required to own the underlying security in order to purchase a call option, and may only cover this transaction with cash, liquid assets and/or short-term debt securities. Utilized in this fashion, the purchase of call options would enable a Fund to acquire the security, contract or currency at the exercise price of the call option plus the premium paid. So long as it holds such a call option, rather than the underlying security or currency itself, the Fund is partially protected from any unexpected increase in the market price of the underlying security, contract or currency. If the market price does not exceed the exercise price, the Fund could purchase the security on the open market and could allow the call option to expire, incurring a loss only to the extent of the premium paid for the option. The Funds may also purchase call options on underlying securities, contracts or currencies against which it has written other call options. For example, where a Fund has written a call option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a call option with a different exercise strike and/or expiration date that would eliminate some or all of the risk associated with the written call. Used in combinations, these strategies are commonly referred to as "call spreads."
A Fund may only purchase a put option on an underlying security, contract or currency ("protective put") owned by the Fund in order to protect against an anticipated decline in the value of the security, contract or currency. Such hedge protection is provided only during the life of the put option. The premium paid for the put option and any transaction costs would reduce any profit realized when the security, contract or currency is delivered upon the exercise of the put option. Conversely, if the underlying security, contract or currency does not decline in value, the option may expire worthless and the premium paid for the protective put would be lost. A Fund may also purchase put options on underlying securities, contracts or currencies against which it has written other put options. For example, where a Fund has written a put option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a put option with a different exercise price and/or expiration date that would eliminate some or all of the risk associated with the written put. Used in combinations, these strategies are commonly referred to as "put spreads." Likewise, a Fund may write call options on underlying securities, contracts or currencies against which it has purchased protective put options. This strategy is commonly referred to as a "collar."
Over-The-Counter Options. Options may be either listed on an exchange or traded in over-the-counter ("OTC") markets. Listed options are third-party contracts (i.e., performance of the obligations of the purchaser and seller is guaranteed by the exchange or clearing corporation) and have standardized strike prices and expiration dates. OTC options are two-party contracts with negotiated strike prices and expiration dates. A Fund will not purchase an OTC option unless it believes that daily valuations for such options are readily obtainable. OTC options differ from exchange-traded options in that OTC options are transacted with dealers directly and not through a clearing corporation (which
guarantees performance). Consequently, there is a risk of non-performance by the dealer. Since no exchange is involved, OTC options are valued on the basis of an average of the last bid prices obtained from dealers, unless a quotation from only one dealer is available, in which case only that dealer's price will be used. In the case of OTC options, there can be no assurance that a liquid secondary market will exist for any particular option at any specific time. Because purchased OTC options in certain cases may be difficult to dispose of in a timely manner, the Fund may be required to treat some or all of these options (i.e., the market value) 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.
Pursuant to federal securities rules and regulations, if a Fund writes index options it may be required to set aside assets to reduce the risks associated with writing those options. This process is described in more detail below in the section "Cover."
STRADDLES. A Fund, for hedging purposes, may write straddles (combinations of put and call options on the same underlying security) to adjust the risk and return characteristics of the Fund's overall position. A possible combined position would involve writing a covered call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written covered call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out.
WARRANTS. Warrants are, in effect, longer-term call options. They give the holder the right to purchase a given number of shares of a particular company at specified prices within certain periods of time. The purchaser of a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus giving him a profit. Since the market price may never exceed the exercise price before the expiration date of the warrant, the purchaser of the warrant risks the loss of the entire purchase price of the warrant. Warrants generally trade in the open market and may be sold rather than exercised. Warrants are sometimes sold in unit form with other securities of an issuer. Units of warrants and common stock may be employed in financing young, unseasoned companies. The purchase price of a warrant varies with the exercise price of the warrant, the current market value of the underlying security, the life of the warrant and various other investment factors.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract is a two party agreement to buy or sell a specified amount of a specified security or currency (or delivery of a cash settlement price, in the case of an index future) for a specified price at a designated date, time and place (collectively, "Futures Contracts"). A stock index Futures Contract provides for the delivery, at a designated date, time and place, of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading on the contract and the price agreed upon in the Futures Contract; no physical delivery of stocks comprising the index is made. Brokerage fees are incurred when a Futures Contract is bought or sold, and margin deposits must be maintained at all times when a Futures Contract is outstanding.
A Fund will enter into Futures Contracts for hedging purposes only; that is, Futures Contracts will be sold to protect against a decline in the price of securities or currencies that the Fund owns, or Futures Contracts will be purchased to protect the Fund against an increase in the price of securities or currencies it has committed to purchase or expects to purchase. A Fund's hedging may include sales of Futures Contracts as an offset against the effect of expected increases in interest rates, and decreases in currency exchange rates and stock prices, and purchases of Futures Contracts as an offset against the effect of expected declines in interest rates, and increases in currency exchange rates or stock prices.
The Funds currently may not invest in any security (including futures contracts or options thereon) that is secured by physical commodities.
The Funds will only enter into Futures Contracts that are traded (either domestically or internationally) on futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading thereon in the United States are regulated under the Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges and trading thereon are not regulated by the CFTC and are not subject to the same regulatory controls. For a further discussion of the risks associated with investments in foreign securities, see "Foreign Investments" in this Statement of Additional Information.
Closing out an open Futures Contract is effected by entering into an offsetting Futures Contract for the same aggregate amount of the identical financial instrument or currency and the same delivery date. There can be no assurance, however, that a Fund will be able to enter into an offsetting transaction with respect to a particular Futures Contract at a particular time. If a Fund is not able to enter into an offsetting transaction, it will continue to be required to maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that must be deposited by a Fund in order to initiate Futures Contracts trading and maintain its open positions in Futures Contracts. A margin deposit made when the Futures Contract is entered ("initial margin") is intended to ensure the Fund's performance under the Futures Contract. The margin required for a particular Futures Contract is set by the exchange on which the Futures Contract is traded and may be significantly modified from time to time by the exchange during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures commission merchant through which a Fund entered into the Futures Contract will be made on a daily basis as the price of the underlying security, currency or index fluctuates making the Futures Contract more or less valuable, a process known as marking-to-market.
If a Fund were unable to liquidate a Futures Contract or an option on a Futures Contract position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the Futures Contract or option or to maintain cash or securities in a segregated account.
OPTIONS ON FUTURES CONTRACTS. Options on Futures Contracts are similar to options on securities or currencies except that options on Futures Contracts give the purchaser the right, in return for the premium paid, to assume a position in a Futures Contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the Futures Contract position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the
writer's Futures Contract margin account. The Funds currently may not invest in any security (including futures contracts or options thereon) that is secured by physical commodities.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS AND ON CERTAIN OPTIONS ON CURRENCIES. To the extent that a Fund enters into Futures Contracts, options on Futures Contracts and options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are "in-the-money") will not exceed 5% of the total assets of the Fund, after taking into account unrealized profits and unrealized losses on any contracts it has entered into. This guideline may be modified by the Board, without a shareholder vote. This limitation does not limit the percentage of the Fund's assets at risk to 5%.
Pursuant to federal securities rules and regulations, a Fund's use of Futures Contracts and options on Futures Contracts may require that Fund to set aside assets to reduce the risks associated with using Futures Contracts and options on Futures Contracts. This process is described in more detail below in the section "Cover."
FORWARD CURRENCY CONTRACTS. A forward currency contract is an obligation, usually arranged with a commercial bank or other currency dealer, to purchase or sell a currency against another currency at a future date and price as agreed upon by the parties. A Fund either may accept or make delivery of the currency at the maturity of the forward currency contract. A Fund may also, if its contra party agrees prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Forward currency contracts are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, it may be more difficult to value such contracts, and it may be difficult to enter into closing transactions.
Each of the Funds may engage in forward currency transactions in anticipation of, or to protect itself against, fluctuations in exchange rates. A Fund may enter into forward currency contracts with respect to a specific purchase or sale of a security, or with respect to its portfolio positions generally. When a Fund purchases a security denominated in a foreign currency for settlement in the near future, it may immediately purchase in the forward market the currency needed to pay for and settle the purchase. By entering into a forward currency contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the Fund can secure an exchange rate between the trade and settlement dates for that purchase or sale transaction. This practice is sometimes referred to as "transaction hedging." Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward currency contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on a principal basis, no fees or commissions are involved. The use of forward currency contracts does not eliminate fluctuations in the prices of the underlying securities a Fund owns or intends to acquire, but it does establish a rate of exchange in advance. In addition, while forward currency contract sales limit the risk of loss due to a decline in the value of the hedged currencies, they also limit any potential gain that might result should the value of the currencies increase.
Pursuant to federal securities rules and regulations, a Fund's use of forward currency contracts may require that Fund to set aside assets to reduce the risks associated with using forward currency contracts. This process is described in more detail below in the section "Cover."
COVER. Transactions using forward currency contracts, futures contracts and options (other than options purchased by a Fund) expose a Fund to an obligation to another party. A Fund will not enter into any such transactions unless, in addition to complying with all the restrictions noted in the disclosure above, it owns either (1) an offsetting ("covered") position in securities, currencies, or other options, forward currency contracts or futures contracts or (2) cash, liquid assets and/or short-term debt securities with a value sufficient at all times to cover its potential obligations not covered as provided in (1) above.
Each Fund will comply with SEC guidelines regarding cover for these instruments and, if the guidelines so require, set aside cash or liquid securities. To the extent that a futures contract, forward currency contract or option is deemed to be illiquid, the assets used to "cover" the Fund's obligation will also be treated as illiquid for purposes of determining the Fund's maximum allowable investment in illiquid securities.
Even though options purchased by the Funds do not expose the Funds to an obligation to another party, but rather provide the Funds with a right to exercise, the Funds intend to "cover" the cost of any such exercise. To the extent that a purchased option is deemed illiquid, the Fund will treat the market value of the option (i.e., the amount at risk to the Fund) as illiquid, but will not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the corresponding forward currency contract, futures contract or option is open, unless they are replaced with other appropriate assets. If a large portion of a Fund's assets is used for cover or otherwise set aside, it could affect portfolio management or the Fund's ability to meet redemption requests or other current obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by the Funds of options, futures contracts and forward currency contracts involves special considerations and risks, as described below. Risks pertaining to particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability to correctly predict the direction of changes in the value of the applicable markets and securities, contracts and/or currencies. While AIM is experienced in the use of these instruments, there can be no assurance that any particular hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between the price movements of an instrument (such as an option contract) and the price movements of the investments being hedged. For example, if a "protective put" is used to hedge a potential decline in a security and the security does decline in price, the put option's increased value may not completely offset the loss in the underlying security. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as changing interest rates, market liquidity, and speculative or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for any particular option, futures contract or option thereon or forward currency contract at any particular time.
(5) As described above, a Fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in instruments involving obligations to third parties. If a Fund were unable to close out its positions in such instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. The requirements might impair a Fund's ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions. For example, if a Fund determines that the cost of hedging will exceed the potential benefit to the Fund, the Fund will not enter into such transaction.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following investment restrictions, which may be changed only by a vote of such Fund's outstanding shares, except that AIM Real Estate Fund is not subject to restriction (4). 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.
AIM Real Estate Fund will concentrate (as such term may be defined or interpreted by the 1940 Act Laws, Interpretations and Exemptions) its investments in the securities of domestic and foreign real estate and real estate-related companies. For purposes of AIM Real Estate Fund's fundamental restriction regarding industry concentration, real estate and real estate-related companies shall consist of companies (i) that at least 50% of its assets, gross income or net profits are attributable to ownership, construction, management, or sale of residential, commercial or industrial real estate, including listed equity REITs that own property, and mortgage REITs which make short-term construction and development mortgage loans or which invest in long-term mortgages or mortgage pools, or (ii) whose products and services are related to the real estate industry, such as manufacturers and distributors of building supplies and financial institutions which issue or service mortgages.
(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 has adopted non-fundamental restrictions for each of the Funds relating to certain of these restrictions which the Funds' advisor and, when applicable, the Fund's sub-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 .
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment restrictions apply to each of the Funds, except AIM Real Estate Fund is not subject to restriction (3). 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 AIM Funds,
subject to the terms and conditions of any exemptive orders issued by the SEC.
(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 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 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 Fund, on such terms and conditions as the SEC may require in an exemptive order.
(5) Notwithstanding the fundamental restriction with regard to investing all assets in an open-end fund, the Fund may not invest all of its assets in the securities of a single open-end management investment company with the same fundamental investment objectives, policies and restrictions as the Fund.
(6) Notwithstanding the fundamental restriction with regard to engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities, the Fund currently may not invest in any security (including futures contracts or options thereon) that is secured by physical commodities.
(7) The Fund may not acquire any securities of registered open-end investment companies or registered unit investment trusts in reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
ADDITIONAL NON-FUNDAMENTAL POLICIES. As non-fundamental policies:
(1) AIM High Yield Fund normally invests at least 80% of its assets in non-investment grade debt securities, i.e., "junk bonds". For purposes of the foregoing sentence, "assets" means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
(2) AIM Limited Maturity Treasury Fund normally invests at least 80% of its assets in direct obligations of the U.S. Treasury, including bills, notes, and bonds. For purposes of the foregoing sentence, "assets" means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
(3) AIM Real Estate Fund normally invests at least 80% of its assets in securities of real estate and real estate-related companies. For purposes of the foregoing sentence, "assets" means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
(4) AIM Short Term Bond Fund normally invests at least 80% of its assets in a diversified portfolio of investment-grade fixed income securities. For purposes of the foregoing sentence, "assets" means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
(5) AIM Total Return Bond Fund normally invests at least 80% of its assets in a diversified portfolio of investment grade fixed income securities generally represented by the sector categories within the Lehman Brothers Aggregate Bond Index. For purposes of the foregoing sentence, "assets" means net assets, plus the amount of any borrowings for investment purposes. The Fund will provide written notice to its shareholders prior to any change to this policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
The Trust has obtained an opinion of Dechert LLP, 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 or other conditions, or atypical circumstances such as unusually large cash inflows or redemptions, the Funds may temporarily hold all or a portion of their assets in cash, cash equivalents or (with the exception of AIM Limited Maturity Treasury Fund) high-quality debt instruments. Each of the Funds may also invest up to 25% of its total assets in Affiliated Money Market Funds for these purposes.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The overall management of the business and affairs of the Funds and the Trust is vested in the Board. The Board 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. Certain trustees and officers of the Trust are affiliated with AIM and A I M Management Group Inc. ("AIM Management"), the parent corporation of AIM. All of the Trust's executive officers hold similar offices with some or all of the other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust, their principal occupations during the last five years and certain other information concerning them is set forth in Appendix B.
The standing committees of the Board are the Audit Committee, the Governance Committee, the Investments Committee, the Valuation Committee and the Special Committee Relating to Market Timing Issues.
The members of the Audit Committee are Bob R. Baker, James T. Bunch, Edward K.
Dunn, Jr. (Chair), Lewis F. Pennock, Dr. Larry Soll, Dr. Prema Mathai-Davis and
Ruth H. Quigley (Vice Chair). The Audit Committee is responsible for: (i) the
appointment, compensation and oversight of any independent auditors employed by
the Funds (including monitoring the independence, qualifications and performance
of such auditors and resolution of disagreements between the Funds' management
and the auditors regarding financial reporting) for the purpose of preparing or
issuing an audit report or performing other audit, review or attest services;
(ii) overseeing the financial reporting process of the Funds; (iii) monitoring
the process and the resulting financial statements prepared by management to
promote accuracy and integrity of the financial statements and asset valuation;
(iv) assisting the Board's oversight of the Funds' compliance with legal and
regulatory requirements that related to the Funds' accounting and financial
reporting, internal control over financial reporting and independent audits; (v)
to the extent required by Section 10A of the Securities Exchange Act of 1934,
pre-approving all permissible non-audit services provided to each Fund by its
independent auditors; (vi) pre-approving, in accordance with Item 2.01(c)(7)(ii)
of Regulation S-X, certain non-audit services provided by each Fund's
independent auditors to the Funds' investment advisor and certain other
affiliated entities; and (vii) to the extent required by Regulation 14A,
preparing an audit committee report for inclusion in the Fund's annual proxy
statement. During the fiscal year ended July 31, 2003, the Audit Committee held
nine meetings.
The members of the Governance Committee are Frank S. Bayley, Bruce L.
Crockett (Chair), Albert R. Dowden, Jack M. Fields (Vice Chair), Gerald J. Lewis
and Louis S. Sklar. The Governance Committee is responsible for: (i) nominating
persons who are not interested persons of the Trust for election or appointment:
(a) as additions to the Board, (b) to fill vacancies which, from time to time,
may occur in the Board and (c) for election by shareholders of the Trust at
meetings called for the election of trustees; (ii) nominating persons for
appointment as members of each committee of the Board, including, without
limitation, the Audit Committee, the Governance Committee, the Investments
Committee and the Valuation Committee, and to nominate persons for appointment
as chair and vice chair of each such committee; (iii) reviewing from time to
time the compensation payable to the trustees and making recommendations to the
Board regarding compensation; (iv) reviewing and evaluating from time to time
the functioning of the Board and the various committees of the Board; (v)
selecting independent legal counsel to the independent trustees and approving
the compensation paid to independent legal counsel; and (vi) approving the
compensation paid to independent counsel and other advisers, if any, to the
Audit Committee of the Trust.
The Governance Committee 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 Governance Committee or the Board, as applicable, shall make the
final determination of persons to be nominated. During the fiscal year ended
July 31, 2003, the Governance Committee held five meetings.
Notice procedures set forth in the Trust's bylaws require that any shareholder of a Fund desiring to nominate a trustee for election at a shareholder meeting must submit to the Trust's Secretary the nomination in writing not later than the close of business on the later of the 90th day prior to such shareholder meeting or the tenth day following the day on which public announcement is made of the shareholder meeting and not earlier than the close of business on the 120th day prior to the shareholder meeting.
The members of the Investments Committee are Messrs. Baker (Vice Chair), Bayley (Vice Chair), Bunch, Crockett, Dowden (Chair), Dunn, Fields, Lewis, Pennock, Sklar and Soll, and Carl Frischling, and 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. During the fiscal year ended July 31, 2003, the Investments Committee held four meetings.
The members of the Valuation Committee are Messrs. Dunn and Pennock
(Chair), and Miss Quigley (Vice Chair). The Valuation Committee meets on an ad
hoc basis when the Board is not available to review matters related to
valuation. During the fiscal year ended July 31, 2003, the Valuation Committee
held one meeting.
The members of the Special Committee Relating to Market Timing Issues are Messrs. Crockett, Dowden, Dunn, and Lewis (Chair). The purpose of the Special Committee Relating to Market Timing Issues is to remain informed on matters relating to alleged excessive short term trading in shares of the Funds ("market timing") and to provide guidance to special counsel for the independent trustees on market timing issues and related matters between meetings of the independent trustees. During the fiscal year ended July 31, 2003, the Special Committee Relating to Market Timing issues did not meet.
Trustee Ownership of Fund Shares
The dollar range of equity securities beneficially owned by each trustee (i) in the Fund and (ii) on an aggregate basis, in all registered investment companies overseen by the trustee within the AIM Funds complex, is set forth in Appendix B.
Factors Considered in Approving the Investment Advisory Agreement and Investment Sub-Advisory Agreement
The advisory agreement with AIM (the "Advisory Agreement"), and the
sub-advisory agreement between AIM and INVESCO Institutional (N.A.), Inc.
("INVESCO, Inc." or the "Sub-Advisor") (collectively with AIM, the "Advisors")
for AIM Real Estate Fund (the "Sub-Advisory Agreement") (collectively with the
Advisory Agreement, the "Advisory Agreements") were re-approved for each Fund by
the Trust's Board at a meeting held on May 13-14, 2003. In evaluating the
fairness and reasonableness of the Advisory Agreement, the Board considered a
variety of factors for the Fund, as applicable, including: the requirements of
the Fund for investment supervisory and administrative services; the quality of
the Advisors' services, including a review of the Fund's investment performance
and the Advisors' investment personnel; the size of the fees in relationship to
the extent and quality of the investment advisory services rendered; fees
charged to the Advisors' other clients; fees charged by competitive investment
advisors; the size of the fees in light of services provided other than
investment advisory services; the expenses borne by the Fund as a percentage of
its assets and in relationship to contractual limitations; any fee waivers (or
payments of Fund expenses) by the Advisors; the Advisors' profitability; the
benefits received by AIM from its relationship to the Fund, including soft
dollar arrangements, and the extent to which the Fund shares in those benefits;
the organizational capabilities and financial condition of the Advisors and
conditions and trends prevailing in the economy, the securities markets and the
mutual fund industry; and the historical relationship between the Fund and the
Advisors.
In considering the above factors, the Board also took into account the fact that uninvested cash and cash collateral from securities lending arrangements (collectively, "cash balances") of the Fund may be invested in money market funds advised by AIM pursuant to the terms of an exemptive order. The Board found that the Fund may realize certain benefits upon investing cash balances in AIM advised money market funds, including a higher net return, increased liquidity, increased diversification or decreased transaction costs. The Board also found that the Fund will not receive reduced services if it invests its cash balances in such money market funds. The Board further determined that the proposed securities lending program and related procedures with respect to each of the lending Funds is in the best interests of each lending Fund and its respective shareholders. The Board therefore concluded that the investment of cash collateral received in connection with the securities lending program in the money market funds according to the procedures is in the best interests of each lending Fund and its respective shareholders.
After consideration of these factors, the Board found that with respect to each Fund: (i) the services provided to the Fund and its shareholders were adequate; (ii) the Advisory Agreements were fair and reasonable under the circumstances; and (iii) the fees payable under the Advisory Agreements would have been obtained through arm's length negotiations. The Board therefore concluded that each Fund's Advisory Agreements, as applicable, was in the best interests of each Fund and its shareholders and approved the Advisory Agreements.
COMPENSATION
Each trustee who is not affiliated with AIM is compensated for his or her services according to a fee schedule which recognizes the fact that such trustee also serves as a director or trustee of other AIM Funds. Each such trustee receives a fee, allocated among the AIM Funds for which he or she serves as a director or trustee, which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each trustee of the Trust who was not affiliated with AIM during the year ended December 31, 2003 is found in Appendix C.
Retirement Plan For Trustees
The Trustees have adopted a retirement plan for the Trustees of the Trust who are not affiliated with AIM. The retirement plan includes a retirement policy as well as retirement benefits for the non-AIM-affiliated trustees.
The retirement policy permits each non-AIM-affiliated trustee to serve until December 31 of the year in which the trustee turns 72. A majority of the Trustees may extend from time to time the retirement date of a trustee.
Annual retirement benefits are available to each non-AIM-affiliated
trustee of the Trust and/or the other AIM Funds (each, a "Covered Fund") who has
at least five years of credited service as a trustee (including service to a
predecessor fund) for a Covered Fund. The retirement benefits will equal 75% of
the trustee's annual retainer paid or accrued by any Covered Fund to such
trustee during the twelve-month period prior to retirement, including the amount
of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the trustee. The annual retirement benefits are
payable in quarterly installments for a number of years equal to the lesser of
(i) ten or (ii) the number of such trustee's credited years of service. A death
benefit is also available under the plan that provides a surviving spouse with a
quarterly installment of 50% of a deceased trustee's retirement benefits for the
same length of time that the trustee would have received based on his or her
service. A trustee must have attained the age of 65 (55 in the event of death or
disability) to receive any retirement benefit.
Deferred Compensation Agreements
Messrs. Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis (for purposes of this paragraph only, the "Deferring Trustees") have each executed a Deferred Compensation Agreement (collectively, the "Compensation Agreements"). Pursuant to the Compensation Agreements, the Deferring Trustees have the option to elect to defer receipt of up to 100% of their compensation payable by the Trust, and 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 Board,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, may accelerate or extend the distribution of such deferral accounts after the Deferring Trustee's termination of service as a trustee of the Trust. If a Deferring Trustee dies prior to the distribution of amounts in his or her deferral account, the balance of the deferral account will be distributed to his or her designated beneficiary. The Compensation Agreements are not funded and, with respect to the payments of amounts held in the deferral accounts, the Deferring Trustees have the status of unsecured creditors of the Trust and of each other AIM Fund from which they are deferring compensation.
Purchase of Class A Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may purchase Class A shares of the AIM Funds without paying an initial sales charge. A I M Distributors, Inc. ("AIM Distributors") permits such purchases because there is a reduced sales effort involved in sales to such purchasers, thereby resulting in relatively low expenses of distribution.
CODES OF ETHICS
AIM, the Trust, A I M Distributors, Inc. ("AIM Distributors) and INVESCO Institutional (N.A.) (the "Sub-Advisor") have each adopted a Code of Ethics governing, as applicable, personal trading activities of all directors/trustees, officers of the Trust, persons who, in connection with their regular functions, play a role in the recommendation of any purchase or sale of a security by any of the Funds or obtain information pertaining to such purchase or sale, and certain other employees. The Codes of Ethics are intended to prohibit conflicts of interest with the Trust that may arise from personal trading. Personal trading, including personal trading involving securities that may be purchased or held by a Fund, is permitted by persons covered under the relevant Codes subject to certain restrictions; however those persons are generally required to pre-clear all security transactions with the Compliance Officer or his designee and to report all transactions on a regular basis.
PROXY VOTING POLICIES
The Board has delegated responsibility for decisions regarding proxy voting for securities held by each Fund (except AIM Real Estate Fund) to AIM, the Fund's investment advisor. The Board has delegated responsibility for decisions regarding proxy voting for securities held by AIM Real Estate Fund to the Fund's Sub-Advisor. The investment advisor or Sub-Advisor will vote such proxies in accordance with its proxy policies and procedures, which have been reviewed and approved by the Board, and which are found in Appendix D.
Any material changes to the proxy policies and procedures will be submitted to the Board for approval. The Board will be supplied with a summary quarterly report of the Fund's proxy voting record.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of each Fund's shares by beneficial or record owners of such Fund and by trustees and officers as a group is found in Appendix E. A shareholder who owns beneficially 25% or more of the outstanding shares of the Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Fund's investment advisor, was organized in 1976, and along with its subsidiaries, manages or advises over 200 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 Fund's operations and provides investment advisory services to the Fund. AIM obtains and evaluates economic, statistical and financial information to formulate and implement investment programs for the Fund.
AIM is also responsible for furnishing to the Fund, at AIM's expense, the services of persons believed to be competent to perform all supervisory and administrative services required by the 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 the Fund's accounts and records, and the preparation of all requisite corporate documents such as tax returns and reports to the SEC and shareholders.
The Master Investment Advisory Agreement provides that the Fund will pay or cause to be paid all expenses of the Fund not assumed by AIM, including, without limitation: brokerage commissions, taxes, legal, auditing or governmental fees, the cost of preparing share certificates, custodian, transfer and shareholder service agent costs, expenses of issue, sale, redemption, and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to trustee and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees and other expenses incurred by the Trust on behalf of the 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 the Master Investment Advisory Agreement with the Trust, AIM receives a monthly fee from the Fund calculated at the following annual rates, based on the average daily net assets of the Fund during the year:
FUND NAME NET ASSETS ANNUAL RATE
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AIM High Yield Fund First $200 million 0.625%
Next $300 million 0.55%
Next $500 million 0.50%
Amount over $1 billion 0.45%
AIM 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 Real Estate Fund All Assets 0.90%
AIM Short Term Bond Fund All Assets 0.40%
AIM Total Return Bond First $500 million 0.50%
Next $500 million 0.45%
Amount over $1 billion 0.40%
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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. Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus may not be terminated or amended to the Funds' detriment during the period stated in the agreement between AIM and the Fund.
AIM has voluntarily agreed to waive a portion of advisory fees payable by each Fund. The amount of the waiver will equal 25% of the advisory fee AIM receives from the Affiliated Money Market Funds as a result of each Fund's Investment of uninvested cash in an Affiliated Money Market Fund. Termination of this agreement requires approval by the Board. See "Description of the Funds and Their Investments and Risks - Investment Strategies and Risks - Other Investments - Other Investment Companies."
AIM has contractually agreed through July 31, 2004, to waive fees and/or reimburse expenses (excluding interest, taxes, dividends on short sales, fund merger and reorganization expenses, extraordinary items and increases in expenses due to expense offset arrangements, if any) for AIM Total Return Bond Fund's Class A, Class B and Class C shares to the extent necessary to limit the total operating expenses of Class A shares to 1.25% (e.g., if AIM waives 1.86% of Class A expenses, AIM will also waive 1.86% of Class B and Class C expenses). Such contractual fee waivers or reductions are set forth in the Fee Table to the Fund's Prospectus and may not be terminated or amended to the Funds' detriment during the period stated in the agreement between AIM and the Fund.
AIM has contractually agreed through July 31, 2004, to waive fees and/or reimburse expenses (excluding interest, taxes, dividends on short sales, fund merger and reorganization expenses, extraordinary items and increases in expenses due to expense offset arrangements, if any) for AIM Short Term Bond Fund's Class C shares to the extent necessary to limit the total operating expenses of Class C shares to 1.20%. Such contractual fee waivers or reductions are set forth in the Fee Table to the Fund's Prospectus and may not be terminated or amended to the Fund's detriment during the period stated in the agreements between AIM and the Fund.
INVESTMENT SUB-ADVISOR
AIM has entered into a Master Sub-Advisory contract with INVESCO Institutional (N.A.), Inc. ("INVESCO, Inc.") (the "Sub-Advisor") to provide investment sub-advisory services to AIM Real Estate Fund.
INVESCO, Inc. is registered as an investment advisor under the Advisers Act. INVESCO, Inc. believes it has one of the nation's largest discretionary portfolios of tax-exempt accounts (such as pension and profit sharing funds for corporations and state and local governments). Funds are supervised by investment managers who utilize INVESCO, Inc.'s facilities for investment research and analysis, review of current economic conditions and trends, and consideration of long-range investment policy matters.
AIM and INVESCO, Inc. are indirect wholly owned subsidiaries of
AMVESCAP (formerly, AMVESCO PLC and INVESCO PLC).
For the services to be rendered by INVESCO, Inc. under its Master Sub-Advisory Contract, the Advisor will pay the Sub-Advisor a fee which will be computed daily and paid as of the last day of each month on the basis of the Fund's daily net asset value, using for each daily calculation the most recently determined net asset value of the Fund. (See "Computation of Net Asset Value.") On an annual basis, the sub-advisory fee is equal to 0.40% of the Advisor's compensation of the sub-advised assets per year, for AIM Real Estate Fund.
The management fees payable by the Fund, the amounts waived by AIM and the net fee paid by the Fund for the last three fiscal years ended July 31, are found in Appendix F.
SECURITIES LENDING ARRANGEMENTS. If a Fund engages in securities
lending, AIM will provide the Fund investment advisory services and related
administrative services. The advisory agreement describes the administrative
services to be rendered by AIM if a Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Services to be provided include: (a) overseeing participation in the
securities lending program to ensure compliance with all applicable regulatory
and investment guidelines; (b) assisting the securities lending agent or
principal (the "agent") in determining which specific securities are available
for loan; (c) monitoring the agent to ensure that securities loans are effected
in accordance with AIM's instructions and with procedures adopted by the Board;
(d) preparing appropriate periodic reports for, and seeking appropriate
approvals from, the Board with respect to securities lending activities; (e)
responding to agent inquiries; and (f) performing such other duties as may be
necessary.
AIM's compensation for advisory services rendered in connection with securities lending is included in the advisory fee schedule. As compensation for the related administrative services AIM will provide, a lending Fund will pay AIM a fee equal to 25% of the net monthly interest or fee income retained or paid to the Fund from such activities. AIM currently intends to waive such fee, and has agreed to seek Board approval prior to its receipt of all or a portion of such fee.
SERVICE AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Trust have entered into a Master Administrative Services Agreement ("Administrative Services Agreement") pursuant to which AIM may perform or arrange for the provision of certain accounting and other administrative services to each Fund which are not required to be performed by AIM under the advisory agreement. The Administrative Services Agreement provides that it will remain in effect and continue from year to year only if such continuance is specifically approved at least annually by the Board, 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. Currently, AIM is reimbursed for the services of the Trust's principal financial officer and her staff, and any expenses related to fund accounting services.
Administrative services fees paid to AIM by each Fund for the last three fiscal years ended July 31, are found in Appendix G.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. AIM Investment Services, Inc. ("AIS") (formerly, A I M Fund Services, Inc.), 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 AIS provides that AIS will perform certain shareholder services for the Funds. The Transfer Agency and Service Agreement provides that AIS 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. AIS 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.
It is anticipated that most investors will perform their subaccounting. AIM has contractually agreed to limit transfer agent fees to 0.10% of average net assets of the Institutional Class with respect to AIM Limited Maturity Treasury Fund. The expense limitation agreement is in effect through July 31, 2004.
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 Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund. The Bank of New York, 100 Church Street, New York, New York 10286, is custodian of all securities and cash of AIM Limited Maturity Fund and AIM Money Market Fund. Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as sub-custodian for purchases of shares of the Funds. The Bank of New York also serves as sub-custodian to facilitate cash management.
The custodians are authorized to establish separate accounts in foreign countries and to cause foreign securities owned by the Funds to be held outside the United States in branches of U.S. banks and, to the extent permitted by applicable regulations, in certain foreign banks and securities depositories. AIM is responsible for selecting eligible foreign securities depositories and for assessing the risks associated with investing in foreign countries, including the risk of using eligible foreign securities depositories in a country. The custodians are responsible for monitoring eligible foreign securities depositories.
Under their contracts with the Trust, the custodians maintain the portfolio securities of the Funds, administer the purchases and sales of portfolio securities, collect interest and dividends and other distributions made on the securities held in the portfolios of the Funds and perform other ministerial duties. These services do not include any supervisory function over management or provide any protection against any possible depreciation of assets.
AUDITORS. The Funds' independent public accountants are responsible for auditing the financial statements of the Funds. The Board selected Ernst & Young LLP, 5 Houston Center, 1401 McKinney, Suite 1200, Houston, Texas 77010-4035, as the independent public accountants to audit the financial statements of the Funds.
COUNSEL TO THE TRUST. Legal matters for the Trust have been passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania 19103-7599.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Sub-Advisor has adopted compliance procedures that cover, among other items, brokerage allocation and other trading practices. Unless specifically noted, the Sub-Advisor's procedures do not materially differ from AIM's procedures as set forth below.
BROKERAGE TRANSACTIONS
AIM or the Sub-Advisor, as applicable, 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 (except AIM Real Estate Fund) 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 to the broker-dealer, including electronic communication networks.
Traditionally, commission rates have not been negotiated on stock markets outside the United States. Although in recent years many overseas stock markets have adopted a system of negotiated rates, a number of markets maintain an established schedule of minimum commission rates.
Brokerage commissions paid by each of the Funds during the last three fiscal years ended July 31, are found in Appendix H.
COMMISSIONS
During the last three fiscal years ended July 31, none of the Funds paid brokerage commissions to brokers affiliated with the Funds, AIM, AIM Distributors, or any affiliates of such entities.
The Funds may engage in certain principal and agency transactions with banks and their affiliates that own 5% or more of the outstanding voting securities of an AIM Fund, provided the conditions of an exemptive order received by the AIM Funds from the SEC are met. In addition, a Fund may purchase or sell a security from or to certain other Funds or accounts (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 Board 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, the 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 provide a more in-depth analysis of 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 Fund. However, the Fund is 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 Fund is not reduced because AIM receives such services. However, to the extent that AIM would have purchased research services had they not been provided by broker-dealers, the expenses to AIM could be considered to have been reduced accordingly.
AIM may determine target levels of brokerage business with various brokers on behalf of its clients (including the Funds) over a certain time period. The target levels will be based upon the following factors, among others: (1) the execution services provided by the broker; and (2) the research services provided by the broker. Portfolio transactions also may be effected through broker-dealers that recommend the Funds to their clients, or that act as agent in the purchase of a Fund's shares for their clients. AIM will not enter into a binding commitment with brokers to place trades with such brokers involving brokerage commissions in precise amounts.
DIRECTED BROKERAGE (RESEARCH SERVICES)
Directed brokerage (research services) paid by each of the Funds during the last fiscal year ended July 31, 2003 are found in Appendix I.
REGULAR BROKERS OR DEALERS
Information concerning each of the Fund's acquisition of securities of its regular brokers or dealers during the last fiscal year ended July 31, 2003, is found in Appendix I.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous other investment accounts. Some of these accounts may have investment objectives similar to the Funds. Occasionally, identical securities will be appropriate for investment by one of the Funds and by another Fund or one or more of these investment accounts. However, the position of each account in the same securities and the length of time that each account may hold its investment in the same securities may vary. The timing and amount of purchase by each 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 the Fund's ability to obtain or dispose of the full amount of a security which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among the various investment accounts advised by AIM results in transactions which could have an adverse effect on the price or amount of securities available to a Fund. In making such allocations, AIM considers the investment objectives and policies of its advisory clients, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held, and the judgments of the persons responsible for recommending the investment. This procedure would apply to transactions in both equity and fixed income securities.
ALLOCATION OF INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS
Certain of the AIM Funds or other accounts managed by AIM may become interested in participating in IPOs. Purchases of IPOs by one AIM Fund or account may also be considered for purchase by one or more other AIM Funds or accounts. It shall be AIM's practice to specifically combine or otherwise bunch indications of interest for IPOs for all AIM Funds and accounts participating in purchase transactions for that IPO, and to allocate such transactions in accordance with the following procedures:
AIM will determine the eligibility of each AIM Fund and account that seeks to participate in a particular IPO by reviewing a number of factors, including suitability of the investment with the AIM Fund's or account's investment objective, policies and strategies, the liquidity of the AIM Fund or account if such investment is purchased, and whether the portfolio manager intends to hold the security as a long-term investment. The allocation of securities issued in IPOs will be made to eligible AIM Funds and accounts in a manner designed to be fair and equitable for the eligible AIM Funds and accounts, and so that there is equal allocation of IPOs over the longer term. Where multiple funds or accounts are eligible, rotational participation may occur, based on the extent to which an AIM Fund or account has participated in previous IPOs as well as the size of the AIM Fund or account. Each eligible AIM Fund and account will be placed in one of four tiers, depending upon each AIM Fund's or account's asset level. The AIM Funds and accounts in the tier containing funds and accounts with the smallest asset levels will participate first, each receiving a 40 basis point allocation (rounded to the nearest share round lot that approximates 40 basis points) (the "Allocation"), based on that AIM Fund's or account's net assets. This process continues until all of the AIM Funds and accounts in the four tiers receive their Allocations, or until the shares are all
allocated. Should securities remain after this process, eligible AIM Funds and accounts will receive their Allocations on a straight pro rata basis. In addition, Incubator Funds, as described in AIM's Incubator and New Fund Investment Policy, and any other AIM Fund which has more than 5% of its outstanding shares owned by AIM or one of its affiliates, officers, directors or employees, will each be limited to a 40 basis point allocation only. Such allocations will be allocated to the nearest share round lot that approximates 40 basis points.
When any AIM Funds and/or accounts with substantially identical investment objectives and policies participate in IPOs, they will do so in amounts that are substantially proportionate to each other. In these cases, the net assets of the largest participating AIM Fund will be used to determine in which tier, as described in the paragraph above, such group of AIM Funds or accounts will be placed. If no AIM Fund is participating, then the net assets of the largest account will be used to determine tier placement. The price per share of securities purchased in such IPO transactions will be the same for each AIM Fund and account.
On occasion, when the Sub-Advisor is purchasing certain thinly-traded securities or shares in an initial public offering for the Funds or other clients, the situation may arise that the Sub-Advisor is unable to obtain sufficient securities to fill the orders of the Funds or all other relevant clients. In that situation, the Sub-Advisor is required to use pro-rata allocation methods that ensure the fair and equitable treatment of all clients. (Such methods may include, for example, pro-rata allocation on each relevant trade, or "rotational" allocation).
The requirement of pro-rata allocation is subject to limited exceptions
- such as when the Funds or accounts are subject to special investment
objectives or size constraints on investment positions.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE AND REDEMPTION OF SHARES
Before the initial purchase of shares, an investor must submit a completed account application to his financial intermediary, who should forward the application to AIM Investment Services, Inc. at P.O. Box 4497, Houston, Texas 77210-4497. An investor may change information in his account application by submitting written changes or a new account application to his intermediary or to AIS.
Purchase and redemption orders must be received in good order. To be in good order, the financial intermediary must give AIS all required information and documentation with respect to the investor. If the intermediary fails to deliver the investor's payment on the required settlement date, the intermediary must reimburse the Fund for any overdraft charges incurred.
A financial intermediary may submit a written request to AIS for correction of transactions involving Fund shares. If AIS agrees to correct a transaction, and the correction requires a dividend adjustment, the intermediary must agree in writing to reimburse the Fund for any resulting loss.
An investor may terminate his relationship with an intermediary and become the shareholder of record on his account. However, until the investor establishes a relationship with an intermediary, the investor will not be able to purchase additional shares of the Fund, except through the reinvestment of distributions.
Payment for redeemed shares is normally made by Federal Reserve wire to the bank account designated in the investor's account application, but may be sent by check at the investor's request. By providing written notice to his financial intermediary or to AIS, an investor may change the bank account designated to receive redemption proceeds. AIS may request additional documentation.
AIS may request that an intermediary maintain separate master accounts in the Fund for shares held by the intermediary (a) for its own account, for the account of other institutions and for accounts for
which the intermediary acts as a fiduciary; and (b) for accounts for which the intermediary acts in some other capacity. An intermediary may aggregate its master accounts and subaccounts to satisfy the minimum investment requirement.
Platform sponsors that provide investment vehicles to fund Section 401 defined contribution plans and have entered into written agreements with AIM Distributors to waive applicable investment minimums may purchase Institutional Class shares for accounts within such plans.
REDEMPTIONS BY THE FUNDS
If the Funds determine that you have provided incorrect information in opening an account or in the course of conducting subsequent transactions, the Funds may, at their discretion, redeem the account and distribute the proceeds to you.
Additional information regarding purchases and redemptions is located in the Funds' prospectus, under the headings "Purchasing Shares" and "Redeeming Shares."
ABANDONED PROPERTY. It is the responsibility of the investor to ensure that AIS maintains a correct address for his account(s). An incorrect address may cause an investor's account statements and other mailings to be returned to AIS. Upon receiving returned mail, AIS will attempt to locate the investor or rightful owner of the account. If unsuccessful, AIS will retain a shareholder locator service with a national information database to conduct periodic searches for the investor. If the search firm is unable to locate the investor, the search firm will determine whether the investor's account has legally been abandoned. AIS is legally obligated to escheat (or transfer) abandoned property to the appropriate state's unclaimed property administrator in accordance with statutory requirements. The investor's last known address of record determines which state has jurisdiction.
OFFERING PRICE
Institutional Class shares of a Fund are offered at net asset value.
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 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 Limited Maturity Treasury Fund, AIM Real Estate Fund, AIM Short Term Bond Fund, AIM Total Return Bond Fund
Each Fund determines its net asset value per share once daily as of the close of the customary trading session of the NYSE (generally 4:00 p.m. Eastern time) on each business day of the Fund. In the event the NYSE closes early (i.e., before 4:00 p.m. Eastern time) on a particular day, each Fund determines its net asset value per share as of the close of the NYSE on such day. For purposes of determining net asset value per share, the Fund will generally use futures and options contract closing prices which are available fifteen (15) minutes after the close of the customary trading session of the NYSE. The Funds determines 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. The net asset value for shareholder transactions may be different than the net asset value reported in the Fund's financial statements due to adjustments required by generally accepted accounting principles made to the net assets of the Fund at period end.
Each security (excluding convertible bonds) held by a Fund is valued at its last sales price on the exchange where the security is principally traded or, lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") or absent a NOCP, at the closing bid price on that day; option contracts are valued at the mean between the closing bid and asked prices on the exchange where the contracts are principally traded; futures contracts are valued at final settlement price quotations from the primary exchange on which they are traded. Debt securities (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data.
Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and ask prices. Securities for which market quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board. Short-term investments are valued at amortized cost when the security has 60 days or less to maturity.
Generally, trading in 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 the Fund's shares are determined at such times. Occasionally, events affecting the values of such securities may occur between the times at which such values are determined and the close of the customary trading session of the NYSE which will not be reflected in the computation of the Fund's net asset value. If a development/event has actually caused that closing price to no longer reflect actual value, the closing prices may be adjusted to reflect the fair value of the affected securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board.
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities, is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of each Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of a Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures, and exchange-traded funds.
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
Although the Funds generally intend to pay redemption proceeds solely in cash, the Funds reserve the right to satisfy redemption requests by making payment in securities or other property (known as a redemption in kind). A Fund may make a redemption in kind, for instance, if a cash redemption would disrupt its operations or performance. Securities delivered as payment in redemptions in kind will be 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 transaction and brokerage costs on their subsequent sales of such securities, and the securities may increase or decrease in value until the shareholder sells them. If a Fund has made an election under Rule 18f-1 under the 1940 Act, the Fund is obligated to redeem for cash all shares presented to such Fund for redemption by any one shareholder in an amount up to the lesser of $250,000 or 1% of the Fund's net assets in any 90-day period.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification number or, alternatively, a completed IRS Form W-8 (for non-resident aliens) or Form W-9 (certifying exempt status) accompanying the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, generally must withhold 28% of redemption payments and reportable dividends (whether paid or accrued) in the case of any shareholder who fails to provide the Fund with a taxpayer identification number ("TIN") and a certification that he is not subject to backup withholding.
An investor is subject to backup withholding if:
1. the investor fails to furnish a correct TIN to the Fund;
2. the IRS notifies the Fund that the investor furnished an incorrect TIN;
3. the investor or the Fund is notified by the IRS that the investor is subject to backup withholding because the investor failed to report all of the interest and dividends on such investor's tax return (for reportable interest and dividends only);
4. the investor fails to certify to the Fund that the investor is not subject to backup withholding under (3) above (for reportable interest and dividend accounts opened after 1983 only); or
5. the investor does not certify his TIN. This applies only to non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in all five situations discussed above. Redemption proceeds and long-term gain distributions are subject to backup withholding only if (1), (2) or (5) above applies.
Certain payees and payments are exempt from backup withholding and information reporting. AIM or AIS 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 each Fund to declare daily and pay monthly net investment income dividends and declare and pay annually any capital gain distributions. It is each Fund's intention to distribute substantially all of its net investment income and realized net capital gains. In determining the amount of capital gains, if any, available for distribution, capital gains will be offset against available net capital 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 the Fund unless the shareholder has requested in writing to receive such dividends and distributions in cash or that they be invested in Institutional Class shares of another AIM Fund, subject to the terms and
conditions set forth in the Prospectus under the caption "Special Plans - Automatic Dividend Investment." Such dividends and distributions will be reinvested at the net asset value per share determined on the ex-dividend date. If a shareholder's account does not have any shares in it on a dividend or capital gain distribution payment date, the dividend or distribution will be paid in cash whether or not the shareholder has elected to have such dividends or distributions reinvested.
Dividends are declared to shareholders of record immediately prior to the determination of the net asset value of each Fund. For each Fund, except AIM Money Market Fund AIM Cash Reserve Shares purchase orders received prior to noon EST and AIM Real Estate Fund, dividends begin accruing on the first business day after a purchase order for shares of the Fund is effective (settle date), and accrue through and including the day to which a redemption order is effective (settle date). Thus, if a purchase order is effective on Friday, dividends will begin accruing on Monday (unless Monday is not a business day of the Fund). For AIM Money Market Fund AIM Cash Reserve Shares purchase orders received prior to noon EST, dividends begin accruing on the first business day of the purchase order for shares of the Fund and accrue through the day prior to the redemption order.
AIM Real Estate Fund makes quarterly distributions of its net investment income typically during the months of March, June, September and December. For taxable clients, a portion of the dividends paid by a REIT may be considered return of capital and would not currently be regarded as taxable income.
Distributions paid by a Fund other than daily dividends have the effect of reducing the net asset value per share on the ex-dividend date by the amount of the dividend or distribution. Therefore, a dividend or distribution declared shortly after a purchase of shares by an investor would represent, in substance, a return of capital to the shareholder with respect to such shares even though it would be subject to income tax.
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 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 might suspend further dividend payments on shares of the Fund until the net asset value returns to $1.00. Thus, such expense, loss or depreciation might result in a shareholder receiving no dividends for the period during which it held shares of the Fund and/or its receiving upon redemption a price per share lower than that which it paid.
TAX MATTERS
The following is only a summary of certain additional tax considerations generally affecting the Funds and their shareholders that are not described in the Prospectus. No attempt is made to present a detailed explanation of the tax treatment of each Fund or its shareholders, and the discussion here and in the Prospectus is not intended as a substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each Fund has elected to be taxed under Subchapter M of the Code as a regulated investment company and intends to maintain its qualification as such in each of its taxable years. As a regulated investment company, each Fund is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and capital gain net income (i.e., the excess of capital gains over capital losses) that it distributes to shareholders, provided that it distributes an amount equal to (i) at least 90% of its investment company taxable income (i.e., net investment income, net foreign currency ordinary gain or loss and the excess of net short-term capital gain over net long-term capital loss) and (ii) at least 90% of the excess of its tax-exempt interest income under Code Section 103(a) over its deductions disallowed under Code Sections 265 and 171(a)(2) for the taxable year (the "Distribution Requirement"), and satisfies certain other requirements of the Code that are described below. Distributions by a Fund made during the taxable year or, under specified circumstances, within twelve
months after the close of the taxable year, will be considered distributions of income and gain of the taxable year and can therefore satisfy the Distribution Requirement.
Each Fund may use "equalization accounting" in determining the portion of its net investment income and capital gain net income that has been distributed. A Fund that elects to use equalization accounting will allocate a portion of its realized investment income and capital gain to redemptions of Fund shares and will reduce the amount of such income and gain that it distributes in cash. However, each Fund intends to make cash distributions for each taxable year in an aggregate amount that is sufficient to satisfy the Distribution Requirement without taking into account its use of equalization accounting. The Internal Revenue Service has not published any guidance concerning the methods to be used in allocating investment income and capital gains to redemptions of shares. In the event that the Internal Revenue Service determines that a Fund is using an improper method of allocation and has underdistributed its net investment income and capital gain net income for any taxable year, such Fund may be liable for additional federal income tax.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock, securities or foreign currencies (to the extent
such currency 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, gain from options, futures or forward contracts)
derived from its business of investing in such stock, securities or currencies
(the "Income Requirement"). Under certain circumstances, a Fund may be required
to sell portfolio holdings to meet this requirement.
In addition to satisfying the requirements described above, each Fund must satisfy an asset diversification test in order to qualify as a regulated investment company (the "Asset Diversification Test"). Under this test, at the close of each quarter of each Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers, as to which the Fund has not invested more than 5% of the value of the Fund's total assets in securities of such issuer and as to which the Fund does not hold more than 10% of the outstanding voting securities of such issuer, and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or of two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses.
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 (to the extent discussed below) in the case of corporate shareholders and will be included in the qualified dividend income of noncorporate shareholders. See "Fund Distributions" below.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In general, gain or loss recognized by a Fund on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by a Fund at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time the Fund held the debt obligation unless the Fund made an election to accrue market discount into income. If a Fund purchases a debt obligation that was originally issued at a discount, the Fund is generally required to include in gross income each year the portion of the original issue discount which accrues during such year. In addition, under the rules of Code Section 988, gain or loss recognized on the disposition of a debt obligation denominated in a foreign currency or an option with respect thereto (but only to the extent attributable to changes in foreign currency exchange rates), and gain or loss recognized on the disposition of a foreign currency forward contract or of foreign currency itself, will generally be treated as ordinary income or loss. In certain cases, a Fund may make an election to treat such gain or loss as capital.
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, qualified dividend income, or long-term capital gain may also differ from the book income of the Fund and may be increased or decreased as compared to a fund that did not engage in such transactions.
AIM Limited Maturity Treasury Fund may enter into notional principal contracts, including interest rate swaps, caps, floors and collars. Under Treasury regulations, in general, the net income or deduction from a notional principal contract for a taxable year is included in or deducted from gross income for that taxable year. The net income or deduction from a notional principal contract for a taxable year equals the total of all of the periodic payments (generally, payments that are payable or receivable at fixed periodic intervals of one year or less during the entire term of the contract) that are recognized from that contract for the taxable year and all of the non-periodic payments (including premiums for caps, floors and collars), even if paid in periodic installments, that are recognized from that contract for the taxable year. A periodic payment is recognized ratably over the period to which it relates. In general, a non-periodic payment must be recognized over the term of the notional principal contract in a manner that reflects the economic substance of the contract. A non-periodic payment that relates to an interest rate swap, cap, floor or collar shall be recognized over the term of the contract by allocating it in accordance with the values of a series of cash-settled forward or option contracts that reflect the specified index and notional principal amount upon which the notional principal contract is based (or, in the case of a swap or of a cap or floor that hedges a debt instrument, under alternative methods contained in the regulations and, in the case of other notional principal contracts, under alternative methods that the IRS may provide in a revenue procedure).
EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of ordinary taxable income for the calendar year and 98% of capital gain net income (excess of capital gains over capital losses) for the one-year period ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a "taxable year election")). The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund generally intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, in the event that the Internal Revenue Service determines that a Fund is using an improper method of allocation for purposes of equalization accounting (as discussed above), such Fund may be liable for excise tax. Moreover, investors should note that a Fund may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability. In addition, under certain circumstances, a Fund may elect to pay a minimal amount of excise tax.
PFIC INVESTMENTS. 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 gain, the amount of gain or loss and the timing of the recognition and character of income with respect to PFIC stock, as well as subject the Funds themselves to tax on certain income from PFIC stock. For these reasons the amount that must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not invest in PFIC stock.
SWAP AGREEMENTS. AIM Real Estate Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund may each enter into swap agreements. The rules governing the tax aspects of swap agreements are in a developing stage and are not entirely clear in certain respects. Accordingly, while a Fund intends 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 a Fund as a regulated investment company might be affected. Each Fund intends to monitor developments in this area. Certain requirements that must be met under the Code in order for a Fund to qualify as a regulated investment company may limit the extent to which a Fund will be able to engage in swap agreements.
FUND DISTRIBUTIONS. Each Fund anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions will be taxable to shareholders as ordinary income and treated as dividends for federal income tax purposes, but they will qualify for the 70% dividends received deduction for corporations and as qualified dividend income for individuals and other non-corporate taxpayers to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital gain (net long-term capital gain over net short-term capital loss) for each taxable year. Each Fund currently intends to distribute any such amounts. If net capital gain is distributed and designated as a capital gain dividend, it will be taxable to shareholders as long-term capital gain (currently taxable at a maximum rate of 15% for noncorporate shareholders) regardless of the length of time the shareholder has held his shares or whether such gain was recognized by the Fund prior to the date on which the shareholder acquired his shares. 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.
Ordinary income dividends paid by a Fund with respect to a taxable year will qualify for the 70% dividends received deduction generally available to corporations (other than corporations, such as "S" corporations, which are not eligible for the deduction because of their special characteristics and other than for purposes of special taxes such as the accumulated earnings tax and the personal holding company tax) to the extent of the amount of qualifying dividends received by the Fund from domestic corporations for the taxable year. However, the alternative minimum tax applicable to corporations may reduce the value of the dividends received deduction.
Ordinary income dividends paid by a Fund to individuals and other noncorporate taxpayers will be treated as qualified dividend income that is subject to tax at a maximum rate of 15% to the extent of the amount of qualifying dividends received by the Fund from domestic corporations and from foreign corporations that are either incorporated in a possession of the United States, or are eligible for benefits under certain income tax treaties with the United States that include an exchange of information program.
In addition, qualifying dividends include dividends paid with respect to stock of a foreign corporation that is readily tradable on an established securities market in the United States. However, dividends received by the Fund from foreign personal holding companies, foreign investment companies or PFICs are not qualifying dividends. If the qualifying dividend income received by a Fund is equal to 95% (or a greater percentage) of the Fund's gross income (exclusive of net capital gain) in any taxable year, all of the ordinary income dividends paid by the Fund will be qualifying dividend income.
Alternative minimum tax ("AMT") is imposed in addition to, but only to the extent it exceeds, the regular tax and is computed at a maximum rate of 28% for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount. However, the AMT on capital gain dividends and qualified dividend income paid by a Fund to a noncorporate shareholder may not exceed a maximum rate of 15%. The corporate dividends received deduction is not itself an item of tax preference that must be added back to taxable income or is otherwise disallowed in determining a corporation's AMTI. However, corporate shareholders will generally be required to take the full amount of any dividend received from the Fund into account (without a dividends received deduction) in determining their adjusted current earnings, which are used in computing an additional corporate preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted current earnings over its AMTI (determined without regard to this item and the AMTI net operating loss deduction)) that is includable in AMTI. However, certain small corporations are wholly exempt from the AMT.
Distributions by a Fund that do not constitute earnings and profits will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any excess will be treated as gain from the sale of his shares.
Distributions by a Fund will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of the Fund (or of another Fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date.
Ordinarily, shareholders are required to take distributions by a Fund into account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such a month will be deemed to have been received by the shareholders (and made by the Fund) on December 31 of such calendar year if such dividends are actually paid in January of the following year. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year in accordance with the guidance that has been provided by the IRS.
If the net asset value of shares is reduced below a shareholder's cost as a result of a distribution by a Fund, such distribution generally will be taxable even though it represents a return of invested capital. Investors should be careful to consider the tax implications of buying shares of a Fund just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which generally will be taxable to them.
SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss on the sale or redemption of shares of a Fund in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be deferred under the wash sale rules if the shareholder purchases other shares of the Fund within 30 days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of a Fund will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. Currently, any long-term capital gain recognized by a non-corporate shareholder will be subject to tax at a maximum rate of 15%. However, any capital loss arising from the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends
received on such shares. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a non-corporate taxpayer, $3,000 of ordinary income.
BACKUP WITHHOLDING. The Funds may be required to withhold 28% of taxable distributions and/or redemption payments. For more information refer to "Purchase, Redemption and Pricing of Shares - Backup Withholding".
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder"), depends on whether the income from a Fund is "effectively connected" with a U.S. trade or business carried on by such shareholder. If the income from a Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, distributions (other than distributions of long-term capital gain) will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the distribution. Such a foreign shareholder would generally be exempt from U.S. federal income tax on gain realized on the redemption of shares of a Fund, capital gain dividends and amounts retained by a Fund that are designated as undistributed net capital gain.
If the income from a Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends and any gains realized upon the sale or redemption of shares of the Fund will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be required to withhold U.S. federal income tax at a rate of 28% on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of their foreign status.
Foreign shareholders may be subject to U.S. withholding tax at a rate of 30% on the income resulting from a 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 adviser or the IRS.
Transfers by gift of shares of a Fund by a foreign shareholder who is a nonresident alien individual will not be subject to U.S. federal gift tax. An individual who, at the time of death, is a foreign shareholder will nevertheless be subject to U.S. federal estate tax with respect to shares at the graduated rates applicable to U.S. citizens and residents, unless a treaty exception applies. In the absence of a treaty, there is a $13,000 statutory estate tax credit.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund, including the applicability of foreign tax.
FOREIGN INCOME TAX. Investment income received by each Fund from sources within foreign countries may be subject to foreign income tax withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle the Funds to a reduced rate of, or exemption from, tax on such income. It is impossible to determine the effective rate of foreign tax in advance since the amount of a Fund's assets to be invested in various countries is not known.
If more than 50% of the value of a Fund's total assets at the close of each taxable year consists of the stock or securities of foreign corporations, the Fund may elect to "pass through" to the Fund's shareholders the amount of foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to the Foreign Tax Election, shareholders will be required (i) to include in gross income, even though not actually received, their respective pro-rata shares of the foreign income tax paid by the Fund that are attributable to any distributions they receive; and (ii) either to deduct their pro-rata share of foreign tax in computing their taxable income, or to use it (subject to various Code limitations) as a foreign tax credit against Federal income tax (but not both). No deduction for foreign tax may be claimed by a non-corporate shareholder who does not itemize deductions or who is subject to alternative minimum tax.
Unless certain requirements are met, a credit for foreign tax is subject to the limitation that it may not exceed the shareholder's U.S. tax (determined without regard to the availability of the credit) attributable to the shareholder's foreign source taxable income. In determining the source and character of distributions received from a Fund for this purpose, shareholders will be required to allocate Fund distributions according to the source of the income realized by the Fund. Each Fund's gain from the sale of stock and securities and certain currency fluctuation gain and loss will generally be treated as derived from U.S. sources. In addition, the limitation on the foreign tax credit is applied separately to foreign source "passive" income, such as dividend income, and the portion of foreign source income consisting of qualified dividend income is reduced by approximately 57% to account for the tax rate differential. Individuals who have no more than $300 ($600 for married persons filing jointly) of creditable foreign tax included on Form 1099 and whose foreign source income is all "qualified passive income" may elect each year to be exempt from the foreign tax credit limitation and will be able to claim a foreign tax credit without filing Form 1116 with its corresponding requirement to report income and tax by country. Moreover, no foreign tax credit will be allowable to any shareholder who has not held his shares of the 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 April 30, 2004. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income, qualified dividend income and capital gain dividends may differ from the rules for U.S. federal income taxation described above. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in the Funds.
DISTRIBUTION OF SECURITIES
DISTRIBUTOR
The Trust has entered into a master distribution agreement, as amended, relating to the Fund (the "Distribution Agreement") 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 Fund. 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 Agreement provides AIM Distributors with the exclusive right to distribute shares of the Fund 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 the Institutional Class.
The Trust (on behalf of the Institutional Class) or AIM Distributors may terminate the Distribution Agreements on sixty (60) days' written notice without penalty. The Distribution Agreement will terminate automatically in the event of its assignment.
AIM Distributors may, from time to time, at its expense pay a bonus or other consideration or incentive to dealers or banks. The total amount of such additional bonus payments or other consideration shall not exceed 0.10% of the public offering price of the shares sold or of average daily net assets of the Funds 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 Fund's shares or the amount that any particular Fund will receive as proceeds from such sales. Dealers may not use sales of the Funds' shares to qualify for any incentives to the extent that such incentives may be prohibited by the laws of any state.
CALCULATION OF PERFORMANCE DATA
Although performance data may be useful to prospective investors when comparing a Fund's performance with other funds and other potential investments, investors should note that the methods of computing performance of other potential investments are not necessarily comparable to the methods employed by a Fund.
Average Annual Total Return Quotation
The standard formula for calculating average annual total return is as follows:
n P(1+T) = ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (assuming the applicable maximum
sales load is deducted at the beginning of the one, five, or
ten year periods);
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment at the
end of the one, five, or ten year periods (or fractional
portion of such period).
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The average annual total returns for the Fund, with respect to its Institutional Class Shares for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 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 the 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 the 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. A Fund's total return is calculated in accordance with a standardized formula for computation of annualized total return.
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, the 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:
n P(1+U) = ERV
Where P = a hypothetical initial payment of $1,000;
U = average annual total return assuming payment of only a stated
portion of, or none of, the applicable maximum sales load at
the beginning of the stated period;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment at the
end of the stated period.
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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; and
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 Institutional Class Shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are found in Appendix J.
Average Annual Total Return (After Taxes on Distributions) Quotation
A Fund's average annual total return (after taxes on distributions) shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. It reflects the deduction of federal income taxes on distributions, but not on redemption proceeds. Average annual total returns (after taxes on distributions) are calculated by determining the after-tax growth or decline in value of a hypothetical investment in a Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. Because average annual total returns (after taxes on distributions) tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its average annual total returns (after taxes on distributions) into income results and capital gains or losses.
The standard formula for calculating average annual total return (after taxes on distributions) is:
n
P(1+T) = ATV
D
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on distributions);
n = number of years; and
ATV = ending value of a hypothetical $1,000 payment made at the
D beginning of the one, five or ten year periods (or since
inception, if applicable) at the end of the one, five or ten
year periods (or since inception, if applicable), after taxes
on fund distributions but not after taxes on redemption.
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Standardized average annual total return (after taxes on distributions) for Institutional Class shares does not reflect a deduction of any sales charges since that class is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the taxes due on such distributions, are reinvested at the price calculated as stated in the prospectus on the reinvestment dates during the period. Taxes on a Fund's distributions are calculated by applying to each component of the distribution (e.g., ordinary income and long-term capital gain) the highest corresponding individual marginal federal income tax rates in effect on the reinvestment date. The taxable amount and tax character of each distribution is as specified by the Fund on the dividend declaration date, but reflects any subsequent recharacterizations of distributions. The effect of applicable tax credits, such as the foreign tax credit, are also taken into account. The calculations only reflect federal taxes, and thus do not reflect state and local taxes or the impact of the federal alternative minimum tax.
The average annual total returns (after taxes on distributions) for the Fund, with respect to its Institutional Class Shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are found in Appendix J.
Average Annual Total Return (After Taxes on Distributions and Sale of Fund Shares) Quotation
A Fund's average annual total return (after taxes on distributions and sale of Fund shares) shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. It reflects the deduction of federal income taxes on both distributions and proceeds. Average annual total returns (after taxes on distributions and redemption) are calculated by determining the after-tax growth or decline in value of a hypothetical investment in a Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. Because average annual total returns (after taxes on distributions and redemption) tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its average annual total returns (after taxes on distributions and redemption) into income results and capital gains or losses.
The standard formula for calculating average annual total return (after taxes on distributions and redemption) is:
n
P(1+T) = ATV
DR
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on distributions
and redemption); n = number of years; and
ATV = ending value of a hypothetical $1,000 payment made at the
DR beginning of the one, five or ten year periods (or since
inception, if applicable) at the end of the one, five or ten
year periods (or since inception, if applicable), after
taxes on fund distributions and redemption.
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Standardized average annual total return (after taxes on distributions and redemption) for Institutional Class shares does not reflect a deduction of any sales charges since that class is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the taxes due on such distributions, are reinvested at the price calculated as stated in the prospectus on the reinvestment dates during the period. Taxes due on a Fund's distributions are calculated by applying to each component of the distribution (e.g., ordinary income and long-term capital gain) the highest corresponding individual marginal federal income tax rates in effect on the reinvestment date. The taxable amount and tax character of each distribution is as specified by the Fund on the dividend declaration date, but reflects any subsequent recharacterizations of distributions. The effect of applicable tax credits, such as the foreign tax credit, are also taken into account. The calculations only reflect federal taxes, and thus do not reflect state and local taxes or the impact of the federal alternative minimum tax.
The ending values for each period assume a complete liquidation of all shares. The ending values for each period are determined by subtracting capital gains taxes resulting from the sale of Fund shares and adding the tax benefit from capital losses resulting from the sale of Fund shares. The capital gain or loss upon sale of Fund shares is calculated by subtracting the tax basis from the proceeds. Capital gains taxes (or the benefit resulting from tax losses) are calculated using the highest federal individual capital gains tax rate for gains of the appropriate character (e.g., ordinary income or long-term) in effect on the date of the sale of Fund shares and in accordance with federal tax law applicable on that date. The calculations assume that a shareholder may deduct all capital losses in full.
The basis of shares acquired through the $1,000 initial investment are tracked separately from subsequent purchases through reinvested distributions. The basis for a reinvested distribution is the distribution net of taxes paid on the distribution. Tax basis is adjusted for any distributions representing returns of capital and for any other tax basis adjustments that would apply to an individual taxpayer.
The amount and character (i.e., short-term or long-term) of capital gain or loss upon sale of Fund shares is determined separately for shares acquired through the $1,000 initial investment and each subsequent purchase through reinvested distributions. The tax character is determined by the length of the measurement period in the case of the initial $1,000 investment and the length of the period between reinvestment and the end of the measurement period in the case of reinvested distributions.
The average annual total returns (after taxes on distributions and redemption) for the Fund, with respect to its Institutional Class Shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004, 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 may quote its distribution rate, which uses the most recent dividend paid annualized as a percentage of the Fund's offering price.
Income calculated for purposes of calculating a Fund's yield differs from income as determined for other accounting purposes. Because of the different accounting methods used, and because of the compounding assumed in yield calculations, the yield quoted for the 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:
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).
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b = expenses accrued during period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were certified to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The standard formula for calculating annualized 7-day yield for AIM Money Market Fund is as follows:
Y = (V V ) x 365
1 0
V 7
0
Where Y = annualized yield.
V = the value of a hypothetical pre-existing account in the
0 AIM Money Market Fund having a balance of one share at
the beginning of a stated seven-day period.
V = the value of such an account at the end of the period.
1
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The standard formula for calculating effective annualized yield for the AIM Money Market Fund is as follows:
365/7
EY = (Y + 1) - 1
Where EY = effective annualized yield.
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Y = annualized yield, as determined above.
The yields for each Fund are found in Appendix J. In addition, the distribution rates for each Fund are found in Appendix J.
Performance Information
All advertisements of the Fund will disclose the maximum sales charge (including deferred sales charges) imposed on purchases of the 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 the Fund's performance is
contained in the 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 the Fund. Fee waivers or reductions or commitments to reduce expenses will have the effect of increasing the Fund's yield and total return.
Certain Funds may participate in the IPO market in some market cycles. Because of these Funds' small asset bases, any investment the Funds may make in IPOs may significantly affect these Funds' total returns. As the Funds' assets grow, the impact of IPO investments will decline, which may reduce the effect of IPO investments on the Funds' total returns.
The performance of the Fund will vary from time to time and past results are not necessarily indicative of future results.
Total return and yield figures for the Fund are neither fixed nor guaranteed. The Fund may provide performance information in reports, sales literature and advertisements. The Fund may also, from time to time, quote information about the Fund 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 Fund. 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 Bloomberg Inc. Pensions & Investments Broker World Institutional Investor Personal Investor Business Week Insurance Forum Philadelphia Inquirer Changing Times Insurance Week The Bond Buyer Christian Science Monitor Investor's Business Daily USA Today Consumer Reports Journal of the American U.S. News & World Report Economist Society of CLU & ChFC Wall Street Journal FACS of the Week Kiplinger Letter Washington Post Financial Planning Money CNN Financial Product News Mutual Fund Forecaster CNBC Financial Services Week PBS Financial World |
The Fund may also compare its performance to performance data of similar mutual funds as published by the following services:
Bank Rate Monitor Mutual Fund Values (Morningstar) Bloomberg Stanger Donoghue's Weisenberger Lehman Live Lipper, Inc. |
The Fund's performance may also be compared in advertising to the performance of comparative benchmarks such as the following:
Lehman Brothers High Yield Index
Lehman Brothers Intermediate U.S. Government and Mortgage Index
Lehman Brothers 1-2 year Government Bond Index
Lehman Brothers 1-3 year Government/Credit Index
Lehman Brothers Municipal Bond Index
Lehman Brothers U.S. Credit Index
Lehman Brothers U.S. Aggregate Bond Index
Lipper BBB Rated Fund Index
Lipper General Municipal Debt Fund Index
Lipper High Yield Bond Fund Index
Lipper Intermediate Investment Grade Debt Fund Index
Lipper Intermediate U.S. Government Fund Index
Lipper Real Estate Fund Index Lipper Short Investment Grade Debt Index
Lipper Short U.S. Treasury Category Average
Morgan Stanley REIT Index
Standard & Poor's 500 Index
The 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 Fund may from time to time include discussions of general economic conditions and interest rates. Advertising for the Fund may also include references to the use of the Fund as part of an individual's overall retirement investment program. From time to time, sales literature and/or advertisements for the Fund 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 Fund's sales literature and/or advertisements may discuss generic topics pertaining to the mutual fund industry. This includes, but is not limited to, literature addressing general information about mutual funds, discussions regarding investment styles, such as the growth, value or GARP (growth at a reasonable price) styles of investing, variable annuities, dollar-cost averaging, stocks, bonds, money markets, certificates of deposit, retirement, retirement plans, asset allocation, tax-free investing, college planning and inflation.
PENDING LITIGATION
A number of civil lawsuits, including purported class action and shareholder derivative suits, have been filed that involve one or more AIM or INVESCO Funds, their former and/or current investment adviser and/or certain other related parties and that are related to the claims filed by the SEC and/or the New York Attorney General against these parties. A list of such lawsuits that have been served or for which service of process has been waived, as of March 18, 2004 is set forth in Appendix K.
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt ratings of Moody's, S&P and Fitch:
MOODY'S LONG-TERM DEBT RATINGS
Moody's corporate ratings areas follows:
Aaa: Bonds and preferred stock which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds and preferred stock which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. These are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk in Aa rated bonds appear somewhat larger than those securities rated Aaa.
A: Bonds and preferred stock which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds and preferred stock which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba: Bonds and preferred stock which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa: Bonds and preferred stock which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca: Bonds and preferred stock which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds and preferred stock which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
MOODY'S SHORT-TERM PRIME RATING SYSTEM
Moody's short-term ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. Such obligations generally have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following designations, all judged to be investment grade , to indicate the relative repayment ability of rated issuers.
PRIME-1: Issuers (or supporting institutions) rated Prime-1 have a superior ability for repayment of senior short-term obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable ability for repayment of senior short-term debt obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating categories.
Note: In addition, in certain countries the prime rating may be modified by the issuer's or guarantor's senior unsecured long-term debt rating.
Moody's municipal ratings are as follows:
MOODY'S U.S. LONG-TERM MUNICIPAL BOND RATING DEFINITIONS
Municipal ratings are opinions of the investment quality of issuers and issues in the US municipal and tax-exempt markets. As such, these ratings incorporate Moody's assessment of the default probability and loss severity of these issuers and issues.
Municipal Ratings are based upon the analysis of four primary factors relating to municipal finance: economy, debt, finances, and administration/management strategies. Each of the factors is evaluated individually and for its effect on the other factors in the context of the municipality's ability to repay its debt.
Aaa: Issuers or issues rated Aaa demonstrate the strongest creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Aa: Issuers or issues rated Aa demonstrate very strong creditworthiness relative to other US municipal or tax-exempt issuers or issues.
A: Issuers or issues rated A present above-average creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Baa: Issuers or issues rated Baa represent average creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Ba: Issuers or issues rated Ba demonstrate below-average creditworthiness relative to other US municipal or tax-exempt issuers or issues.
B: Issuers or issues rated B demonstrate weak creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Caa: Issuers or issues rated Caa demonstrate very weak creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Ca: Issuers or issues rated Ca demonstrate extremely weak creditworthiness relative to other US municipal or tax-exempt issuers or issues.
C: Issuers or issues rated C demonstrate the weakest creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa to Caa. The modifier 1 indicates that the issue ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic category.
MOODY'S MIG/VMIG US SHORT-TERM RATINGS
In municipal debt issuance, there are three rating categories for short-term obligations that are considered investment grade. These ratings are designated as Moody's Investment Grade (MIG) and are divided into three levels - MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality are designated SG, or speculative grade.
In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned. The first element represents Moody's evaluation of the degree of risk associated with scheduled principal and interest payments. The second element represents Moody's evaluation of the degree of risk associated with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is designated as VMIG. When either the long- or short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating expirations will be a function of each issue's specific structural or credit features.
Gradations of investment quality are indicated by rating symbols, with each symbol representing a group in which the quality characteristics are broadly the same.
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of protection are ample although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
STANDARD & POOR'S LONG-TERM CORPORATE AND MUNICIPAL RATINGS
Issue credit ratings are based in varying degrees, on the following considerations: likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; nature of and provisions of the obligation; and protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above.
S&P describes its ratings for corporate and municipal bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree.
A: Debt rated A has a strong capacity to meet its financial commitments although is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to meet its financial commitment on the obligation.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having significant speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
NR: Not Rated.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity and the commercial paper rating symbols for the put option (for example, AAA/A-1+). With short-term demand debt, the note rating symbols are used with the commercial paper rating symbols (for example, SP-1+/A-1+).
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days.
These categories are as follows:
A-1: This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
B: Issues rated 'B' are regarded as having only speculative capacity for timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
D: Debt rated 'D' is in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless Standard & Poor's believes such payments will be made during such grace period.
S&P SHORT-TERM MUNICIPAL RATINGS
An S&P note rating reflect the liquidity factors and market-access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment: amortization schedule (the larger the final maturity relative to other maturities, the more likely it will be treated as a note); and source of payment (the more dependant the issue is on the market for its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH LONG-TERM CREDIT RATINGS
Fitch Ratings provides an opinion on the ability of an entity or of a securities issue to meet financial commitments, such as interest, preferred dividends, or repayment of principal, on a timely basis. These credit ratings apply to a variety of entities and issues, including but not limited to sovereigns, governments, structured financings, and corporations; debt, preferred/preference stock, bank loans, and counterparties; as well as the financial strength of insurance companies and financial guarantors.
Credit ratings are used by investors as indications of the likelihood
of getting their money back in accordance with the terms on which they invested.
Thus, the use of credit ratings defines their function: "investment grade"
ratings (international Long-term 'AAA' - 'BBB' categories; Short-term 'F1' -
'F3') indicate a relatively low probability of default, while those in the
"speculative" or "non-investment grade" categories (international Long-term 'BB'
- 'D'; Short-term 'B' - 'D') either signal a higher probability of default or
that a default has already occurred. Ratings imply no specific prediction of
default probability. However, for example, it is relevant to note that over the
long term, defaults on 'AAA' rated U.S. corporate bonds have averaged less than
0.10% per annum, while the equivalent rate for 'BBB' rated bonds was 0.35%, and
for 'B' rated bonds, 3.0%.
Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated.
Entities or issues carrying the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk.
Fitch credit and research are not recommendations to buy, sell or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature of taxability of payments of any security.
The ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch Ratings believes to be reliable. Fitch Ratings does not audit or verify the truth or accuracy of such information. Ratings may be changed or withdrawn as a result of changes in, or the unavailability of, information or for other reasons.
Our program ratings relate only to standard issues made under the
program concerned; it should not be assumed that these ratings apply to every
issue made under the program. In particular, in the case of non-standard issues,
i.e., those that are linked to the credit of a third party or linked to the
performance of an index, ratings of these issues may deviate from the applicable
program rating.
Credit ratings do not directly address any risk other than credit risk. In particular, these ratings do not deal with the risk of loss due to changes in market interest rates and other market considerations.
AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong capacity for timely payment of financial commitments, which is unlikely to be affected by foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The obligor has a very strong capacity for timely payment of financial commitments which is not significantly vulnerable to foreseeable events.
A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of good credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances are more likely to impair this capacity.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or refinanced and at Fitch's discretion, when Fitch Ratings deems the amount of information available to be inadequate for ratings purposes.
RATINGWATCH: Ratings are placed on RatingWatch to notify investors that there is a reasonable possibility of a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for potential downgrade, or "Evolving," if ratings may be raised, lowered or maintained. RatingWatch is typically resolved over a relatively short period.
FITCH SPECULATIVE GRADE BOND RATINGS
BB: Bonds are considered speculative. There is a possibility of credit risk developing, particularly as the result of adverse economic changes over time. However, business and financial alternatives may be available to allow financial commitments to be met.
B: Bonds are considered highly speculative. Significant credit risk is present but a limited margin of safety remains. While bonds in this class are currently meeting financial commitments, the capacity for continued payment is contingent upon a sustained, favorable business and economic environment.
CCC: Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments.
CC: Default of some kind appears probable.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and are valued on the basis of their prospects for achieving partial or full recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in categories below CCC.
FITCH SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency ratings. A Short-term rating has a time horizon of less than 12 months for most obligations, or up to three years for U.S. public finance securities, and thus places greater emphasis on the liquidity necessary to meet financial commitments in a timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as in the case of the higher ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate, however, near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment.
D: Default. Issues assigned this rating are in actual or imminent payment default.
APPENDIX B
TRUSTEES AND OFFICERS
As of April 30, 2004
The address of each trustee and officer is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 112 portfolios in the AIM Funds and INVESCO Funds complex, except for Messrs. Baker, Bunch, Lewis and Soll who oversees 111 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust's organizational documents. Column two below includes length of time served with predecessor entities, if any.
TRUSTEE
AND/OR
NAME, YEAR OF BIRTH AND POSITION(S) OFFICER OTHER TRUSTEESHIP(S) HELD
HELD WITH THE TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS BY TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and President (financial services holding company); Director and Vice
Chairman, AMVESCAP PLC and Chairman of AMVESCAP PLC -
AIM Division (parent of AIM and a global investment
management firm)
Formerly: President and Chief Executive Officer, A I M
Management Group Inc.; Director, Chairman and
President, A I M Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M Capital
Management, Inc. (registered investment advisor), A I M
Distributors, Inc. (registered broker dealer), AIM
Investment Services, Inc. (registered transfer agent),
and Fund Management Company (registered broker dealer);
and Chief Executive Officer, AMVESCAP PLC - Managed
Products
Mark H. Williamson(2) -- 1951 Trustee 2003 Director, President and Chief Executive Officer, A I M None
and Executive Vice President Management Group Inc. (financial services holding
company); Director, Chairman and President, A I M
Advisors, Inc. (registered investment advisor);
Director, A I M Capital Management, Inc. (registered
investment advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and Chairman, AIM
Investment Services, Inc. (registered transfer agent),
and Fund Management Company (registered broker dealer);
and Chief Executive Officer, AMVESCAP PLC - AIM
Division (parent of AIM and a global investment
management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group,
|
(2) Mr. Williamson is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust.
TRUSTEE
AND/OR
NAME, YEAR OF BIRTH AND POSITION(S) OFFICER OTHER TRUSTEESHIP(S) HELD
HELD WITH THE TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS BY TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
Inc. and INVESCO Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC - Managed Products; Chairman and
Chief Executive Officer of NationsBanc Advisors, Inc.;
and Chairman of NationsBanc Investments, Inc.
INDEPENDENT TRUSTEES
Bob R. Baker - 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer, AMC
Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial Corporation
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
James T. Bunch - 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance Corporation
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology ACE Limited (insurance
Trustee consulting company) company); and Captaris,
Inc. (unified messaging
provider)
Albert R. Dowden -- 1941 2000 Director of a number of public and private business Cortland Trust, Inc.
Trustee corporations, including the Boss Group, Ltd. (private (Chairman) (registered
investment and management) and Magellan Insurance investment company);
Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior Vice
President, AB Volvo; and director of various affiliated
Volvo companies
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer, Mercantile-Safe
Deposit & Trust Co.; and President, Mercantile
Bankshares Corp.
|
TRUSTEE
AND/OR
NAME, YEAR OF BIRTH AND POSITION(S) OFFICER OTHER TRUSTEESHIP(S) HELD
HELD WITH THE TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS BY TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Administaff; and
Trustee Inc. (government affairs company) and Texana Timber LP Discovery Global
(sustainable forestry company) Education Fund
(non-profit)
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel Cortland Trust, Inc.
Trustee LLP (registered investment
company)
Gerald J. Lewis - 1933 2003 Chairman, Lawsuit Resolution Services (San Diego, General Chemical Group,
Trustee California) Inc.
Formerly: Associate Justice of the California Court of
Appeals
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations, None
Trustee Hines Interests Limited Partnership (real estate
development company)
Larry Soll, Ph.D. - 1942 2003 Retired None
Trustee
|
TRUSTEE
AND/OR
NAME, YEAR OF BIRTH AND POSITION(S) OFFICER OTHER TRUSTEESHIP(S) HELD
HELD WITH THE TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS BY TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
Kevin M. Carome - 1956 Senior 2003 Director, Senior Vice President, Secretary and General N/A
Vice President, Chief Legal Officer Counsel, A I M Management Group Inc. (financial
and Secretary services holding company) and A I M Advisors, Inc.; and
Vice President, A I M Capital Management, Inc., A I M
Distributors, Inc. and AIM Investment Services, Inc.;
Director, Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and General Counsel,
Liberty Financial Companies, Inc.; and Senior Vice
President and General Counsel, Liberty Funds Group, LLC
Stuart W. Coco -- 1955 Vice 2002 Managing Director and Director of Money Market Research N/A
President and Special Projects, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
Melville B. Cox -- 1943 1992 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management, Inc.; and
Vice President, AIM Investment Services, Inc.
Sidney Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc. N/A
Vice President and Treasurer Formerly: Vice President, A I M Distributors, Inc.;
and Senior Vice President, AIM Investment Services, Inc.
Karen Dunn Kelley -- 1960 1992 Managing Director and Chief Cash Management Officer, N/A
Vice President A I M Capital Management, Inc.; Director and President,
Fund Management Company; and Vice President, A I M
Advisors, Inc.
Edgar M. Larsen -- 1940 1999 Director and Executive Vice President, A I M Management N/A
Vice President Groups Inc.; Director and Senior Vice President, A I M
Advisors, Inc.; and Director Chairman, President,
Director of Investments, Chief Executive Officer and
Chief Investment Officer, A I M Capital Management, Inc.
|
TRUSTEE OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2003
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY SECURITIES COMPANIES OVERSEEN BY TRUSTEE IN THE AIM
NAME OF TRUSTEE PER FUND FAMILY OF FUNDS --Registered Trademark--
---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham High Yield $50,001 - $100,000 Over $100,000
Limited Maturity Treasury Over $100,000
Municipal Bond Over $100,000
Mark H. Williamson - 0 - Over $100,000
Bob R. Baker High Yield $1 - $10,000 Over $100,000
Income $1 - $10,000
Intermediate Government $1 - $10,000
Money Market $1 - $10,000
Municipal Bond $1 - $10,000
Real Estate $1 - $10,000
Frank S. Bayley Income $10,001 - $50,000 $50,001 - $100,000
James T. Bunch High Yield $1 - $10,000 Over $100,000
Income $1 - $10,000
Intermediate Government $1 - $10,000
Money Market $1 - $10,000
Municipal Bond $1 - $10,000
Real Estate $1 - $10,000
Bruce L. Crockett - 0 - $10,001 - $50,000
Albert R. Dowden High Yield $10,001 - $50,000 Over $100,000
Edward K. Dunn, Jr. High Yield $1 - $10,000 Over $100,000(3)
Money Market Over $100,000
Jack M. Fields - 0 - Over $100,000(3)
Carl Frischling High Yield $10,001 - $50,000 Over $100,000(3)
Gerald J. Lewis High Yield $1 - $10,000 $50,001 - $100,000
Income $1 - $10,000
Intermediate Government $1 - $10,000
Money Market $1 - $10,000
Municipal Bond $1 - $10,000
Real Estate $1 - $10,000
|
(3) Includes the total amount of compensation deferred by the trustee at his or her election pursuant to a deferred compensation plan. Such deferred compensation is placed in a deferral account and deemed to be invested in one or more of the AIM Funds.
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY SECURITIES COMPANIES OVERSEEN BY TRUSTEE IN THE AIM
NAME OF TRUSTEE PER FUND FAMILY OF FUNDS --Registered Trademark--
---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis - 0 - $1 - $10,000
Lewis F. Pennock High Yield $1 - $10,000 $50,001 - $100,000
Ruth H. Quigley -0- $1 - $10,000
Louis S. Sklar - 0 - Over $100,000(3)
Larry Soll High Yield $1 - $10,000 Over $100,000
Income $1 - $10,000
Intermediate Government $1 - $10,000
Money Market $1 - $10,000
Municipal Bond $1 - $10,000
Real Estate $1 - $10,000
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(3) Includes the total amount of compensation deferred by the trustee at his or her election pursuant to a deferred compensation plan. Such deferred compensation is placed in a deferral account and deemed to be invested in one or more of the AIM Funds.
APPENDIX C
TRUSTEES COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for each trustee of the Trust who was not affiliated with AIM during the year ended December 31, 2003:
ESTIMATED
ANNUAL
RETIREMENT BENEFITS
AGGREGATE BENEFITS UPON TOTAL
COMPENSATION ACCRUED RETIREMENT COMPENSATION
FROM THE BY ALL FROM ALL AIM FROM ALL AIM
TRUSTEE TRUST(1) AIM FUNDS(2) FUNDS(3) FUNDS(4)
-------------------------------------------------------------------------------------
Bob R. Baker(5) N/A $ 32,635 $ 114,131 $ 154,554
Frank S. Bayley $ 12,020 131228 90,000 $ 159,000
James T. Bunch(5) N/A 20,436 90,000 138,679
Bruce L. Crockett 12,025 46,000 90,000 160,000
Albert R. Dowden 12,020 57,716 90,000 159,000
Edward K. Dunn, Jr. 12,025 94,860 90,000 160,000
Jack M. Fields 12,023 28,036 90,000 159,000
Carl Frischling(6) 12,099 40,447 90,000 160,000
Gerald J. Lewis(5) N/A 20,436 90,000 132,054
Prema Mathai-Davis 12,099 33,142 90,000 160,000
Lewis F. Pennock 12,099 49,610 90,000 160,000
Ruth H. Quigley 12,099 126,050 90,000 160,000
Louis S. Sklar 12,025 72,786 90,000 160,000
Larry Soll(5) N/A 48,830 108,000 140,429
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(1) Amounts shown are based on the fiscal year ended July 31, 2003. The total amount of compensation deferred by all trustees of the Trust during the fiscal year ended July 31, 2003, including earnings, was $44,159.
(2) During the fiscal year ended July 31, 2003, the total amount of expenses allocated to the Trust in respect of such retirement benefits was $65,550.
(3) These amounts represent the estimated annual benefits payable by the AIM Funds and INVESCO Funds upon the trustee's retirement. These estimated benefits assume each trustee serves until his or her normal retirement date and has ten years of service.
(4) All trustees, currently serve as trustees of nineteen registered investment companies advised by AIM.
(5) Messrs. Baker, Bunch and Lewis and Dr. Soll were elected as trustees of the Trust on October 21, 2003.
(6) During the fiscal year ended July 31, 2003, the Trust paid $32,038 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.
APPENDIX D
PROXY VOTING POLICIES
PROXY POLICIES AND PROCEDURES (FOR ALL FUNDS OTHER THAN AIM REAL ESTATE FUND)
Reviewed and approved by the AIM Funds Board of Directors/Trustees February 19, 2004 Adopted by the Board of Directors of each of A I M Advisors, Inc., A I M Capital Management, Inc., AIM Private Asset Management, Inc. and AIM Alternative Asset Management Company, Inc. June 26, 2003, as revised effective January 8, 2004
(REVISED AS OF JANUARY 8, 2004)
A. PROXY POLICIES
Each of A I M Advisors, Inc., A I M Capital Management, Inc., AIM Private Asset Management, Inc. and AIM Alternative Asset Management Company, Inc. (each an "AIM Advisor" and collectively "AIM") has the fiduciary obligation to, at all times, make the economic best interest of advisory clients the sole consideration when voting proxies of companies held in client accounts. As a general rule, each AIM Advisor shall vote against any actions that would reduce the rights or options of shareholders, reduce shareholder influence over the board of directors and management, reduce the alignment of interests between management and shareholders, or reduce the value of shareholders' investments. At the same time, AIM believes in supporting the management of companies in which it invests, and will accord proper weight to the positions of a company's board of directors, and the AIM portfolio managers who chose to invest in the companies. Therefore, on most issues, our votes have been cast in accordance with the recommendations of the company's board of directors, and we do not currently expect that trend to change. Although AIM's proxy voting policies are stated below, AIM's proxy committee considers all relevant facts and circumstances, and retains the right to vote proxies as deemed appropriate.
I. BOARDS OF DIRECTORS
A board that has at least a majority of independent directors is integral to good corporate governance. Key board committees, including audit, compensation and nominating committees, should be completely independent.
There are some actions by directors that should result in votes being withheld. These instances include directors who:
- Are not independent directors and (a) sit on the board's audit, compensation or nominating committee, or (b) sit on a board where the majority of the board is not independent;
- Attend less than 75 percent of the board and committee meetings without a valid excuse;
- Implement or renew a dead-hand or modified dead-hand poison pill;
- Sit on the boards of an excessive number of companies;
- Enacted egregious corporate governance or other policies or failed to replace management as appropriate;
- Have failed to act on takeover offers where the majority of the shareholders have tendered their shares; or
- Ignore a shareholder proposal that is approved by a majority of the shares outstanding.
Votes in a contested election of directors must be evaluated on a case-by-case basis, considering the following factors:
- Long-term financial performance of the target company relative to its industry;
- Management's track record;
- Portfolio manager's assessment;
- Qualifications of director nominees (both slates);
- Evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met; and
- Background to the proxy contest.
II. INDEPENDENT AUDITORS
A company should limit its relationship with its auditors to the audit engagement, and certain closely related activities that do not, in the aggregate, raise an appearance of impaired independence. We will support the reappointment of the company's auditors unless:
- It is not clear that the auditors will be able to fulfill their function;
- There is reason to believe the independent auditors have rendered an opinion that is neither accurate nor indicative of the company's financial position; or
- The auditors have a significant professional or personal relationship with the issuer that compromises the auditors' independence.
III. COMPENSATION PROGRAMS
Appropriately designed equity-based compensation plans, approved by shareholders, can be an effective way to align the interests of long-term shareholders and the interests of management, employees and directors. Plans should not substantially dilute shareholders' ownership interests in the company, provide participants with excessive awards or have objectionable structural features. We will consider all incentives, awards and compensation, and compare them to a company-specific adjusted allowable dilution cap and a weighted average estimate of shareholder wealth transfer and voting power dilution.
- We will generally vote against equity-based plans where the total dilution (including all equity-based plans) is excessive.
- We will support the use of employee stock purchase plans to increase company stock ownership by employees, provided that shares purchased under the plan are acquired for no less than 85% of their market value.
- We will vote against plans that have any of the following structural features: ability to re-price underwater options without shareholder approval, ability to issue options with an exercise price below the stock's current market price, ability to issue reload options, or automatic share replenishment ("evergreen") feature.
- We will vote for proposals to reprice options if there is a value-for-value (rather than a share-for-share) exchange.
- We will generally support the board's discretion to determine and grant appropriate cash compensation and severance packages.
IV. CORPORATE MATTERS
We will review management proposals relating to changes to capital structure, reincorporation, restructuring and mergers and acquisitions on a case by case basis, considering the impact of the changes on corporate governance and shareholder rights,
anticipated financial and operating benefits, portfolio manager views, level of dilution, and a company's industry and performance in terms of shareholder returns.
- We will vote for merger and acquisition proposals that the proxy committee and relevant portfolio managers believe, based on their review of the materials, will result in financial and operating benefits, have a fair offer price, have favorable prospects for the combined companies, and will not have a negative impact on corporate governance or shareholder rights.
- We will vote against proposals to increase the number of authorized shares of any class of stock that has superior voting rights to another class of stock.
- We will vote for proposals to increase common share authorization for a stock split, provided that the increase in authorized shares would not result in excessive dilution given a company's industry and performance in terms of shareholder returns.
- We will vote for proposals to institute open-market share repurchase plans in which all shareholders participate on an equal basis.
V. SHAREHOLDER PROPOSALS
Shareholder proposals can be extremely complex, and the impact on share value can rarely be anticipated with any high degree of confidence. The proxy committee reviews shareholder proposals on a case-by-case basis, giving careful consideration to such factors as: the proposal's impact on the company's short-term and long-term share value, its effect on the company's reputation, the economic effect of the proposal, industry and regional norms applicable to the company, the company's overall corporate governance provisions, and the reasonableness of the request.
- We will generally abstain from shareholder social and environmental proposals.
- We will generally support the board's discretion regarding shareholder proposals that involve ordinary business practices.
- We will generally vote for shareholder proposals that are designed to protect shareholder rights if the company's corporate governance standards indicate that such additional protections are warranted.
- We will generally vote for proposals to lower barriers to shareholder action.
- We will generally vote for proposals to subject shareholder rights plans to a shareholder vote. In evaluating these plans, we give favorable consideration to the presence of "TIDE" provisions (short-term sunset provisions, qualified bid/permitted offer provisions, and/or mandatory review by a committee of independent directors at least every three years).
VI. OTHER
- We will vote against any proposal where the proxy materials lack sufficient information upon which to base an informed decision.
- We will vote against any proposals to authorize the proxy to conduct any other business that is not described in the proxy statement.
- We will vote any matters not specifically covered by these proxy policies and procedures in the economic best interest of advisory clients.
AIM's proxy policies, and the procedures noted below, may be amended from time to time.
B. PROXY COMMITTEE PROCEDURES
The proxy committee currently consists of representatives from the Legal and Compliance Department, the Investments Department and the Finance Department.
The committee members review detailed reports analyzing the proxy issues and have access to proxy statements and annual reports. The committee then discusses the issues and determines the vote. The committee shall give appropriate and significant weight to portfolio managers' views regarding a proposal's impact on shareholders. A proxy committee meeting requires a quorum of three committee members, voting in person or by proxy.
AIM's proxy committee shall consider its fiduciary responsibility to all clients when addressing proxy issues and vote accordingly. The proxy committee may enlist the services of reputable outside professionals and/or proxy evaluation services, such as Institutional Shareholder Services or any of its subsidiaries ("ISS"), to assist with the analysis of voting issues and/or to carry out the actual voting process. To the extent the services of ISS or another provider are used, the proxy committee shall periodically review the policies of that provider.
In addition to the foregoing, the following shall be strictly adhered to unless contrary action receives the prior approval of the Funds' Board of Directors/Trustees:
1. Other than by voting proxies and participating in Creditors' committees, AIM shall not engage in conduct that involves an attempt to change or influence the control of a company.
2. AIM will not publicly announce its voting intentions and the reasons therefore.
3. AIM shall not participate in a proxy solicitation or otherwise seek proxy-voting authority from any other public company shareholder.
4. All communications regarding proxy issues between the proxy committee and companies or their agents, or with fellow shareholders shall be for the sole purpose of expressing and discussing AIM's concerns for its advisory clients' interests and not for an attempt to influence or control management.
C. BUSINESS/DISASTER RECOVERY
If the proxy committee is unable to meet due to a temporary business interruption, such as a power outage, a sub-committee of the proxy committee may vote proxies in accordance with the policies stated herein. If the sub-committee of the proxy committee is not able to vote proxies, the sub-committee shall authorize ISS shall to vote proxies by default in accordance with ISS' proxy policies and procedures, which may vary slightly from AIM's.
D. RESTRICTIONS AFFECTING VOTING
If a country's laws allow a company in that country to block the sale of the company's shares by a shareholder in advance of a shareholder meeting, AIM will not vote in shareholder meetings held in that country, unless the company represents that it will not block the sale of its shares in connection with the meeting. Administrative or other procedures, such as securities lending, may also cause AIM to refrain from voting. Although AIM considers proxy voting to be an important
shareholder right, the proxy committee will not impede a portfolio manager's ability to trade in a stock in order to vote at a shareholder meeting.
E. CONFLICTS OF INTEREST
The proxy committee reviews each proxy to assess the extent to which there may be a material conflict between AIM's interests and those of advisory clients. A potential conflict of interest situation may include where AIM or an affiliate manages assets for, administers an employee benefit plan for, provides other financial products or services to, or otherwise has a material business relationship with, a company whose management is soliciting proxies, and failure to vote proxies in favor of management of the company may harm AIM's relationship with the company. In order to avoid even the appearance of impropriety, the proxy committee will not take AIM's relationship with the company into account, and will vote the company's proxies in the best interest of the advisory clients, in accordance with these proxy policies and procedures.
TO THE EXTENT THAT A COMMITTEE MEMBER HAS ANY CONFLICT OF INTEREST WITH RESPECT TO A COMPANY OR AN ISSUE PRESENTED, THAT COMMITTEE MEMBER SHOULD INFORM THE PROXY COMMITTEE OF SUCH CONFLICT AND ABSTAIN FROM VOTING ON THAT COMPANY OR ISSUE.
The Proxy Voting Policies applicable to AIM Real Estate Fund follow:
GENERAL POLICY
INVESCO Institutional (NA), Inc. and its wholly-owned subsidiaries, and INVESCO Global Asset Management (N.A.), Inc. ("INVESCO") each has responsibility for making investment decisions that are in the best interest of its clients. As part of the investment management services it provides to clients, INVESCO may be authorized by clients to vote proxies appurtenant to the shares for which the clients are beneficial owners.
As a fiduciary, INVESCO believes that it has a duty to manage clients' assets solely in the best interest of the clients and that the ability to vote proxies is a client asset. Accordingly, INVESCO has a duty to vote proxies in a manner in which it believes will add value to the client's investment.
INVESCO is regulated by various state and federal laws, such as the Investment Advisers Act of 1940, the Investment Company Act of 1940, and the Employee Retirement Income Security Act of 1974 ("ERISA"). Because there may be different proxy voting standards for ERISA and non-ERISA clients, INVESCO's policy is to apply the proxy voting policies and procedures described herein to all of its clients. Any discussion herein which refers to an ERISA or non-ERISA situation is used for reference only.
INVESCO may amend its proxy policies and procedures from time to time without prior notice to its clients.
BACKGROUND
ERISA fiduciary standards relating to proxy voting have not been interpreted until more recent times.
Due to the large number of mergers and acquisitions in the 1980s and the growing importance of institutional investors in the equity markets, the Department of Labor ("DOL"), which enforces fiduciary standards for ERISA plan sponsors and managers, took the position that the right to vote shares of stock owned by a pension plan is, in itself, an asset of the plan. Thus, the "Wall Street Rule" of "vote with management (or abstain from voting) or sell the stock" was under scrutiny.
In 1988, the DOL stated, in the "Avon Letter", that the fiduciary act of managing plan assets that are shares of corporate stock includes the voting of proxies appurtenant to those shares of stock. Accordingly, where the authority to manage plan assets has been delegated to an investment manager pursuant to ERISA, no person other than the investment manager has authority to vote proxies appurtenant to such plan assets, except to the extent the named fiduciary has reserved to itself the right to direct a plan trustee regarding the voting of proxies.
In 1990, in the "Monks Letter", the DOL stated that an ERISA violation would occur if the investment manager is explicitly or implicitly assigned the authority to vote proxies appurtenant to certain plan-owned stock and the named fiduciary, trustee or any person other than the investment manager makes the decision on how to vote the same proxies. Thus, according to the DOL, if the investment management contract expressly provides that the investment manager is not required to vote proxies, but does not expressly preclude the investment manager from voting the relevant proxies, the investment manager would have the exclusive fiduciary responsibility for voting the proxies. In contrast, the DOL pointed out that if either the plan document or the investment management contract expressly precludes the investment manager from voting proxies, the responsibility for voting proxies lies exclusively with the trustee.
In 1994, in its Interpretive Bulletin 94-2 ("94-2"), the DOL reiterated and supplemented the Avon and Monks Letters. In addition, 94-2 extended the principles put forth in the Avon and Monks Letters to voting of proxies on shares of foreign corporations. However, the DOL recognized that the cost of exercising a vote on a particular proxy proposal could exceed any benefit that the plan could expect to gain in voting on the proposal. Therefore, the plan fiduciary had to weigh the costs and benefits of voting on proxy proposals relating to foreign securities and make an informed decision with respect to whether voting a given proxy proposal is prudent and solely in the interest of the plan's participants and beneficiaries.
In January 2003, the Securities and Exchange Commission ("SEC") adopted
regulations regarding Proxy Voting by investment advisers (SEC Release No.
IA-2106). These regulations required investment advisers to (1) adopt written
proxy voting policies and procedures which describe how the adviser addresses
material conflicts between its interests and those of its clients with respect
to proxy voting and which also addresses how the adviser resolves those
conflicts in the bet interest of clients; (2) disclose to clients how they can
obtain information from the adviser on how the adviser voted the proxies; and
(3) describe to clients its proxy voting policies and procedure to clients and,
upon request, furnish a copy of them to clients.
PROXY VOTING POLICY
Consistent with the fiduciary standards discussed above, INVESCO will vote proxies unless either the named fiduciary (e.g., the plan sponsor) retains in writing the right to direct the plan trustee or a third party to vote proxies or INVESCO determines that any benefit the client might gain from voting a proxy would be outweighed by the costs associated therewith (i.e., foreign proxies). In voting such proxies, INVESCO will act prudently, taking into consideration those factors that may affect the value of the security and will vote such proxies in a manner in which, in its opinion, is in the best interests of clients.
PROXY COMMITTEE
The INVESCO Proxy Committee will establish guidelines and procedures for voting proxies and will periodically review records on how proxies were voted.
The Proxy Committee will consist of certain of INVESCO's equity investment professionals and non-equity investment professionals.
PROXY MANAGER
The Proxy Committee will appoint a Proxy Manager and/or hire a third-party Proxy Agent to analyze proxies, act as a liaison to the Proxy Committee and manage the proxy voting process, which process includes the voting of proxies and the maintenance of appropriate records.
The Proxy Manager will exercise discretion to vote proxies within the guidelines established by the Proxy Committee. The Proxy Manager will consult with the Proxy Committee in determining how to vote proxies for issues not specifically covered by the proxy voting guidelines adopted by the Proxy Committee or in situations where the Proxy Manager or members of the Committee determine that consultation is prudent.
CONFLICTS OF INTEREST
In effecting our policy of voting proxies in the best interests of our clients, there may be occasions where the voting of such proxies may present an actual or perceived conflict of interest between INVESCO, as the investment manager, and clients.
Some of these potential conflicts of interest situations include, but are not limited to, (1) where INVESCO (or an affiliate) manage assets, administer employee benefit plans, or provides other financial services or products to companies whose management is soliciting proxies and failure to vote proxies in favor of the management of such a company may harm our (or an affiliate's) relationship with the company; (2) where INVESCO (or an affiliate) may have a business relationship, not with the company, but with a proponent of a proxy proposal and where INVESCO (or an affiliate) may manage assets for the proponent; or (3) where INVESCO (or an affiliate) or any member of the Proxy Committee may have personal or business relationships with participants in proxy contests, corporate directors or candidates for corporate directorships, or where INVESCO (or an affiliate) or any member of the Proxy Committee may have a personal interest in the outcome of a particular matter before shareholders.
In order to avoid even the appearance of impropriety, in the event that INVESCO (or an affiliate) manages assets for a company, its pension plan, or related entity or where any member of the Proxy Committee has a personal conflict of interest, and where we have invested clients' funds in that company's shares, the Proxy Committee will not take into consideration this relationship and will vote proxies in that company solely in the best interest of all of our clients.
In addition, members of the Proxy Committee must notify INVESCO's Chief Compliance Officer, with impunity and without fear of retribution or retaliation, of any direct, indirect or perceived improper influence made by anyone within INVESCO or by an affiliated company's representatives with regard to how INVESCO should vote proxies. The Chief Compliance Officer will investigate the allegations and will report his or her findings the INVESCO Management Committee. In the event that it is determined that improper influence was made, the Management Committee will determine the appropriate action to take which may include, but is not limited to, (1) notifying the affiliated company's Chief Executive Officer, its Management Committee or Board of Directors, (2) taking remedial action, if necessary, to correct the result of any improper influence where the clients have been harmed, or (3) notifying the appropriate regulatory agencies of the improper influence and to fully cooperate with these regulatory agencies as required. In all cases, the Proxy Committee shall not take into consideration the improper influence in determining how to vote proxies and will vote proxies solely in the best interest of clients.
Furthermore, members of the Proxy Committee must advise INVESCO's Chief Compliance Officer and fellow Committee members of any actual or potential conflicts of interest he or she may have with regard to how proxies are to be voted regarding certain companies (e.g., personal security ownership in a company, or personal or business relationships with participants in proxy contests, corporate directors or candidates for corporate directorships). After reviewing such conflict, upon advice from the Chief Compliance Officer, the Committee may require such Committee member to recuse
himself or herself from participating in the discussions regarding the proxy vote item and from casting a vote regarding how INVESCO should vote such proxy.
PROXY VOTING PROCEDURES
The Proxy Manager will:
- Vote proxies;
- Take reasonable steps to reconcile proxies received by INVESCO and/or a third-party Proxy Agent who administers the vote with shares held in the accounts;
- Document the vote and rationale for each proxy voted (routine matters are considered to be documented if a proxy is voted in accordance with the Proxy Voting Guidelines established by the Proxy Committee);
- If requested, provide to clients a report of the proxies voted on their behalf.
PROXY VOTING GUIDELINES
The Proxy Committee has adopted the following guidelines in voting proxies:
I. CORPORATE GOVERNANCE
INVESCO will evaluate each proposal separately. However, INVESCO will generally vote FOR a management sponsored proposal unless it believes that adoption of the proposal may have a negative impact on the economic interests of shareholders.
INVESCO will generally vote FOR
- Annual election of directors
- Appointment of auditors
- Indemnification of management or directors or both against negligent or unreasonable action
- Confidentiality of voting
- Equal access to proxy statements
- Cumulative voting
- Declassification of Boards
- Majority of Independent Directors
INVESCO will generally vote AGAINST
- Removal of directors from office only for cause or by a supermajority vote
- "Sweeteners" to attract support for proposals
- Unequal voting rights proposals ("superstock")
- Staggered or classified election of directors
- Limitation of shareholder rights to remove directors, amend by-laws, call special meetings, nominate directors, or other actions to limit or abolish shareholder rights to act independently such as acting by written consent
- Proposals to vote unmarked proxies in favor of management
- Proposals to eliminate existing pre-emptive rights
II. TAKEOVER DEFENSE AND RELATED ACTIONS
INVESCO will evaluate each proposal separately. Generally, INVESCO will vote FOR a management sponsored anti-takeover proposal which (1) enhances management's bargaining position and (2) when combined with other anti-takeover provisions, including state takeover laws, does not discourage serious offers. INVESCO believes that generally four or more anti-takeover measures, which can only be repealed by a super-majority vote, are considered sufficient to discourage serious offers and therefore should be voted AGAINST.
INVESCO will generally vote FOR
- Fair price provisions
- Certain increases in authorized shares and/or creation of new classes of common or preferred stock
- Proposals to eliminate greenmail provisions
- Proposals to eliminate poison pill provisions
- Proposals to re-evaluate or eliminate in-place "shark repellents"
INVESCO will generally vote AGAINST
- Proposals authorizing the company's board of directors to adopt, amend or repeal by-laws without shareholders' approval
- Proposals authorizing the company's management or board of directors to buy back shares at premium prices without shareholders' approval
III. COMPENSATION PLANS
INVESCO will evaluate each proposal separately. INVESCO believes that in order for companies to recruit, promote and retain competent personnel, companies must provide appropriate and competitive compensation plans. INVESCO will generally vote FOR management sponsored compensation plans, which are reasonable, industry competitive and not unduly burdensome to the company in order for the company to recruit, promote and retain competent personnel.
INVESCO will generally vote FOR
- Stock option plans and/or stock appreciation right plans
- Profit incentive plans provided the option is priced at 100% fair market value
- Extension of stock option grants to non-employee directors in lieu of their cash compensation provided the option is priced at or about the then fair market value
- Profit sharing, thrift or similar savings plans
INVESCO will generally vote AGAINST
- Stock option plans that permit issuance of loans to management or selected employees with authority to sell stock purchased by the loan without immediate repayment, or that are overly generous (below market price or with appreciation rights paying the difference between option price and the stock, or permit pyramiding or the directors to lower the purchase price of outstanding options without a simultaneous and proportionate reduction in the number of shares available)
- Incentive plans which become effective in the event of hostile takeovers or mergers (golden and tin parachutes)
- Proposals creating an unusually favorable compensation structure in advance of a sale of the company
- Proposals that fail to link executive compensation to management performance
- Acceleration of stock options/awards if the majority of the board of directors changes within a two year period
- Grant of stock options to non-employee directors in lieu of their cash compensation at a price below 100% fair market value
- Adoption of a stock purchase plan at less than 85% of fair market value
IV. CAPITAL STRUCTURE, CLASSES OF STOCK AND RECAPITALIZATION
INVESCO will evaluate each proposal separately. INVESCO recognizes that from time to time companies must reorganize their capital structure in order to avail themselves of access to the capital markets and in order to restructure their financial position in order to raise capital and to be better capitalized. Generally, INVESCO will vote FOR such management sponsored reorganization proposals if such proposals will help the company gain better access to the capital markets and to attain a better financial position. INVESCO will generally vote AGAINST such proposals that appear to entrench management and do not provide shareholders with economic value.
INVESCO will generally vote FOR
- Proposals to reincorporate or reorganize into a holding company
- Authorization of additional common or preferred shares to accommodate a stock split or other business purposes not related to anti-takeover measures as long as the increase is not excessive and a valid need has been proven
INVESCO will generally vote AGAINST
- Proposals designed to discourage mergers and acquisitions in advance
- Proposals to change state of incorporation to a state less favorable to shareholders' interests
- Reincorporating in another state to implement anti-takeover measures
V. SOCIAL RESPONSIBILITY
INVESCO will evaluate each proposal separately. INVESCO believes that a corporation, if it is in a solid financial position and can afford to do so, has an obligation to return certain largesse to the communities in which it operates. INVESCO believes that the primary mission of a company is to be profitable. However, where a company has proven that it is able to sustain a level of profitability and the market price of the company's shares reflect an appropriate economic value for such shares, INVESCO will generally vote FOR certain social responsibility initiatives. INVESCO will generally vote AGAINST proposed social responsibility initiatives if it believes that the company already has adequate policies and procedures in place and it should focus its efforts on enhancing shareholder value where the assets and resources involved could be put to better use in obtaining profits.
INVESCO will generally vote FOR
- International Labor Organization Principles
- Resolutions seeking Basic Labor Protections and Equal Employment Opportunity
- Expanding EEO/Social Responsibility Reporting
RECORD KEEPING
The Proxy Manager will take necessary steps to retain proxy voting records for the period of time as required by regulations.
APPENDIX E
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the record and beneficial holders of 5% or more of the outstanding shares of each class of the Trust's equity securities and the percentage of the outstanding shares held by such holders are set forth below. Unless otherwise indicated below, the Trust has no knowledge as to whether all or any portion of the shares owned of record are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding securities of a Fund is presumed to "control" that Fund as defined in the 1940 Act. Such control may affect the voting rights of other shareholders.
All information listed below is as of April 12, 2004
AIM HIGH YIELD FUND
INSTITUTIONAL
CLASS A CLASS B CLASS C INVESTOR CLASS CLASS
SHARES SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
--------------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc.
Special Custody FBO
Customers (SIM) -- -- -- 33.65% --
ATTN: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Citigroup Global Markets House
Acct.
Attn: Cindy Tempesta, 7th Floor -- 7.01% -- -- --
333 West 34th St.
New York, NY 10001-2402
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration -- 7.76% 7.67% -- --
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
National Financial Services Corp
The Exclusive Benefit of Cust
One World Financial Center -- -- -- 5.01% --
200 Liberty Street, 5th Floor
ATTN: Kate Recon
New York, NY 10281-5503
|
AIM INCOME FUND
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
------------------------------------------------------------------------------------------------------------
Airbrush Images Inc. 401K Plan
Daniel E. Henrichs TTEE
850 N FM 3083
Conroe TX 77303-1850 -- -- -- -- 6.08%
Citigroup Global Markets House
Attn: Cindy Tempesta 7th A
333 West 34th Street 5.78% -- -- -- --
New York, NY 10001-2402
Cortina Tool & Molding Co.
Michael Giannelli
912 Tamer Ln. -- -- -- -- 7.36%
Glenview IL 60025-3767
D & L Manufacturing Inc. 401K
PSP
Lee Eslicker TTEE
Omnibus Account -- -- -- 6.20% --
P. O. Box 52427
Tulsa, OK 74152-0427
Charles Schwab & Co. Inc.
Special Custody FBO Customers
(SIM)
ATTN: Mutual Funds -- -- -- -- 14.49%
101 Montgomery Street
San Francisco, CA 94104-4122
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers
Attn: Fund Administration -- 5.51% 7.73% -- --
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Union Bank of Calif TR
Select Benefit Omnibus
12 b 1 Fees -- -- -- -- 6.42%
P.O. Box 85484
San Diego, CA 92186-5484
Reliance Trust Company
Custodian
FBO Continental Products Inc.
401(K) Plan
P.O. Box 48529 -- -- -- 21.20% --
Atlanta, GA 30362-1529
|
AIM INTERMEDIATE GOVERNMENT FUND
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
------------------------------------------------------------------------------------------------------------
Cecille Stell Pulitzer 7/19/91
Cecille Stell Pulitzer TTE U/I
Revoc Trust -- -- -- -- 7.55%
c/o St. Louis Post-Dispatch
900 N. Tucker Blvd
St. Louis, MO 63101-1069
Charles Schwab & Co. Inc.
Special Custody FBO Customers
(SIM) -- -- -- -- 10.44%
ATTN: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
AMVESCAP Nat'l TR CO
TTEE
FBO Big Horn Basin
Orthopedic Clinic PC -- -- -- 14.12% --
401K Profit Sharing Plan
P. O. Box 105779
Atlanta, GA 30348-5779
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers 13.52% 11.24% 20.55% 8.98% --
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
|
AIM LIMITED MATURITY TREASURY FUND
CLASS A CLASS A3 INSTITUTIONAL CLASS
SHARES SHARES SHARES
------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
------------------------------------------------------------------------------------------
ESOR & Co.
Attn: Trust Operations - Lynn Knight
P.O. Box 19006 -- -- 15.07%
Green Bay, WI 54307-9006
|
CLASS A CLASS A3 INSTITUTIONAL CLASS
SHARES SHARES SHARES
------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration 9.33% -- --
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
MUIR & Co.
c/o Frost -- -- 76.69%
P.O. Box 2479
San Antonio, TX 78298-2479
Wachovia Securities, LLC FBC
U.S. Dept of Educ/TGSLC
Attn: Mark Zarsky 5.19% -- --
301 Sundance Dr
Round Rock, TX 78664
|
AIM MONEY MARKET FUND
CASH INVESTOR INSTITUTIONAL
RESERVE CLASS B CLASS C CLASS R CLASS CLASS
SHARES SHARES SHARES SHARES SHARES SHARES
-----------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD
-----------------------------------------------------------------------------------------------------------------------------------
A I M Distributors, Inc.
ATTN: David Hessel
11 E. Greenway Plaza, Ste 100 9.08% -- -- -- -- --
Houston, TX 77046-1113
AMVESCAP National Trust Co. FBO
Equator Technologies, Inc. 401
(K) Retirement Plan -- -- -- 31.52% -- --
P. O. Box 105779
Atlanta, GA 30348-5779
Citigroup Global Markets
House Acct.
Attn: Cindy Tempesta
333 West 34th St., 7th Floor -- 5.35% -- -- -- --
New York, NY 10001-2402
|
AIM MUNICIPAL BOND FUND
CLASS A CLASS B CLASS C INVESTOR CLASS
SHARES SHARES SHARES SHARES
----------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
----------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor -- 8.89% 14.39% --
Jacksonville, FL 32246
Charles Schwab & Co. Inc.
Special Custody FBO Customer
(SIM) -- -- -- 5.85%
ATTN: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Citigroup Global Markets House
Account
Attn: Cindy Tempesta
333 West 34th St., 7th Floor -- 6.94% -- --
New York, NY 10001-2402
|
AIM REAL ESTATE FUND
INSTITUTIONAL
CLASS A CLASS B CLASS C CLASS R INVESTOR CLASS CLASS
SHARES SHARES SHARES SHARES SHARES SHARES
-----------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD
-----------------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co
Inc.
Reinvestment Account 15.39% -- -- -- 11.55% --
101 Montgomery Street
San Francisco, CA
94104-4122
Merrill Lynch Pierce
Fenner & Smith
FBO The Sole Benefit of
Customers -- 5.43% 14.85% -- -- --
Attn: Fund
Administration
4800 Deer Lake Drive
East, 2nd Floor
Jacksonville, FL 32246
|
INSTITUTIONAL
CLASS A CLASS B CLASS C CLASS R INVESTOR CLASS CLASS
SHARES SHARES SHARES SHARES SHARES SHARES
-----------------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD
-----------------------------------------------------------------------------------------------------------------------------------
Citigroup Global Markets
House Acct
Attn: Cindy Tempesta,
7th Floor -- -- 5.60% -- -- --
333 West 34th Street
New York, NY 10001-
2402
|
AIM SHORT TERM BOND FUND
CLASS A SHARES CLASS C SHARES CLASS R SHARES INSTITUTIONAL
----------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD
----------------------------------------------------------------------------
NA NA NA NA
|
AIM TOTAL RETURN BOND FUND
CLASS A CLASS B CLASS C CLASS R INVESTOR
SHARES SHARES SHARES SHARES CLASS SHARES
--------------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
--------------------------------------------------------------------------------------------------------------------
Citigroup Global Markets House
Acct.
Attn: Cindy Tempesta, 7th -- -- 6.35% -- --
Floor
333 West 34th St.
New York, NY 10001-2402
Leslie S. Packer PHD Def Be
Plan
Leslie S. Packer and
Charles Packer TTEEs 5.38% -- --
3961 Brookline Way
Redwood City, CA 94062-
3914
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers -- 5.84% -- -- --
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd
Floor
Jacksonville, FL 32246
|
MANAGEMENT OWNERSHIP
As of April 12, 2004, the trustees and officers as a group owned less than 1% of the outstanding shares of each class of each Fund.
APPENDIX F
MANAGEMENT FEES
For the last three fiscal years ended July 31, the management fees payable by the Fund, the amounts waived by AIM and the net fee paid by the Fund were as follows:
FUND NAME 2003 2002 2001
------------------------------------------------------------------------------------------------------------------------------------
NET NET NET
MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID
------------------------------------------------------------------------------------------------------------------------------------
AIM High
Yield Fund $ 5,533,331 $ (8,331) $ 5,525,000 $ 6,811,857 $ (6,338) $6,805,519 $ 9,230,307 $(835) $9,229,472
AIM Limited
Maturity 1,392,547 N/A 1,392,547 1,200,432 N/A 1,200,432 712,990 N/A 712,990
Treasury Fund
AIM Money 10,145,165 (2,809,789) 7,335,376 9,087,854 N/A 9,087,854 7,202,907 N/A 7,202,907
Market Fund
AIM Real 2,327,770 N/A N/A 903,720 N/A N/A 538,600 N/A N/A
Estate Fund
AIM Short Term 598,592 (761) 597,831 N/A N/A N/A N/A N/A N/A
Bond Fund (1)
AIM Total
Return Bond 306,590 (266,097) 40,493 26,520 (46,520) $ -0- N/A N/A N/A
Fund (2)
|
1 Commenced operations on August 30, 2002.
2 Commenced operations on December 31, 2001.
APPENDIX G
ADMINISTRATIVE SERVICES FEES
The Fund paid AIM the following amounts for administrative services for the last three fiscal years ended July 31:
FUND NAME 2003 2002 2001
-----------------------------------------------------
AIM High Yield Fund $245,247 $205,198 $168,568
AIM Limited Maturity 174,870 122,783 81,565
Treasury Fund
AIM Money Market
Fund 406,127 251,839 150,215
AIM Real Estate Fund 79,487 50,000 50,000
AIM Short Term Bond
Fund (1) 45,890 N/A N/A
AIM Total Return
Bond Fund (2) 50,000 29,178 N/A
|
1 Commenced operations on August 30, 2002.
2 Commenced operations on December 31, 2001.
APPENDIX H
BROKERAGE COMMISSIONS
Brokerage commissions (1) paid by each of the Funds listed below during the last three fiscal years ended July 31 were as follows:
FUND 2003 2002 2001
---- ---- ---- ----
AIM High Yield Fund (2,3) $ 38,526 $ 72,345 $ 3,642
AIM Limited Maturity Treasury Fund -0- -0- -0-
AIM Money Market Fund -0- -0- -0-
AIM Real Estate Fund (4) 1,059,539 441,056 177,266
AIM Short Term Bond Fund (5) -0- N/A N/A
AIM Total Return Bond Fund (6) -0- -0- N/A
|
(1) Disclosure regarding brokerage commissions paid on agency trades and designated as such on the trade confirm.
(2) The variation increase in brokerage commission paid by AIM High Yield Fund for the fiscal year ended July 31, 2002, as compared to the prior fiscal year ended July 31, 2001, was due to an increase in equity trading activity in the funds on which commissions were paid.
(3) The reduced amount in brokerage commissions paid by AIM High Yield Fund for the fiscal year ended July 31, 2003, as compared to the fiscal year ended July 31, 2002, was due to reduced activity in equity trades.
(4) The increase in brokerage commissions paid by AIM Real Estate Fund for the fiscal years ended July 31, 2002 and 2003, as compared to the prior fiscal years, was due to increased asset levels. The investment of additional cash generated more commissions.
(5) Commenced operations on August 30, 2002.
(6) Commenced operations on December 31, 2001.
APPENDIX I
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASE
OF SECURITIES OF REGULAR BROKERS OR DEALERS
During the last fiscal year ended July 31, 2003, none of the Funds, except AIM Real Estate Fund paid directed brokerage commissions. AIM Real Estate Fund allocated the following amount of transactions to broker-dealers that provided AIM with certain research statistics and other information:
Related
Fund Transactions Brokerage Commissions
---- ------------ ---------------------
AIM Real Estate Fund $102,849,945 $209,995
|
During the last fiscal year ended July 31, 2003, none of AIM High Yield Fund, AIM Limited Maturity Treasury Fund, or AIM Real Estate Fund purchased securities of their "regular" brokers or dealers.
During the last fiscal year ended July 31, 2003, the Funds purchased 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 (as of July 31, 2003)
---- -------- ----------------------------------
AIM Money Market Fund
Credit Suisse First Boston Floating Rate Notes $ 33,000,000
Goldman Sachs Group, Inc. Promissory Notes 75,000,000
Merrill Lynch Mortgage Capital, Inc. Master Notes 70,000,000
Morgan Stanley Dean Witter & Co. Master Notes 80,000,000
Goldman Sachs Group, Inc. (The) Promissory Notes $100,000,000
Merrill Lynch Mortgage Capital, Inc. Master Notes 70,000,000
Morgan Stanley Master Notes 95,000,000
AIM Short Term Bond Fund
Bear Stearns & Cos. Inc. (The) Senior Unsecured Global Notes $ 1,914,060
Goldman Sachs Group, Inc. (The) Global Bonds 83,021
Goldman Sachs Group, L.P. Unsecured Notes 1,973,880
Lehman Brothers Holdings Inc. Senior Notes 192,661
Lehman Brothers Inc. Senior Subordinated Debentures 143,869
Lehman Brothers Inc. Senior Unsecured Subordinated Notes 790,580
Merrill Lynch & Co., Inc. Series B. Medium Term Notes 1,016,539
Merrill Lynch & Co., Inc. Series E. Floating Rate Medium Term 400,635
Euro Notes
Morgan Stanley Senior Global Notes 1,157,247
Morgan Stanley Unsecured Notes 324,516
AIM Total Return Bond
Fidelity Investments Bonds $ 215,700
Lehman Brothers Holdings Inc. Notes 62,501
Bear Stearns & Cos. Inc. (The) Senior Unsecured Global Notes $ 20,148
Goldman Sachs Group, Inc. (The) Global Bonds 166,043
Goldman Sachs Group, L.P. Unsecured Notes 164,490
Lehman Brothers Holdings Inc. Senior Notes 275,230
Lehman Brothers Inc. Senior Subordinated Debentures 287,737
Lehman Brothers Inc. Senior Unsecured Subordinated Notes 169,410
|
Merrill Lynch & Co., Inc. Series B. Medium Term Notes 259,595 Morgan Stanley Senior Global Notes 413,303 Morgan Stanley Unsecured Notes 216,344 |
APPENDIX J
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURNS
The average annual total returns (including sales loads) for each Fund, with respect to its Class A shares for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
JANUARY 31, 2004
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM High Yield Fund 23.59 (3.33) 1.63 N/A 07/11/78
AIM Limited Maturity Treasury Fund 0.46 4.39 4.85 N/A 12/15/87
AIM Real Estate Fund 40.21 16.38 N/A 9.63 12/31/96
AIM Total Return Bond Fund 0.93 2.79 N/A 4.59 12/31/01
|
* The returns shown for these periods are the restated historical performance of the Fund's Class C shares (for the periods prior to April 30, 2004) at net asset value and reflect the higher Rule 12b-1 fees applicable to the Class C shares.
** The inception date shown in the table is that of AIM Short Term Bond Fund's Class C shares. The inception date of AIM Short Term Bond Fund's Class A shares is April 30, 2004.
The average annual total return for AIM Cash Reserve Shares of AIM Money Market Fund for the one year period ended January 31, 2004, was 0.55%; for the five year period ended January 31, 2004, was 2.79%; and for the ten year period ended January 31, 2004 was 3.62%.
The average annual total returns (including maximum applicable contingent deferred sales charge) for each Fund, with respect to its Class C shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
JANUARY 31, 2004
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Short Term Bond Fund 3.17 N/A N/A 3.27 08/30/02
|
CUMULATIVE TOTAL RETURNS
The cumulative total returns (including sales load) for each Fund with respect to its Class A shares for the one, five and ten year periods (or since inception, if less than ten years), ended January 31, 2004 are as follows:
PERIODS ENDED
JANUARY 31, 2004
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM High Yield Fund 23.59 (15.59) 17.51 N/A 07/11/78
AIM Limited Maturity Treasury Fund 0.46 23.97 60.55 N/A 12/15/87
AIM Real Estate Fund 40.31 113.51 N/A 91.83 12/31/96
AIM Total Return Bond Fund 0.93 14.76 N/A 9.80 12/31/01
|
* The returns shown for these periods are the restated historical performance of the Fund's Class C shares (for the periods prior to April 30, 2004) at net asset value and reflect the higher Rule 12b-1 fees applicable to the Class C shares.
** The inception date shown in the table is that of AIM Short Term Bond Fund's Class C shares. The inception date of AIM Short Term Bond Fund's Class A shares is April 30, 2004.
The cumulative total returns for AIM Cash Reserves Shares of AIM Money Market Fund for the one-year period ended January 31, 2004 was 0.55%; and for the five-year period ended January 31, 2004 was 14.76%; and for the ten year period ended January 31, 2004 was 42.76%.
The cumulative total returns (including maximum applicable contingent deferred sales charge) for each of the named Funds' Class C shares for the one, five and ten year periods (or since inception, if less than ten years), ended January 31, 2004 are as follows:
PERIODS ENDED
JANUARY 31, 2004
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Short Term Bond Fund 3.17 N/A N/A 4.68 08/30/02
|
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTION)
The average annual total returns (after taxes on distributions and including sales load) for each Fund, with respect to its Class A shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
JANUARY 31, 2004
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM High Yield Fund 20.03 (7.28) (2.36) N/A 07/11/78
AIM Limited Maturity Treasury Fund (0.56) 2.74 2.96 N/A 12/15/87
AIM Real Estate Fund 38.84 14.73 N/A 7.81 12/31/96
AIM Total Return Bond Fund (0.66) N/A N/A 2.97 12/31/01
|
* The returns shown for these periods are the restated historical performance of the Fund's Class C shares (for the periods prior to April 30, 2004) at net asset value and reflect the higher Rule 12b-1 fees applicable to the Class C shares.
** The inception date shown in the table is that of AIM Short Term Bond Fund's Class C shares. The inception date of AIM Short Term Bond Fund's Class A shares is April 30, 2004.
The average annual total returns (after taxes on distributions and including maximum applicable contingent deferred sales charge) for each Fund, with respect to its Class C shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
JANUARY 31, 2004
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Short Term Bond Fund 2.24 N/A N/A 2.30 08/30/02
|
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION)
The average annual total returns (after taxes on distributions and redemption and including sales loads) for each Fund, with respect to its Class A shares, for the one, five and ten year periods (or since inception if less than ten years) ended January 31, 2004 are as follows:
PERIODS ENDED
JANUARY 31, 2004
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM High Yield Fund 15.08 (5.14) (0.99) N/A 07/11/78
AIM Limited Maturity Treasury Fund 0.30 2.71 2.94 N/A 12/15/87
AIM Real Estate Fund 25.98 13.21 N/A 7.12 12/31/96
AIM Total Return Bond Fund 0.58 N/A N/A 2.93 12/31/01
|
PERIODS ENDED
JANUARY 31, 2004
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM Short Term Bond Fund 2.05 N/A N/A 2.21 08/30/02
|
* The returns shown for these periods are the blended returns of the Fund's Investor Class shares since September 30, 2003 and restated historical performance of the Fund's Class A shares (AIM Cash Reserve Shares of AIM Money Market Fund) (for periods prior to September 30, 2003) at the net asset value, and reflect the higher Rule 12b-1 fees applicable to Class A shares.
** The inception date shown is that of the Fund's Class A shares (AIM Cash Reserve Share of AIM Money Market Fund). The inception date of the Fund's Investor Class shares is September 30, 2003.
YIELDS
The 30-day SEC yields for each of the named Funds are as follows:
30 DAYS ENDED
JANUARY 31, 2004
INVESTOR
CLASS A(1) CLASS B CLASS C CLASS R CLASS 2
---------- ------- ------- ------- --------
AIM High Yield Fund 6.32% 5.84% 5.84 N/A N/A
AIM Limited Maturity Treasury Fund 0.77 N/A N/A N/A N/A
AIM Real Estate Fund 1.58 1.04 1.04 N/A 1.77
AIM Short Term Bond Fund N/A N/A 2.50 N/A N/A
AIM Total Return Bond Fund 3.14 2.55 2.55 N/A N/A
|
(1) For Class A3 shares of AIM Limited Maturity Treasury Fund.
(2) Commenced operations on October 1, 2003.
The 7-day annualized yield for AIM Cash Reserve Shares, of AIM Money Market Fund are as follows:
7 DAYS ENDED
JANUARY 31, 2004
----------------
INVESTOR
CASH RESERVE CLASS B CLASS C CLASS R CLASS(1)
---------------- ------- ------- ------- --------
AIM Money Market Fund 0.55% 0.05% 0.30% 0.30% N/A
|
(1) Commenced operations on October 1, 2003.
DISTRIBUTION RATES
The distribution rates at offering price for each of the named Funds are as follows:
30 DAYS ENDED
JANUARY 31, 2004
----------------
INVESTOR
30-DAY: CLASS A (1) CLASS B CLASS C CLASS R CLASS
---------------- ------- ------- ------- --------
AIM High Yield Fund 7.64% 7.29% 7.22% N/A N/A
AIM Limited Maturity Treasury Fund N/A N/A N/A N/A N/A
AIM Municipal Bond Fund 4.17 3.64 3.65 N/A 4.38
AIM Total Return Bond Fund 3.25 2.67 2.67 N/A N/A
|
(1) For Class A3 shares of AIM Limited Maturity Treasury Fund.
(2) Commenced operations on October 1, 2003.
90 DAYS ENDED
JANUARY 31, 2004
----------------
INVESTOR
90-DAY: CLASS A CLASS B CLASS C CLASS
---------------- ------- ------- --------
AIM Real Estate Fund 2.49% 2.01% 2.01% 2.71%
|
12 MONTHS ENDED
JANUARY 31, 2004
----------------
12-MONTH: CLASS A (1) CLASS B CLASS C CLASS R
---------------- ------- ------- -------
AIM High Yield Fund 7.40% 7.07% 7.10% N/A
AIM Limited Maturity Treasury Fund 1.13 N/A N/A N/A
AIM Short Term Bond Fund(2) N/A N/A 2.63 N/A
AIM Total Return Bond Fund 3.49 2.92 2.92 N/A
|
(1) For Class A3 shares of AIM Limited Maturity Treasury Fund.
(2) Commenced operations on August 30, 2002.
APPENDIX K
PENDING LITIGATION
The following civil lawsuits, including purported class action and shareholder derivative suits, involving one or more AIM or INVESCO Funds, AMVESCAP PLC ("AMVESCAP"), A I M Advisors, Inc. ("AIM") or INVESCO Funds Group, Inc. ("INVESCO") and certain related parties either have been served or have had service of process waived as of March 18, 2004.
MIKE SAYEGH, ON BEHALF OF THE GENERAL PUBLIC, v. JANUS CAPITAL CORPORATION, JANUS CAPITAL MANAGEMENT LLC, JANUS INVESTMENT FUND, EDWARD J. STERN, CANARY CAPITAL PARTNERS LLC, CANARY INVESTMENT MANAGEMENT LLC, CANARY CAPITAL PARTNERS LTD., KAPLAN & CO. SECURITIES
INC., BANK ONE CORPORATION, BANC ONE INVESTMENT ADVISORS, THE ONE GROUP
MUTUAL FUNDS, BANK OF AMERICA CORPORATION, BANC OF AMERICA CAPITAL
MANAGEMENT LLC, BANC OF AMERICA ADVISORS LLC, NATIONS FUND INC., ROBERT
H. GORDON, THEODORE H. SIHPOL III, CHARLES D. BRYCELAND, SECURITY TRUST
COMPANY, STRONG CAPITAL MANAGEMENT INC., JB OXFORD & COMPANY, ALLIANCE
CAPITAL MANAGEMENT HOLDING L.P., ALLIANCE CAPITAL MANAGEMENT L.P.,
ALLIANCE CAPITAL MANAGEMENT CORPORATION, AXA FINANCIAL INC.,
ALLIANCEBERNSTEIN REGISTRANTS, GERALD MALONE, CHARLES SCHAFFRAN, MARSH
& MCLENNAN COMPANIES, INC., PUTNAM INVESTMENTS TRUST, PUTNAM INVESTMENT
MANAGEMENT LLC, PUTNAM INVESTMENT FUNDS, AND DOES 1-500, in the
Superior Court of the State of California, County of Los Angeles (Case
No. BC304655), filed on October 22, 2003 and amended on December 17,
2003 to substitute INVESCO Funds Group, Inc. and Raymond R. Cunningham
for unnamed Doe defendants. This claim alleges unfair business
practices and violations of Sections 17200 and 17203 of the California
Business and Professions Code. The plaintiff in this case is seeking:
injunctive relief; restitution, including pre-judgment interest; an
accounting to determine the amount to be returned by the defendants and
the amount to be refunded to the public; the creation of an
administrative process whereby injured customers of the defendants
receive their losses; and counsel fees.
RAJ SANYAL, DERIVATIVELY ON BEHALF OF NATIONS INTERNATIONAL EQUITY FUND, v. WILLIAM P. CARMICHAEL, WILLIAM H. GRIGG, THOMAS F. KELLER, CARL E. MUNDY, JR., CORNELIUS J. PINGS, A. MAX WALKER, CHARLES B. WALKER, EDMUND L. BENSON, III, ROBERT H. GORDON, JAMES B. SOMMERS, THOMAS S. WORD, JR., EDWARD D. BEDARD, GERALD MURPHY, ROBERT B.
CARROLL, INVESCO GLOBAL ASSET MANAGEMENT, PUTNAM INVESTMENT MANAGEMENT,
BANK OF AMERICA CORPORATION, MARSICO CAPITAL MANAGEMENT, LLC, BANC OF
AMERICA ADVISORS, LLC, BANC OF AMERICA CAPITAL MANAGEMENT, LLC, AND
NATIONS FUNDS TRUST, in the Superior Court Division, State of North
Carolina (Civil Action No. 03-CVS-19622), filed on November 14, 2003.
This claim alleges common law breach of fiduciary duty; abuse of
control; gross mismanagement; waste of fund assets; and unjust
enrichment. The plaintiff in this case is seeking: injunctive relief,
including imposition of a constructive trust; damages; restitution and
disgorgement; and costs and expenses, including counsel fees and expert
fees.
L. SCOTT KARLIN, DERIVATIVELY ON BEHALF OF INVESCO FUNDS GROUP, INC. v.
AMVESCAP, PLC, INVESCO, INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, AND CANARY CAPITAL PARTNERS, LTD., in the
United States District Court, District of Colorado (Civil Action No.
03-MK-2406), filed on November 28, 2003. This claim alleges violations
of Section 36(b) of the Investment Company Act of 1940, as amended
("Investment Company Act"), and common law
breach of fiduciary duty. The plaintiff in this case is seeking damages and costs and expenses, including counsel fees and expert fees.
RICHARD RAVER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC, AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC.,
AMVESCAP PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND,
INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 03-F-2441), filed on December 2,
2003. This claim alleges violations of: Sections 11 and 15 of the
Securities Act; Sections 10(b) and 20(a) of the Securities Exchange
Act; Rule 10b-5 under the Exchange Act; and Sections 34(b), 36(a) and
36(b) of the Investment Company Act. The claim also alleges common law
breach of fiduciary duty. The plaintiffs in this case are seeking:
damages; pre-judgment and post-judgment interest; counsel fees and
expert fees; and other relief.
JERRY FATTAH, CUSTODIAN FOR BASIM FATTAH, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, v. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S MONEY MARKET RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE FUND, AIM INVESCO U.S. GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO, INVESCO LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND
JOHN DOES 1-100, in the United States District Court, District of Colorado (Civil Action No. 03-F-2456), filed on December 4, 2003. This claim alleges violations of: Sections 11 and 15 of Securities Act of 1933, as amended (the "Securities Act"); Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); Rule 10b-5 under the Exchange Act; and Section 206 of the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The plaintiffs in this case are seeking: compensatory damages; rescission; return of fees paid; accounting for wrongfully gotten gains, profits and compensation; restitution and disgorgement; and other costs and expenses, including counsel fees and expert fees.
EDWARD LOWINGER AND SHARON LOWINGER, INDIVIDUALLY AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED, v. INVESCO ADVANTAGE HEALTH SCIENCES FUND,
INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND
(FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE
FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM
MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO
TREASURER'S MONEY MARKET RESERVE FUND, AIM INVESCO TREASURER'S
TAX-EXEMPT RESERVE FUND, AIM INVESCO U.S. GOVERNMENT MONEY FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND,
INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO
U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO; INVESCO
LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"),
AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM
BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY
MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS
THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP,
INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J.
STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL
PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL
PARTNERS, LTD., AND JOHN DOES 1-100, in the United States District
Court, Southern District of New York (Civil Action No. 03-CV-9634),
filed on December 4, 2003. This claim alleges violations of: Sections
11 and 15 of the Securities Act; Sections 10(b) and 20(a) of the
Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206 of the
Advisers Act. The plaintiffs in this case are seeking: compensatory
damages; rescission; return of fees paid; accounting for wrongfully
gotten gains, profits and compensation; restitution and disgorgement;
and other costs and expenses, including counsel fees and expert fees.
JOEL GOODMAN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO FUNDS GROUP, INC. AND RAYMOND R. CUNNINGHAM, in
the District Court, City and County of Denver, Colorado (Case Number
03CV9268), filed on December 5, 2003. This claim alleges breach of
fiduciary duty and aiding and abetting breach of fiduciary duty. The
plaintiffs in this case are seeking: injunctive relief; accounting for
all damages and for all profits and any special benefits obtained;
disgorgement; restitution and damages; costs and disbursements,
including counsel fees and expert fees; and equitable relief.
STEVEN B. EHRLICH, CUSTODIAN FOR ALEXA P. EHRLICH, UGTMA/FLORIDA, AND DENNY P. JACOBSON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
v. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND,
INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES
FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS
INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500
INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND,
INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET
FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURERS MONEY
MARKET RESERVE FUND, AIM INVESCO TREASURERS TAX-EXEMPT RESERVE FUND,
AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO
BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO
HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE BOND
FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN GROWTH FUND
(COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM
COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS
REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC., TIMOTHY MILLER,
RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA
INC., BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN
DOES 1-100, in the United States District Court, District of Colorado
(Civil Action No. 03-N-2559), filed on December 17, 2003. This claim
alleges violations of: Sections 11 and 15 of the Securities Act;
Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5 under the
Exchange Act; and Section 206 of the Advisers Act. The plaintiffs in
this case are seeking: compensatory damages; rescission; return of fees
paid; accounting for wrongfully gotten gains, profits and compensation;
restitution and disgorgement; and other costs and expenses, including
counsel fees and expert fees.
JOSEPH R. RUSSO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, v. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURERS MONEY MARKET RESERVE FUND, AIM INVESCO TREASURERS TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY
KNOWN AS THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS
GROUP, INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD
J. STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY
CAPITAL PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY
CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in the United States
District Court, Southern District of New York (Civil Action No.
03-CV-10045), filed on December 18, 2003. This claim alleges violations
of: Sections 11 and 15 of the Securities Act; Sections 10(b) and 20(a)
of the Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206
of the Advisers Act. The plaintiffs in this case are seeking:
compensatory damages; rescission; return of fees paid; accounting for
wrongfully gotten gains, profits and compensation; restitution and
disgorgement; and other costs and expenses, including counsel fees and
expert fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. AMVESCAP PLC, AVZ, INC., AMVESCAP RETIREMENT, INC.,
AMVESCAP NATIONAL TRUST COMPANY, ROBERT F. MCCULLOUGH, GORDON NEBEKER,
JEFFREY G. CALLAHAN, INVESCO FUNDS GROUP, INC., RAYMOND R. CUNNINGHAM,
AND DOES 1-100, in the United States District Court, District of
Colorado (Civil Action No. 03-M-2604), filed on December 24, 2003. This
claim alleges violations of: Sections 404, 405 and 406B of the Employee
Retirement Income Security Act ("ERISA"). The plaintiffs in this case
are seeking: declarations that the defendants breached their ERISA
fiduciary duties and that they are not entitled to the protection of
Section 404(c)(1)(B) of ERISA; an order compelling the defendants to
make good all losses to a particular retirement plan described in this
case (the "Retirement Plan") resulting from the defendants' breaches of
their fiduciary duties, including losses to the Retirement Plan
resulting from imprudent investment of the Retirement Plan's assets,
and to restore to the Retirement Plan all profits the defendants made
through use of the Retirement Plan's assets, and to restore to the
Retirement Plan all profits which the participants would have made if
the defendants had fulfilled their fiduciary obligations; damages on
behalf of the Retirement Plan; imposition of a constructive trust,
injunctive relief, damages suffered by the Retirement Plan, to be
allocated proportionately to the participants in the Retirement Plan;
restitution and other costs and expenses, including counsel fees and
expert fees.
PAT B. GORSUCH AND GEORGE L. GORSUCH v. INVESCO FUNDS GROUP, INC. AND
AIM ADVISER, INC., in the United States District Court, District of
Colorado (Civil Action No. 03-MK-2612), filed on December 24, 2003.
This claim alleges violations of: Sections 15(a), 20(a) and 36(b) of
the Investment Company Act. The plaintiffs in this case are seeking:
rescission and/or voiding of the investment advisory agreements; return
of fees paid; damages; and other costs and expenses, including counsel
fees and expert fees.
LORI WEINRIB, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO FUNDS GROUP, INC., AIM STOCK FUNDS, AIM COUNSELOR
SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC., AMVESCAP PLC, TIMOTHY MILLER, RAYMOND
CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA INC., BREAN
MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in
the United States District Court, Southern District of New York (Civil
Action No. 04-CV-00492), filed on January 21, 2004. This claim alleges
violations of: Sections 11 and 15 of the 1933 Act; Sections 10(b) and
20(a) of the Exchange Act; Rule 10b-5 under the Exchange Act; and
Section 206 of the Advisers Act. The plaintiffs in this case are
seeking: compensatory damages; rescission; return of fees paid;
accounting for wrongfully gotten gains, profits and compensation; restitution and disgorgement; and other costs and expenses, including counsel fees and expert fees.
ROBERT S. BALLAGH, JR., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED, v. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS,
INC., AIM MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS,
INC., AMVESCAP PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO
CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND,
INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0152), filed on January
28, 2004. This claim alleges violations of: Sections 11 and 15 of the
Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule
10b-5 under the Exchange Act; and Sections 34(b), 36(a) and 36(b) of
the Investment Company Act. The claim also alleges common law breach of
fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees;
and other relief.
JONATHAN GALLO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC.,
AMVESCAP PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND,
INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0151), filed on January
28, 2004. This claim alleges violations of: Sections 11 and 15 of the
Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule
10b-5 under the Exchange Act; and Sections 34(b), 36(a) and 36(b) of
the Investment Company Act. The claim also alleges common law breach of
fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees;
and other relief.
EILEEN CLANCY, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, v. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY
KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND,
INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P
500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY
MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S
MONEY MARKET RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE
FUND, AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND,
INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND,
INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL
ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE
BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, INVESCO, INVESCO LATIN AMERICAN
GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK
FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND
FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET
FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE
"INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC.,
TIMOTHY MILLER, RAYMOND CUNNINGHAM AND THOMAS KOLBE, in the United
States District Court, Southern District of New York (Civil Action No.
04-CV-0713), filed on January 30, 2004. This claim alleges violations
of: Sections 11 and 15 of the Securities Act. The plaintiffs in this
case are seeking: compensatory damages, rescission; return of fees
paid; and other costs and expenses, including counsel fees and expert
fees.
CARL E. VONDER HAAR AND MARILYN P. MARTIN, ON BEHALF OF THEMSELVES AND
ALL OTHERS SIMILARLY SITUATED, v. INVESCO FUNDS GROUP, INC., INVESCO
STOCK FUNDS, INC. AND DOE DEFENDANTS 1-100, in the United States
District Court, District of Colorado (Civil Action No. 04-CV-812),
filed on February 5, 2004. The claim alleges common law breach of
fiduciary duty; breach of contract; and tortious interference with
contract. The plaintiffs in this case are seeking: injunctive relief;
damages; disgorgement; and costs and expenses, including counsel fees
and expert fees.
HENRY KRAMER, DERIVATIVELY ON BEHALF OF INVESCO ENERGY FUND, INVESCO
STOCK FUNDS, INC., AND INVESCO MUTUAL FUNDS v. AMVESCAP, PLC, INVESCO
FUNDS GROUP, INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, AND CANARY CAPITAL PARTNERS, LTD., DEFENDANTS, AND
INVESCO ENERGY FUND, INVESCO STOCK FUNDS, INC., AND INVESCO MUTUAL
FUNDS, NOMINAL DEFENDANTS, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0397), filed on March 4,
2004. This claim alleges violations of Section 36(b) of the Investment
Company Act and common law breach of fiduciary duty. The plaintiff in
this case is seeking damages and costs and expenses, including counsel
fees and expert fees.
Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be served or filed against the funds, INVESCO, AIM, AMVESCAP and related entities and individuals in the future. This statement of additional information will be supplemented periodically if any such lawsuits do arise.
FINANCIAL STATEMENTS
PURSUANT TO RULE 3-03(d) OF REGULATION S-X UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JANUARY 31, 2004, FOR REGISTRANT'S PORTFOLIOS HAVE BEEN INCLUDED IN ADDITION TO THE PORTFOLIOS' AUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JULY 31, 2003. SUCH FINANCIAL STATEMENTS REFLECT ALL ADJUSTMENTS WHICH ARE OF A NORMAL RECURRING NATURE AND WHICH ARE, IN THE OPINION OF MANAGEMENT, NECESSARY TO A FAIR STATEMENT OF THE RESULTS FOR THE PERIODS PRESENTED.
F-S
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM High Yield Fund and the 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, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM High Yield Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP September 10, 2003
FS-1
FINANCIALS
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
BONDS & NOTES-97.26%
AEROSPACE & DEFENSE-0.94%
Hexcel Corp.,
Sr. Sec. Notes, 9.88%, 10/01/08
(Acquired 03/07/03; Cost $816,354)(a) $ 825,000 $ 895,125
---------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 9.75%, 01/15/09 6,870,000 6,870,000
---------------------------------------------------------------------------
Orbital Sciences Corp., Sr. Notes, 9.00%,
07/15/11 (Acquired 07/02/03; Cost
$2,945,000)(a) 2,945,000 2,989,175
===========================================================================
10,754,300
===========================================================================
AIRLINES-1.66%
Delta Air Lines, Inc.,
Series C, Medium Term Notes, 6.65%,
03/15/04 4,415,000 4,216,325
---------------------------------------------------------------------------
Unsec. Notes, 7.90%, 12/15/09 9,225,000 7,057,125
---------------------------------------------------------------------------
Northwest Airlines Inc.,
Sr. Unsec. Gtd. Notes, 8.88%, 06/01/06 3,840,000 2,860,800
---------------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes, 8.52%, 04/07/04 5,300,000 4,955,500
===========================================================================
19,089,750
===========================================================================
ALTERNATIVE CARRIERS-0.31%
LCI International, Inc., Sr. Notes, 7.25%,
06/15/07 4,825,000 3,546,375
===========================================================================
APPAREL RETAIL-0.41%
Mothers Work, Inc., Sr. Unsec. Gtd. Notes,
11.25%, 08/01/10 4,330,000 4,741,350
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.44%
Perry Ellis International Inc.-Series B, Sr.
Sec. Notes, 9.50%, 03/15/09 1,890,000 1,975,050
---------------------------------------------------------------------------
Phillips-Van Heusen Corp., Sr. Notes, 8.13%,
05/01/13 (Acquired 04/30/03; Cost
$1,855,000)(a) 1,855,000 1,892,100
---------------------------------------------------------------------------
Russell Corp., Sr. Unsec. Gtd. Global Notes,
9.25%, 05/01/10 4,735,000 5,090,125
---------------------------------------------------------------------------
Warnaco Inc., Sr. Notes, 8.88%, 06/15/13
(Acquired 06/05/03-07/07/03; Cost
$2,913,400)(a) 2,875,000 2,982,812
---------------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr. Unsec.
Gtd. Sub. Global Notes, 10.88%, 08/15/11 4,115,000 4,629,375
===========================================================================
16,569,462
===========================================================================
AUTO PARTS & EQUIPMENT-0.90%
Dura Operating Corp.-Series B, Sr. Unsec.
Gtd. Global Notes, 8.63%, 04/15/12 460,000 476,100
---------------------------------------------------------------------------
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%,
03/15/07(b)(c)(d) 26,310,000 3
---------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT-(CONTINUED)
Tenneco Automotive Inc.,
Series B, Sr. Unsec. Gtd. Sub. Notes,
11.63%, 10/15/09 $ 3,690,000 $ 3,247,200
---------------------------------------------------------------------------
Sr. Sec. Second Lien Notes, 10.25%,
07/15/13 (Acquired 06/10/03; Cost
$2,920,000)(a) 2,920,000 2,934,600
---------------------------------------------------------------------------
TRW Automotive Inc., Sr. Notes, 9.38%,
02/15/13 (Acquired 02/06/03; Cost
$3,380,000)(a) 3,380,000 3,734,900
===========================================================================
10,392,803
===========================================================================
AUTOMOBILE MANUFACTURERS-0.05%
General Motors Corp., Sr. Unsec. Global
Notes, 7.13%, 07/15/13 610,000 587,467
===========================================================================
BROADCASTING & CABLE TV-13.68%
Adelphia Communications Corp.,
Series B, Sr. Unsec. Notes, 9.88%,
03/01/07(b)(d) 4,220,000 2,795,750
---------------------------------------------------------------------------
Sr. Unsec. Notes, 10.88%, 10/01/10(b)(d) 15,970,000 10,580,125
---------------------------------------------------------------------------
Allbritton Communications Co., Sr. Unsec.
Sub. Global Notes, 7.75%, 12/15/12 1,675,000 1,666,625
---------------------------------------------------------------------------
Avalon Cable LLC, Sr. Disc. Notes, 11.88%,
12/01/08(e) 2,715,000 2,674,275
---------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp.,
Sr. Unsec. Sub. Disc. Notes,
9.92%, 04/01/11(e) 16,215,000 11,512,650
---------------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 11.13%,
01/15/11 9,655,000 7,917,100
---------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr.
Unsec. Yankee Deb.,
11.20%, 11/15/07(e) 8,135,000 8,053,650
---------------------------------------------------------------------------
DirecTV Holdings LLC, Sr. Notes, 8.38%,
03/15/13 (Acquired 02/25/03; Cost
$5,795,000)(a) 5,795,000 6,417,962
---------------------------------------------------------------------------
Granite Broadcasting Corp., Sr. Sub. Notes,
10.38%, 05/15/05 3,923,000 3,903,385
---------------------------------------------------------------------------
Insight Midwest, L.P./Insight Capital Inc.,
Sr. Unsec. Global Notes, 10.50%, 11/01/10 6,865,000 7,414,200
---------------------------------------------------------------------------
Knology, Inc., Sr. Unsec. PIK Notes, 12.00%,
11/30/09 (Acquired 01/06/98-05/15/03; Cost
$18,357,943)(a) 11,048,225 9,501,473
---------------------------------------------------------------------------
LBI Media Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.13%, 07/15/12 5,810,000 6,361,950
---------------------------------------------------------------------------
Mediacomm LLC/Mediacomm Capital Corp., Sr.
Unsec. Notes, 9.50%, 01/15/13 8,820,000 8,775,900
---------------------------------------------------------------------------
Nextmedia Operating Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.75%, 07/01/11 4,865,000 5,375,825
---------------------------------------------------------------------------
|
FS-2
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Pegasus Communications Corp.-Series B,
Sr. Notes, 9.63%, 10/15/05 $10,010,000 $ 9,209,200
---------------------------------------------------------------------------
Sr. Unsec. Notes, 12.50%, 08/01/07 11,960,000 11,063,000
---------------------------------------------------------------------------
Pegasus Media & Communications Inc.- Series
B, Sr. Sub. Notes, 12.50%, 07/01/05 8,745,000 8,788,725
---------------------------------------------------------------------------
Salem Communications Holding Corp.-Series B,
Sr. Unsec. Gtd. Sub. Global Notes, 9.00%,
07/01/11 5,495,000 5,852,175
---------------------------------------------------------------------------
Spanish Broadcasting System, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 9.63%, 11/01/09 6,669,000 7,169,175
---------------------------------------------------------------------------
United Pan-Europe Communications N.V.
(Netherlands)-Series B, Sr. Unsec. Yankee Notes,
11.25%, 02/01/10(b)(d) 13,665,000 4,321,556
---------------------------------------------------------------------------
11.50%, 02/01/10(b)(d) 8,850,000 2,820,937
---------------------------------------------------------------------------
XM Satellite Radio Inc., Sr. Sec. Notes,
12.00%, 06/15/10 (Acquired 06/12/03-
07/22/03; Cost $11,252,700)(a) 11,260,000 11,203,700
---------------------------------------------------------------------------
Young Broadcasting Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes,
8.75%, 06/15/07 2,870,000 2,898,700
---------------------------------------------------------------------------
9.00%, 01/15/06 970,000 979,700
===========================================================================
157,257,738
===========================================================================
BUILDING PRODUCTS-1.15%
Associated Materials Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 9.75%, 04/15/12 1,930,000 2,007,200
---------------------------------------------------------------------------
Building Materials Corp., Sr. Unsec. Gtd.
Notes, 8.00%, 12/01/08 5,800,000 5,466,500
---------------------------------------------------------------------------
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 8,085,000 5,699,925
===========================================================================
13,173,625
===========================================================================
CASINOS & GAMING-0.97%
Herbst Gaming, Inc.-Series B, Sr. Sec. Global
Notes, 10.75%, 09/01/08 4,745,000 5,255,087
---------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Global Notes, 8.00%, 04/01/12 1,470,000 1,572,900
---------------------------------------------------------------------------
Venetian Casino Resort, LLC, Sec. Gtd.
Mortgage Global Notes, 11.00%, 06/15/10 3,905,000 4,344,312
===========================================================================
11,172,299
===========================================================================
COMMODITY CHEMICALS-1.25%
Equistar Chemicals L.P./Equistar Funding Corp.,
Sr. Unsec. Gtd. Global Notes, 10.13%, 09/01/08 7,275,000 7,311,375
---------------------------------------------------------------------------
ISP Chemco Inc.-Series B, Sr. Unsec. Gtd.
Sub. Global Notes, 10.25%, 07/01/11 3,840,000 4,320,000
---------------------------------------------------------------------------
Methanex Corp. (Canada), Sr. Unsec. Notes,
8.75%, 08/15/12 2,420,000 2,698,300
===========================================================================
14,329,675
===========================================================================
COMMUNICATIONS EQUIPMENT-0.47%
Nortel Network Ltd. (Canada), Sr. Global
Notes, 6.13%, 02/15/06 2,255,000 2,159,162
---------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Nortel Networks Corp. (Canada), Sr. Unsec.
Gtd. Conv. Global Notes, 4.25%, 09/01/08 $ 3,860,000 $ 3,247,225
===========================================================================
5,406,387
===========================================================================
COMPUTER STORAGE & PERIPHERALS-0.05%
Seagate Technology Hdd Holdings, Sr. Unsec.
Gtd. Global Notes, 8.00%, 05/15/09 480,000 520,800
===========================================================================
CONSTRUCTION & ENGINEERING-0.47%
Schuff Steel Co., Sr. Unsec. Gtd. Notes,
10.50%, 06/01/08 7,185,000 5,424,675
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.89%
Case New Holland Inc., Sr. Notes, 9.25%,
08/01/11 (Acquired 07/29/03; Cost
$2,899,457)(a) 2,940,000 2,883,199
---------------------------------------------------------------------------
Terex Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 07/15/11 6,835,000 7,313,450
===========================================================================
10,196,649
===========================================================================
DEPARTMENT STORES-1.03%
JC Penney Co. Inc.,
Sr. Unsec. Notes, 8.00%, 03/01/10 4,825,000 4,921,500
---------------------------------------------------------------------------
Unsec. Notes, 7.60%, 04/01/07 6,755,000 6,923,875
===========================================================================
11,845,375
===========================================================================
DISTILLERS & VINTNERS-0.11%
Constellation Brands, Inc.-Series B, Sr. Gtd.
Sub. Notes, 8.13%, 01/15/12 1,220,000 1,287,100
===========================================================================
DIVERSIFIED CHEMICALS-0.98%
FMC Corp., Sr. Sec. Global Notes, 10.25%,
11/01/09 2,250,000 2,508,750
---------------------------------------------------------------------------
Huntsman International LLC,
Sr. Notes, 9.88%, 03/01/09
(Acquired 04/03/03; Cost $1,020,925)(a) 970,000 979,700
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 9.88%,
03/01/09 7,690,000 7,766,900
===========================================================================
11,255,350
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.99%
United Rentals North America Inc.,
Series B, Sr. Unsec. Gtd. Global Notes,
10.75%, 04/15/08 5,455,000 5,891,400
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 10.75%, 04/15/08
(Acquired 12/17/02; Cost $2,838,566)(a) 2,925,000 3,159,000
---------------------------------------------------------------------------
Wackenhut Corrections Corp., Sr. Notes,
8.25%, 07/15/13 (Acquired 07/01/03; Cost
$2,230,000)(a) 2,230,000 2,330,350
===========================================================================
11,380,750
===========================================================================
|
FS-3
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
DIVERSIFIED METALS & MINING-0.30%
Wolverine Tube, Inc., Sr. Notes, 7.38%,
08/01/08 (Acquired 03/18/03-06/04/03; Cost
$3,516,269)(a) $ 3,650,000 $ 3,449,250
===========================================================================
DRUG RETAIL-1.08%
Rite Aid Corp.,
Sr. Notes, 9.25%, 06/01/13
(Acquired 05/13/03-06/10/03;
Cost $9,555,682)(a) 9,720,000 9,598,500
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 7.13%, 01/15/07 2,895,000 2,829,862
===========================================================================
12,428,362
===========================================================================
ELECTRIC UTILITIES-2.60%
CMS Energy Corp.,
Sr. Notes, 7.75%, 08/01/10
(Acquired 07/09/03; Cost $1,090,281)(a) 1,105,000 1,055,275
---------------------------------------------------------------------------
Sr. Unsec. Notes, 7.63%, 11/15/04 1,935,000 1,944,675
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08 4,140,000 4,181,400
---------------------------------------------------------------------------
Dynegy Holdings Inc., Sr. Unsec. Unsub.
Notes,
8.13%, 03/15/05 9,605,000 9,749,075
---------------------------------------------------------------------------
8.75%, 02/15/12 1,935,000 1,625,400
---------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08 12,050,000 6,205,750
---------------------------------------------------------------------------
Orion Power Holdings, Inc., Sr. Unsec. Global
Notes, 12.00%, 05/01/10 2,905,000 3,355,275
---------------------------------------------------------------------------
PG&E Corp., Sr. Sec. Notes, 6.88%, 07/15/08
(Acquired 06/27/03; Cost $1,735,000)(a) 1,735,000 1,768,538
===========================================================================
29,885,388
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.88%
Midwest Generation LLC-Series B., Global
Asset-Backed Pass Through Ctfs., 8.56%,
01/02/16 7,660,000 7,238,700
---------------------------------------------------------------------------
Thomas & Betts Corp., Sr. Unsec. Notes,
7.25%, 06/01/13 2,885,000 2,892,212
===========================================================================
10,130,912
===========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.85%
Flextronics International Ltd. (Singapore),
Sr. Unsec. Sub. Yankee Notes, 9.88%,
07/01/10 3,930,000 4,264,050
---------------------------------------------------------------------------
Sanmina-SCI Corp., Sr. Gtd. Sec. Global
Notes, 10.38%, 01/15/10 4,830,000 5,518,275
===========================================================================
9,782,325
===========================================================================
ENVIRONMENTAL SERVICES-0.82%
Allied Waste North America Inc.,
Sr. Sec. Gtd. Global Notes, 9.25%, 09/01/12 4,000,000 4,390,000
---------------------------------------------------------------------------
Sr. Sec. Gtd. Sub. Global Notes, 8.50%,
12/01/08 4,750,000 5,035,000
===========================================================================
9,425,000
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS-0.49%
IMC Global Inc., Sr. Notes, 10.88%, 08/01/13
(Acquired 07/18/03; Cost $5,440,982)(a) $ 5,540,000 $ 5,623,100
===========================================================================
FOOD RETAIL-0.70%
Ahold Finance USA Inc., Sr. Unsec. Gtd.
Unsub. Notes, 8.25%, 07/15/10 2,900,000 2,885,500
---------------------------------------------------------------------------
Ahold Lease USA, Inc.-Series 2001, Class A-1,
Gtd. Disc. Asset-Backed Pass Through Ctfs.,
7.82%, 01/02/20 5,612,905 5,191,937
===========================================================================
8,077,437
===========================================================================
FOREST PRODUCTS-1.51%
Georgia-Pacific Corp.,
Sr. Notes, 7.38%, 07/15/08
(Acquired 05/21/03; Cost $3,850,000)(a) 3,850,000 3,830,750
---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.88%, 02/01/10 (Acquired
01/23/03; Cost $5,285,952)(a) 5,320,000 5,559,400
---------------------------------------------------------------------------
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Yankee Notes, 9.88%, 05/15/08 7,680,000 7,987,200
===========================================================================
17,377,350
===========================================================================
GAS UTILITIES-0.34%
SEMCO Energy, Inc., Sr. Notes,
7.13%, 05/15/08 (Acquired 05/14/03; Cost
$2,885,000)(a) 2,885,000 2,928,275
---------------------------------------------------------------------------
7.75%, 05/15/13 (Acquired 05/14/03; Cost
$960,000)(a) 960,000 974,400
===========================================================================
3,902,675
===========================================================================
GENERAL MERCHANDISE STORES-0.91%
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 10/15/07 10,100,000 10,453,500
===========================================================================
HEALTH CARE DISTRIBUTORS-0.27%
AmerisourceBergen Corp., Sr. Unsec. Gtd.
Global Notes, 7.25%, 11/15/12 2,900,000 3,052,250
===========================================================================
HEALTH CARE EQUIPMENT-0.87%
Medex, Inc., Sr. Sub. Notes, 8.88%, 05/15/13
(Acquired 05/14/03-07/09/03; Cost
$2,793,400)(a) 2,725,000 2,861,250
---------------------------------------------------------------------------
Medquest Inc.-Series B, Sr. Unsec. Sub.
Global Notes, 11.88%, 08/15/12 2,880,000 3,024,000
---------------------------------------------------------------------------
Vicar Operating, Inc., Sr. Unsec. Gtd. Notes,
9.88%, 12/01/09 3,800,000 4,161,000
===========================================================================
10,046,250
===========================================================================
HEALTH CARE FACILITIES-1.37%
Hanger Orthopedic Group, Inc.,
Sr. Gtd. Sub. Notes, 11.25%, 06/15/09 5,175,000 5,640,750
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.38%,
02/15/09 920,000 1,007,400
---------------------------------------------------------------------------
Province Healthcare Co., Sr. Sub. Notes,
7.50%, 06/01/13 960,000 945,600
---------------------------------------------------------------------------
|
FS-4
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
HEALTH CARE FACILITIES-(CONTINUED)
Triad Hospitals, Inc.-Series B, Sr. Unsec.
Gtd. Global Notes, 8.75%, 05/01/09 $ 2,855,000 $ 3,054,850
---------------------------------------------------------------------------
United Surgical Partners International, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes, 10.00%,
12/15/11 4,740,000 5,131,050
===========================================================================
15,779,650
===========================================================================
HEALTH CARE SUPPLIES-1.16%
DJ Orthopedics LLC/DJ Orthopedics Capital
Corp., Sr. Unsec. Gtd. Sub. Notes, 12.63%,
06/15/09 5,765,000 6,197,375
---------------------------------------------------------------------------
Fisher Scientific International Inc.,
Sr. Sub. Global Notes, 8.13%, 05/01/12
(Acquired 01/09/03; Cost $4,061,200)(a) 3,905,000 4,178,350
---------------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 8.13%,
05/01/12 2,810,000 3,006,700
===========================================================================
13,382,425
===========================================================================
HOME FURNISHINGS-0.76%
Sealy Mattress Co.-Series B, Sr. Gtd. Sub.
Notes, 9.88%, 12/15/07 8,960,000 8,736,000
===========================================================================
HOMEBUILDING-1.68%
Beazer Homes USA, Inc., Sr. Unsec. Gtd.
Global Notes, 8.38%, 04/15/12 3,775,000 4,039,250
---------------------------------------------------------------------------
D.R. Horton, Inc., Sr. Unsec. Gtd. Notes,
5.88%, 07/01/13 4,110,000 3,781,200
---------------------------------------------------------------------------
Technical Olympic USA, Inc., Sr. Unsec. Gtd.
Global Notes, 9.00%, 07/01/10 3,910,000 4,125,050
---------------------------------------------------------------------------
WCI Communities Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 02/15/11 6,770,000 7,413,150
===========================================================================
19,358,650
===========================================================================
HOTELS, RESORTS & CRUISE LINES-4.44%
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%,
12/01/12 4,140,000 4,419,450
---------------------------------------------------------------------------
Intrawest Corp. (Canada), Sr. Unsec. Gtd.
Global Notes, 10.50%, 02/01/10 7,740,000 8,455,950
---------------------------------------------------------------------------
John Q. Hammons Hotels, Inc., Sr. First
Mortgage Global Notes, 8.88%, 05/15/12 1,880,000 1,978,700
---------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr.
Unsec. Gtd. Sub. Global Notes, 8.88%,
08/15/11 4,690,000 5,041,750
---------------------------------------------------------------------------
La Quinta Properties, Sr. Notes, 8.88%,
03/15/11 (Acquired 03/14/03; Cost
$4,830,000)(a) 4,830,000 5,095,650
---------------------------------------------------------------------------
MeriStar Hospitality Corp., Sr. Unsec. Gtd.
Global Notes, 9.13%, 01/15/11 8,690,000 8,559,650
---------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia),
Sr. Unsec. Notes, 8.00%, 05/15/10 2,845,000 2,944,575
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 8.75%,
02/02/11 7,470,000 7,955,550
---------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-(CONTINUED)
Starwood Hotels Resorts, Sr. Gtd. Global
Notes, 7.88%, 05/01/12 $ 6,235,000 $ 6,640,275
===========================================================================
51,091,550
===========================================================================
INDUSTRIAL CONGLOMERATES-0.59%
TD Funding Corp., Sr. Sub. Notes, 8.38%,
07/15/11 (Acquired 07/15/03; Cost
$1,475,000)(a) 1,475,000 1,504,500
---------------------------------------------------------------------------
Tyco International Group S.A. (Luxembourg),
Sr. Gtd. Conv. Putable Notes,
2.75%, 01/15/08 (Acquired 01/07/03;
Cost $2,334,000)(a) 2,334,000 2,436,112
---------------------------------------------------------------------------
3.13%, 01/15/15 (Acquired 01/07/03; Cost
$2,674,000)(a) 2,674,000 2,824,413
===========================================================================
6,765,025
===========================================================================
INDUSTRIAL MACHINERY-1.22%
Cabot Safety Corp., Sr. Sub. Notes, 12.50%,
07/15/05 8,630,000 8,802,600
---------------------------------------------------------------------------
Dresser, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.38%, 04/15/11 960,000 984,000
---------------------------------------------------------------------------
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd.
Sub. Global Notes, 10.50%, 08/01/12 3,870,000 4,198,950
===========================================================================
13,985,550
===========================================================================
INTEGRATED OIL & GAS-1.95%
El Paso CGP Co.,
Sr. Unsec. Notes, 6.20%, 05/15/04 4,840,000 4,755,300
---------------------------------------------------------------------------
Unsec. Deb., 9.75%, 08/01/03 1,935,000 1,935,000
---------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/10 4,925,000 4,013,875
---------------------------------------------------------------------------
PDVSA Finance Ltd. (Cayman Islands), Global
Notes, 8.50%, 11/16/12 5,235,000 4,724,588
---------------------------------------------------------------------------
Petrobras International Finance Co., Global
Notes, 9.13%, 07/02/13 6,725,000 6,943,563
===========================================================================
22,372,326
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.82%
Madison River Capital LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10 7,810,000 7,536,650
---------------------------------------------------------------------------
PTC International Finance II S.A.
(Luxembourg), Sr. Unsec. Gtd. Sub. Yankee
Notes, 11.25%, 12/01/09 1,065,000 1,176,825
---------------------------------------------------------------------------
Qwest Capital Funding, Inc., Unsec. Gtd.
Global Notes,
5.88%, 08/03/04 6,535,000 6,175,575
---------------------------------------------------------------------------
7.00%, 08/03/09 8,580,000 6,563,700
---------------------------------------------------------------------------
7.25%, 02/15/11 14,385,000 11,004,525
===========================================================================
32,457,275
===========================================================================
|
FS-5
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
LEISURE FACILITIES-1.25%
Six Flags, Inc.,
Sr. Unsec. Global Notes, 8.88%, 02/01/10 $ 5,000,000 $ 4,550,000
---------------------------------------------------------------------------
Sr. Unsec. Notes, 9.75%, 06/15/07 4,210,000 3,999,500
---------------------------------------------------------------------------
Town Sports International, Inc., Sr. Unsec.
Gtd. Global Notes, 9.63%, 04/15/11 2,415,000 2,559,900
---------------------------------------------------------------------------
Universal City Development, Sr. Notes,
11.75%, 04/01/10 (Acquired 03/21/03; Cost
$2,866,186)(a) 2,900,000 3,219,000
===========================================================================
14,328,400
===========================================================================
LIFE & HEALTH INSURANCE-0.16%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $1,877,504)(a) 1,900,000 1,829,491
===========================================================================
MARINE-1.07%
General Maritime Corp. (Republic of Marshall
Islands), Sr. Notes, 10.00%, 03/15/13
(Acquired 03/17/03-03/21/03; Cost
$5,113,302)(a) 5,130,000 5,668,650
---------------------------------------------------------------------------
Overseas Shipholding Group, Inc., Sr. Unsec.
Notes, 8.25%, 03/15/13 (Acquired 03/04/03-
06/10/03; Cost $4,893,482)(a) 4,840,000 5,057,800
---------------------------------------------------------------------------
Stena A.B. (Sweden), Sr. Unsec. Global Notes,
9.63%, 12/01/12 1,415,000 1,552,963
===========================================================================
12,279,413
===========================================================================
MARINE PORTS & SERVICES-0.23%
Seabulk International, Inc., Sr. Notes,
9.50%, 08/15/13 (Acquired 07/29/03; Cost
$2,675,000)(a) 2,675,000 2,661,625
===========================================================================
METAL & GLASS CONTAINERS-3.86%
AEP Industries Inc., Sr. Unsec. Sub. Notes,
9.88%, 11/15/07 2,045,000 1,912,075
---------------------------------------------------------------------------
Anchor Glass Container Corp., Sr. Sec. Global
Notes, 11.00%, 02/15/13 4,825,000 5,211,000
---------------------------------------------------------------------------
Crown European Holdings S.A (France), Sr.
Sec. Second Lien Notes, 9.50%, 03/01/11
(Acquired 02/11/03; Cost $4,825,000)(a) 4,825,000 5,018,000
---------------------------------------------------------------------------
Greif Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/01/12 6,775,000 7,283,125
---------------------------------------------------------------------------
Jarden Corp., Sr. Sec. Gtd. Sub. Notes,
9.75%, 05/01/12 960,000 1,032,000
---------------------------------------------------------------------------
Owens-Brockway,
Sr. Sec. Gtd. Global Notes, 8.75%, 11/15/12 3,900,000 4,114,500
---------------------------------------------------------------------------
Sr. Sec. Notes, 7.75%, 05/15/11 (Acquired
04/29/03; Cost $1,885,000)(a) 1,885,000 1,913,275
---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.25%, 05/15/13 (Acquired
04/29/03; Cost $2,900,000)(a) 2,900,000 2,943,500
---------------------------------------------------------------------------
Owens-Illinois, Inc., Sr. Unsec. Deb., 7.50%,
05/15/10 4,600,000 4,439,000
---------------------------------------------------------------------------
Plastipak Holdings Inc., Sr. Unsec. Gtd.
Global Notes, 10.75%, 09/01/11 4,870,000 5,259,600
---------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
METAL & GLASS CONTAINERS-(CONTINUED)
Pliant Corp., Sr. Sec. Second Lien Notes,
11.13%, 09/01/09 (Acquired 05/22/03; Cost
$3,775,000)(a) $ 3,775,000 $ 4,001,500
---------------------------------------------------------------------------
Stone Container Corp., Sr. Unsec. Global
Notes, 8.38%, 07/01/12 165,000 169,125
---------------------------------------------------------------------------
U.S. Can Corp., Sr. Sec. Notes, 10.88%,
07/15/10 (Acquired 07/15/03; Cost
$1,105,000)(a) 1,105,000 1,121,575
===========================================================================
44,418,275
===========================================================================
MOVIES & ENTERTAINMENT-1.69%
AMC Entertainment Inc., Sr. Unsec. Sub.
Notes, 9.50%, 02/01/11 9,210,000 9,624,450
---------------------------------------------------------------------------
Imax Corp. (Canada), Sr. Unsec. Yankee Notes,
7.88%, 12/01/05 9,925,000 9,776,125
===========================================================================
19,400,575
===========================================================================
MULTI-UTILITIES & UNREGULATED POWER-7.24%
AES Corp. (The),
Sr. Sec. Notes, 8.75%, 05/15/13
(Acquired 05/01/03; Cost $2,410,000)(a) 2,410,000 2,361,800
---------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 8.50%, 11/01/07 7,005,000 6,392,063
---------------------------------------------------------------------------
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19 5,713,207 5,913,169
---------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08 6,295,000 4,689,775
---------------------------------------------------------------------------
Calpine Corp.,
Sr. Sec. Notes, 8.75%, 07/15/13
(Acquired 07/10/03; Cost $2,468,144)(a) 2,470,000 2,229,175
---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.25%, 08/15/05 6,985,000 6,321,425
---------------------------------------------------------------------------
Gemstone Investors Ltd., Sr. Unsec. Gtd.
Notes, 7.71%, 10/31/04 (Acquired
02/27/03-05/15/03; Cost $8,954,650)(a) 9,595,000 9,307,150
---------------------------------------------------------------------------
Mirant Americas Generation, LLC, Sr. Unsec.
Notes, 7.63%, 05/01/06(d)(f) 12,580,000 9,623,700
---------------------------------------------------------------------------
Reliant Resources, Inc., Sr. Sec. Notes,
9.25%, 07/15/10 (Acquired 06/26/03; Cost
$4,805,000)(a) 4,805,000 4,684,875
---------------------------------------------------------------------------
9.50%, 07/15/13 (Acquired 06/26/03; Cost
$4,805,000)(a) 4,805,000 4,684,875
---------------------------------------------------------------------------
Sierra Pacific Resources, Sr. Unsec. Unsub.
Notes, 8.75%, 05/15/05 4,830,000 4,902,450
---------------------------------------------------------------------------
Southern Natural Gas Co., Sr. Unsec. Global
Notes, 8.88%, 03/15/10 1,450,000 1,511,625
---------------------------------------------------------------------------
Transcontinental Gas Pipe Line, Notes, 6.13%,
01/15/05 3,320,000 3,311,700
---------------------------------------------------------------------------
Williams Cos., Inc. (The),
Notes, 7.13%, 09/01/11 9,580,000 8,957,300
---------------------------------------------------------------------------
Sr. Notes, 8.63%, 06/01/10 3,835,000 3,844,588
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 9.25%,
03/15/04 4,365,000 4,452,300
===========================================================================
83,187,970
===========================================================================
|
FS-6
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
OFFICE ELECTRONICS-0.82%
IOS Capital, Inc., Sr. Unsec. Notes, 7.25%,
06/30/08 $ 2,920,000 $ 2,726,550
---------------------------------------------------------------------------
Xerox Corp., Sr. Notes,
7.13%, 06/15/10 3,650,000 3,522,250
---------------------------------------------------------------------------
7.63%, 06/15/13 3,250,000 3,136,250
===========================================================================
9,385,050
===========================================================================
OFFICE SERVICES & SUPPLIES-0.17%
Falcon Products, Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 11.38%, 06/15/09 2,515,000 1,898,825
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.83%
Grant Prideco Escrow Corp., Sr. Unsec. Gtd.
Global Notes, 9.00%, 12/15/09 1,950,000 2,096,250
---------------------------------------------------------------------------
SESI, LLC, Sr. Unsec. Gtd. Global Notes,
8.88%, 05/15/11 6,815,000 7,394,275
===========================================================================
9,490,525
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.85%
Chesapeake Energy Corp., Sr. Unsec. Gtd.
Notes, 8.38%, 11/01/08 2,910,000 3,099,150
---------------------------------------------------------------------------
Comstock Resources, Inc., Sr. Unsec. Gtd.
Notes, 11.25%, 05/01/07 3,285,000 3,531,375
---------------------------------------------------------------------------
Westport Resources Corp., Sr. Unsec. Gtd.
Sub. Global Notes, 8.25%, 11/01/11 2,880,000 3,096,000
===========================================================================
9,726,525
===========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-4.56%
Citgo Petroleum Corp., Sr. Notes, 11.38%,
02/01/11 (Acquired 02/20/03; Cost
$7,667,167)(a) 7,715,000 8,525,075
---------------------------------------------------------------------------
Clark Refining & Marketing, Inc., Sr. Unsec.
Notes, 8.63%, 08/15/08 3,150,000 3,244,500
---------------------------------------------------------------------------
El Paso Energy Partners, L.P.-Series B, Sr.
Unsec. Gtd. Sub. Global Notes, 8.50%,
06/01/11 11,835,000 12,485,925
---------------------------------------------------------------------------
El Paso Natural Gas Co., Unsec. Unsub. Notes,
6.75%, 11/15/03 2,850,000 2,864,250
---------------------------------------------------------------------------
El Paso Production Holding Co., Sr. Unsec.
Gtd. Notes, 7.75%, 06/01/13 (Acquired
05/20/03; Cost $8,720,000)(a) 8,720,000 8,109,600
---------------------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec. Sub. Notes,
11.75%, 11/15/09 8,805,000 9,729,525
---------------------------------------------------------------------------
GulfTerra Energy Partners, L.P., Sr. Unsec.
Notes, 6.25%, 06/01/10 (Acquired 06/26/03;
Cost $4,805,000)(a) 4,805,000 4,672,863
---------------------------------------------------------------------------
Premcor Refining Group Inc. (The), Sr. Unsec.
Global Notes, 9.25%, 02/01/10 905,000 963,825
---------------------------------------------------------------------------
Western Gas Resources, Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 06/15/09 1,615,000 1,784,575
===========================================================================
52,380,138
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-0.17%
Huntsman Advanced Materials LLC, Sr. Sec.
Second Lien Notes, 11.00%, 07/15/10
(Acquired 06/23/03; Cost $1,900,000)(a) $ 1,900,000 $ 2,004,500
===========================================================================
PACKAGED FOODS & MEATS-0.69%
Dole Food Co., Inc., Sr. Notes, 8.88%,
03/15/11 (Acquired 03/17/03-07/09/03; Cost
$7,724,844)(a) 7,495,000 7,869,750
===========================================================================
PAPER PACKAGING-1.42%
Constar International Inc., Sr. Sub. Notes,
11.00%, 12/01/12 8,640,000 8,683,200
---------------------------------------------------------------------------
Graphic Packaging Corp., Unsec. Gtd. Sub.
Global Notes, 8.63%, 02/15/12 3,805,000 3,919,150
---------------------------------------------------------------------------
Jefferson Smurfit Corp., Sr. Notes, 7.50%,
06/01/13 (Acquired 05/16/03; Cost
$3,775,000)(a) 3,775,000 3,737,250
===========================================================================
16,339,600
===========================================================================
PAPER PRODUCTS-0.78%
Bowater Inc., Sr. Notes, 6.50%, 06/15/13
(Acquired 06/16/03; Cost $5,737,536)(a) 5,760,000 5,178,413
---------------------------------------------------------------------------
Cascades Inc. (Canada), Sr. Notes, 7.25%,
02/15/13 (Acquired 01/31/03; Cost
$3,860,000)(a) 3,860,000 3,821,400
===========================================================================
8,999,813
===========================================================================
PERSONAL PRODUCTS-1.14%
Elizabeth Arden, Inc., Sr. Sec. Global Notes,
11.75%, 02/01/11 6,835,000 7,689,375
---------------------------------------------------------------------------
Herbalife International Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 11.75%, 07/15/10 4,845,000 5,450,625
===========================================================================
13,140,000
===========================================================================
PHARMACEUTICALS-1.60%
aaiPharma Inc., Sr. Sub. Unsec. Gtd. Global
Notes, 11.00%, 04/01/10 12,865,000 14,408,800
---------------------------------------------------------------------------
Biovail Corp. (Canada), Sr. Sub. Yankee
Notes, 7.88%, 04/01/10 3,865,000 4,019,600
===========================================================================
18,428,400
===========================================================================
PUBLISHING-0.55%
PRIMEDIA Inc., Sr. Notes, 8.00%, 05/15/13
(Acquired 05/08/03; Cost $6,253,181)(a) 6,265,000 6,296,325
===========================================================================
RAILROADS-2.05%
Kansas City Southern Railway, Sr. Unsec. Gtd.
Global Notes, 9.50%, 10/01/08 8,784,000 9,838,080
---------------------------------------------------------------------------
RailAmerica Transportation Corp., Sr. Unsec.
Gtd. Sub. Notes, 12.88%, 08/15/10 3,605,000 4,019,575
---------------------------------------------------------------------------
TFM S.A. de C.V. (Mexico), Sr. Unsec. Gtd.
Yankee Deb., 11.75%, 06/15/09 8,223,000 8,428,575
---------------------------------------------------------------------------
|
FS-7
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
RAILROADS-(CONTINUED)
Wabtec Corp., Sr. Notes, 6.88%, 07/31/13
(Acquired 07/23/03; Cost $1,225,000)(a) $ 1,225,000 $ 1,228,063
===========================================================================
23,514,293
===========================================================================
REAL ESTATE-1.17%
Host Marriott Corp., Sr. Sec. Gtd. Notes,
7.88%, 08/01/08 5,720,000 5,734,300
---------------------------------------------------------------------------
Host Marriott L.P.,
Series E, Sr. Sec. Gtd. Notes, 8.38%,
02/15/06 300,000 307,500
---------------------------------------------------------------------------
Series G, Sr. Gtd. Global Notes, 9.25%,
10/01/07 5,400,000 5,751,000
---------------------------------------------------------------------------
iStar Financial Inc.,
Sr. Notes, 7.00%, 03/15/08 985,000 1,002,238
---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.75%, 08/15/08 615,000 661,125
===========================================================================
13,456,163
===========================================================================
REGIONAL BANKS-0.70%
Western Financial Bank, Unsec. Sub. Deb.,
8.88%, 08/01/07 95,000 97,850
---------------------------------------------------------------------------
9.63%, 05/15/12 7,225,000 7,983,625
===========================================================================
8,081,475
===========================================================================
RESTAURANTS-0.18%
Friendly Ice Cream Corp., Sr. Unsec. Gtd.
Notes, 10.50%, 12/01/07 2,000,000 2,020,000
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.24%
Amkor Technology Inc., Sr. Notes, 7.75%,
05/15/13 (Acquired 05/01/03; Cost
$2,899,825)(a) 2,895,000 2,793,675
===========================================================================
SPECIALTY CHEMICALS-1.04%
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11 4,785,000 4,713,225
---------------------------------------------------------------------------
Rhodia S.A. (France), Sr. Notes, 7.63%,
06/01/10 (Acquired 05/20/03; Cost
$2,885,000)(a) 2,885,000 2,827,300
---------------------------------------------------------------------------
Westlake Chemical Corp., Sr. Notes, 8.75%,
07/15/11 (Acquired 07/21/03; Cost
$4,435,000)(a) 4,435,000 4,435,000
===========================================================================
11,975,525
===========================================================================
SPECIALTY STORES-0.99%
CSK Auto, Inc., Sr. Unsec. Gtd. Global Notes,
12.00%, 06/15/06 3,310,000 3,690,650
---------------------------------------------------------------------------
Petco Animal Supplies Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 10.75%, 11/01/11 4,740,000 5,308,800
---------------------------------------------------------------------------
Petro Stopping Centers L.P., Sr. Unsec.
Notes, 10.50%, 02/01/07 2,400,000 2,388,000
===========================================================================
11,387,450
===========================================================================
STEEL-0.48%
IPSCO, Inc (Canada), Sr. Notes, 8.75%,
06/01/13 (Acquired 06/13/03-06/20/03; Cost
$5,667,000)(a) 5,520,000 5,547,600
===========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
TRUCKING-0.55%
North American Van Lines, Sr. Unsec. Gtd.
Sub. Global Notes, 13.38%, 12/01/09 $ 5,830,000 $ 6,369,275
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-5.42%
AirGate PCS, Inc., Sr. Sub. Disc. Notes,
13.50%, 10/01/09(e)(g) 8,080,000 4,444,000
---------------------------------------------------------------------------
Alamosa Holdings, Inc., Sr. Unsec. Gtd. Disc.
Notes, 12.88%, 02/15/10(e) 5,830,000 3,935,250
---------------------------------------------------------------------------
American Tower Corp., Sr. Global Notes,
9.38%, 02/01/09 8,905,000 9,083,100
---------------------------------------------------------------------------
American Tower Escrow Corp., Unsec. Disc.
Global Notes, 12.25%, 08/01/08(h) 4,350,000 2,871,000
---------------------------------------------------------------------------
Centennial Cellular Operating Co./Centennial
Communications Corp., Sr. Notes, 10.13%,
06/15/13 (Acquired 06/16/03-07/09/03; Cost
$6,794,700)(a) 6,780,000 6,644,400
---------------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc.
Global Notes, 14.00%, 10/01/10(d)(f) 5,150,000 849,750
---------------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%,
07/15/10(d)(f) 6,335,000 411,775
---------------------------------------------------------------------------
IWO Holdings, Inc., Sr. Unsec. Gtd. Global
Notes, 14.00%, 01/15/11 10,740,000 1,664,700
---------------------------------------------------------------------------
Nextel Communications, Inc.,
Class A, Sr. Notes, 7.38%, 08/01/15 2,220,000 2,195,025
---------------------------------------------------------------------------
Sr. Global Notes, 12.00%, 11/01/08 9,705,000 10,469,269
---------------------------------------------------------------------------
Nextel Partners, Inc., Sr. Unsec. Notes,
8.13%, 07/01/11 (Acquired 06/16/03; Cost
$2,880,000)(a) 2,880,000 2,671,200
---------------------------------------------------------------------------
Rural Cellular Corp.-Class A, Sr. Notes,
9.88%, 02/01/10 (Acquired 07/23/03; Cost
$3,710,000)(a) 3,710,000 3,543,050
---------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Global
Notes, 10.25%, 02/01/09 4,070,000 3,805,450
---------------------------------------------------------------------------
Triton PCS, Inc., Sr. Notes, 8.50%, 06/01/13
(Acquired 05/30/03; Cost $2,885,000)(a)(d) 2,885,000 3,000,400
---------------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Unsec. Gtd.
Disc. Notes, 14.00%, 05/15/10 (Acquired
02/21/03; Cost $430,400)(a)(e) 2,152,000 1,237,400
---------------------------------------------------------------------------
US Unwired Inc.-Series B, Sr. Unsec. Gtd.
Sub. Disc. Notes, 13.38%, 11/01/09(e) 4,910,000 2,553,200
---------------------------------------------------------------------------
Western Wireless Corp., Sr. Sec. Notes,
9.25%, 07/15/13 (Acquired 07/11/03; Cost
$2,990,000)(a) 2,990,000 2,855,450
===========================================================================
62,234,419
===========================================================================
Total Bonds & Notes (Cost $1,155,648,715) 1,117,939,255
===========================================================================
|
FS-8
MARKET
SHARES VALUE
---------------------------------------------------------------------------
WARRANTS & OTHER EQUITY INTERESTS-5.56%
ALTERNATIVE CARRIERS-0.00%
KMC Telecom Holdings, Inc.-Wts., expiring
4/15/08(i) 35 9
===========================================================================
BROADCASTING & CABLE TV-2.11%
Cablevision Systems New York Group,
Series H, 11.75% Pfd. 136,375 14,251,187
---------------------------------------------------------------------------
Series M, 11.13% PIK Pfd. 86,800 9,027,200
---------------------------------------------------------------------------
Knology Inc.,
Series D, Conv. Pfd. (Acquired 01/06/98-
01/12/00; Cost $0)(a)(d)(j) 649,310 973,965
---------------------------------------------------------------------------
Wts., expiring 10/22/07 (Acquired 03/12/98-
02/01/00; Cost $270)(a)(c)(d)(i) 47,295 0
===========================================================================
24,252,352
===========================================================================
COMMUNICATIONS EQUIPMENT-0.00%
Loral Space & Communications, Ltd.-Wts.,
expiring 12/26/06(i) 74,000 740
===========================================================================
CONSTRUCTION MATERIALS-0.00%
Dayton Superior-Wts., expiring 06/15/09
(Acquired 08/07/00-01/30/01; Cost
$10,000)(a)(d)(i) 10,780 2,695
===========================================================================
GENERAL MERCHANDISE STORES-0.01%
Travelcenters of America Inc.,
Wts., expiring 05/01/09(i) 4,900 13,475
---------------------------------------------------------------------------
Wts., expiring 05/01/09 (Acquired 01/29/01;
Cost $0)(a)(d)(i) 14,700 150,675
===========================================================================
164,150
===========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.,
Series B, Pfd. Wts., expiring 11/15/09
(Acquired 06/13/00; Cost $0)(a)(d)(i) 21,155 212
---------------------------------------------------------------------------
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(a)(d)(i) 21,155 212
===========================================================================
424
===========================================================================
|
---------------------------------------------------------------------------
MARKET
SHARES VALUE
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(a)(d)(i) 16,535 $ 165
===========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.65%
AES Trust VII -- $3.00 Conv. Pfd. 191,495 7,492,242
===========================================================================
PUBLISHING-0.57%
PRIMEDIA Inc.,
Series D, 10.00% Pfd. 31,900 3,030,500
---------------------------------------------------------------------------
Series F, 9.20% Pfd. 37,800 3,534,300
===========================================================================
6,564,800
===========================================================================
RAILROADS-0.03%
RailAmerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(a)(d)(i) 15,525 283,331
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.19%
American Tower Corp.-Wts., expiring 08/01/08
(Acquired 01/22/03; Cost $231,642)(a)(d)(i) 4,350 479,588
---------------------------------------------------------------------------
Dobson Communications Corp, 12.25% PIK Pfd. 17,358 17,010,840
---------------------------------------------------------------------------
Horizon PCS, Inc.-Wts., expiring 10/01/10
(Acquired 05/02/01; Cost $0)(a)(d)(i) 29,480 29
---------------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 07/15/10 (Acquired
01/29/01; Cost $0)(a)(d)(i) 6,880 69
---------------------------------------------------------------------------
IWO Holdings Inc.-Wts., expiring 01/15/11
(Acquired 08/24/01; Cost $0)(a)(d)(i) 14,340 143
---------------------------------------------------------------------------
SpectraSite, Inc.(j) 131,359 7,684,502
---------------------------------------------------------------------------
UbiquiTel Inc.-Wts., expiring 04/15/10
(Acquired 08/10/00; Cost $0)(a)(d)(i) 27,680 277
===========================================================================
25,175,448
===========================================================================
Total Warrants & Other Equity Interests
(Cost $60,942,796) 63,936,356
===========================================================================
TOTAL INVESTMENTS-102.82% (Cost
$1,216,591,511) 1,181,875,611
===========================================================================
OTHER ASSETS LESS LIABILITIES-(2.82%) (32,457,694)
===========================================================================
NET ASSETS-100.00% $1,149,417,917
___________________________________________________________________________
===========================================================================
|
FS-9
Investment Abbreviations:
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) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 07/31/03 was $251,184,225,
which represented 21.85% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(b) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(c) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(d) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 07/31/03 was $36,295,357, which
represented 3.16% of the Fund's net assets.
(e) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(f) Defaulted security. Issuer has filed for protection under Chapter 11 of the
U.S. Bankruptcy Code.
(g) 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.
(h) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(i) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(j) Non-income producing security.
See Notes to Financial Statements.
FS-10
July 31, 2003
ASSETS:
Investments, at market value (cost
$1,216,591,511) $ 1,181,875,611
------------------------------------------------------------
Receivables for:
Investments sold 37,502,515
------------------------------------------------------------
Fund shares sold 652,314
------------------------------------------------------------
Dividends and interest 24,905,375
------------------------------------------------------------
Investment matured (Note 7) 31,800
------------------------------------------------------------
Investment for deferred compensation plan 109,014
------------------------------------------------------------
Other assets 74,816
============================================================
Total assets 1,245,151,445
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 24,077,856
------------------------------------------------------------
Fund shares reacquired 39,193,414
------------------------------------------------------------
Amount due custodian bank 27,369,123
------------------------------------------------------------
Dividends 3,377,990
------------------------------------------------------------
Deferred compensation plan 109,014
------------------------------------------------------------
Accrued distribution fees 647,351
------------------------------------------------------------
Accrued trustees' fees 1,237
------------------------------------------------------------
Accrued transfer agent fees 588,874
------------------------------------------------------------
Accrued operating expenses 368,669
============================================================
Total liabilities 95,733,528
============================================================
Net assets applicable to shares outstanding $ 1,149,417,917
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 3,112,636,351
------------------------------------------------------------
Undistributed net investment income 689,140
------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (1,929,191,674)
------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (34,715,900)
============================================================
$ 1,149,417,917
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 547,092,013
____________________________________________________________
============================================================
Class B $ 530,239,480
____________________________________________________________
============================================================
Class C $ 72,086,424
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 133,278,778
____________________________________________________________
============================================================
Class B 128,772,009
____________________________________________________________
============================================================
Class C 17,568,964
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 4.10
------------------------------------------------------------
Offering price per share:
(Net asset value of $4.10 divided
by 95.25%) $ 4.30
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 4.12
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 4.10
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-11
For the year ended July 31, 2003
INVESTMENT INCOME:
Interest $ 107,890,624
---------------------------------------------------------------------------
Dividends 2,609,425
---------------------------------------------------------------------------
Dividends from affiliated money market funds 614,168
===========================================================================
Total investment income 111,114,217
===========================================================================
EXPENSES:
Advisory fees 5,533,331
---------------------------------------------------------------------------
Administrative services fees 245,247
---------------------------------------------------------------------------
Custodian fees 122,865
---------------------------------------------------------------------------
Distribution fees -- Class A 1,269,061
---------------------------------------------------------------------------
Distribution fees -- Class B 4,663,992
---------------------------------------------------------------------------
Distribution fees -- Class C 556,053
---------------------------------------------------------------------------
Transfer agent fees 2,991,806
---------------------------------------------------------------------------
Trustees' fees 14,681
---------------------------------------------------------------------------
Other 438,011
===========================================================================
Total expenses 15,835,047
===========================================================================
Less: Fees waived and expenses paid indirectly (62,958)
===========================================================================
Net expenses 15,772,089
===========================================================================
Net investment income 95,342,128
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (164,599,730)
---------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 278,571,487
===========================================================================
Net gain from investment securities 113,971,757
===========================================================================
Net increase in net assets resulting from operations $ 209,313,885
___________________________________________________________________________
===========================================================================
|
See Notes to Financial Statements.
FS-12
For the years ended July 31, 2003 and 2002
2003 2002
----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 95,342,128 $ 141,056,268
----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (164,599,730) (486,124,409)
----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 278,571,487 148,209,888
==============================================================================================
Net increase (decrease) in net assets resulting from
operations 209,313,885 (196,858,253)
==============================================================================================
Distributions to shareholders from net investment income:
Class A (48,175,551) (69,550,001)
----------------------------------------------------------------------------------------------
Class B (41,662,189) (71,741,714)
----------------------------------------------------------------------------------------------
Class C (4,898,704) (7,514,536)
==============================================================================================
Decrease in net assets resulting from distributions (94,736,444) (148,806,251)
==============================================================================================
Share transactions-net:
Class A 68,038,018 (111,693,259)
----------------------------------------------------------------------------------------------
Class B 13,140,786 (114,155,181)
----------------------------------------------------------------------------------------------
Class C 16,219,386 (13,464,843)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 97,398,190 (239,313,283)
==============================================================================================
Net increase (decrease) in net assets 211,975,631 (584,977,787)
==============================================================================================
NET ASSETS:
Beginning of year 937,442,286 1,522,420,073
==============================================================================================
End of year $1,149,417,917 $ 937,442,286
______________________________________________________________________________________________
==============================================================================================
|
NOTES TO FINANCIAL STATEMENTS
July 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case
FS-13
of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% on the first $200 million of the Fund's average daily net assets, plus 0.55% on the next $300 million of the Fund's average daily net assets, plus 0.50% on the next $500 million of the Fund's average daily net assets, plus 0.45% on the Fund's average daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended July 31, 2003, AIM waived fees of $8,331.
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, 2003, AIM was paid $245,247 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, 2003, AFS retained $1,489,770 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C and Investor Class shares of the Fund. Investor Class shares have not commenced operations. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B, Class C or Investor Class shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges, that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the Class A, Class B and Class C shares paid $1,269,061, $4,663,992 and $556,053, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to
FS-14
remittance to the shareholder. During the year ended July 31, 2003, AIM Distributors retained $129,415 in front-end sales commissions from the sale of Class A shares and $27,969, $5,042 and $12,196 from Class A, Class B and Class C, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $19,341 and reductions in custodian fees of $35,286 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $54,627.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid legal fees of $4,620 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 was as follows:
2003 2002
--------------------------------------------------------------
Distributions paid from:
Ordinary income $94,736,444 $148,806,251
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 2,903,666 ------------------------------------------------------------ Unrealized appreciation (depreciation) -- investments (40,148,326) ------------------------------------------------------------ Temporary book/tax differences (243,800) ------------------------------------------------------------ Capital loss carryforward (1,835,099,716) ------------------------------------------------------------ Post-October capital loss deferral (90,630,258) ------------------------------------------------------------ Shares of beneficial interest 3,112,636,351 ============================================================ Total net assets $ 1,149,417,917 ____________________________________________________________ ============================================================ |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales and the treatment of defaulted bonds and bond premium amortization.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation, retirement plan expenses and treatment of interest on defaulted bonds.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
------------------------------------------------------------
July 31, 2006 $ 115,531,161
------------------------------------------------------------
July 31, 2007 297,433,797
------------------------------------------------------------
July 31, 2008 303,063,104
------------------------------------------------------------
July 31, 2009 150,303,692
------------------------------------------------------------
July 31, 2010 473,407,401
------------------------------------------------------------
July 31, 2011 495,360,561
============================================================
Total capital loss carryforward $1,835,099,716
____________________________________________________________
============================================================
|
FS-15
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $1,042,880,730 and $982,528,271, respectively.
Receivable for investment matured represents the estimated proceeds to the fund by Candescent Technologies Corp. which is in default with respect to the principal payments on $600,000 par value, Senior Unsecured Guaranteed Subordinated Debentures, 8.00%, which was due May 1, 2003. This estimate was determined in accordance with the fair valuation procedures authorized by the Board of Trustees.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
----------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 58,328,227
----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (98,476,553)
============================================================================
Net unrealized appreciation (depreciation) of investment
securities $(40,148,326)
____________________________________________________________________________
============================================================================
Cost of investments for tax purposes is $1,222,023,937.
|
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of defaulted bond adjustments and capital loss carryforwards of merger transactions on July 31, 2003, undistributed net investment income was increased by $12,508,902, undistributed net realized gains (losses) decreased by $38,165,906 and shares of beneficial interest increased by $25,657,004. This reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
The Fund currently consists of four different classes of shares: Class A shares, Class B shares, Class C shares and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Investor Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase. Investor Class shares have not commenced operations.
CHANGES IN SHARES OUTSTANDING
---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------
2003 2002
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 163,631,121 $ 631,077,903 61,671,459 $ 274,866,210
---------------------------------------------------------------------------------------------------------------------------
Class B 30,851,723 117,940,158 28,855,909 131,251,628
---------------------------------------------------------------------------------------------------------------------------
Class C 12,379,160 47,768,358 7,361,669 32,891,393
===========================================================================================================================
Issued as reinvestment of dividends:
Class A 7,455,053 28,454,055 9,782,026 43,420,316
---------------------------------------------------------------------------------------------------------------------------
Class B 5,176,658 19,722,338 7,389,848 32,867,780
---------------------------------------------------------------------------------------------------------------------------
Class C 768,448 2,934,254 918,849 4,077,812
===========================================================================================================================
Issued in connection with acquisitions:*
Class A 8,999,611 37,602,120 -- --
---------------------------------------------------------------------------------------------------------------------------
Class B 10,480,525 43,922,476 -- --
---------------------------------------------------------------------------------------------------------------------------
Class C 1,949,995 8,144,636 -- --
===========================================================================================================================
Automatic conversion of Class B shares to Class A shares:**
Class A 7,570,103 29,132,839 -- --
---------------------------------------------------------------------------------------------------------------------------
Class B (7,535,951) (29,132,839) -- --
===========================================================================================================================
Reacquired:
Class A (167,318,004) (658,228,899) (97,447,190) (429,979,785)
---------------------------------------------------------------------------------------------------------------------------
Class B (36,609,427) (139,311,347) (63,245,842) (278,274,589)
---------------------------------------------------------------------------------------------------------------------------
Class C (11,045,541) (42,627,862) (11,408,493) (50,434,048)
===========================================================================================================================
26,753,474 $ 97,398,190 (56,121,765) $(239,313,283)
___________________________________________________________________________________________________________________________
===========================================================================================================================
|
* As of the opening of business on June 23, 2003, the Fund acquired all of the net assets of AIM High Yield Fund II pursuant to a plan of reorganization approved by AIM High Yield Fund II shareholders on June 4, 2003. The acquisition was accomplished by a tax-free exchange of 21,430,131 shares of the Fund for 14,799,134 shares of AIM High Yield Fund II outstanding as of the close of business June 20, 2003. AIM High Yield Fund II net assets at that date of $89,669,232 including $(611,924) of unrealized (depreciation), were combined with those of the Fund. The aggregate net assets of the Fund immediately before the acquisition were $1,256,561,728. Included in net assets of the acquiring fund is undistributed net investment income (loss) of $(338,019) and undistributed net realized gain (loss) of $(73,445,461). ** Prior to the year ended July 31, 2002, conversion of Class B shares to Class A shares were included in Class A shares sold and Class B shares reacquired.
FS-16
NOTE 10--SIGNIFICANT EVENT
The Board of Trustees of AIM Investment Securities Funds ("Buyer") unanimously approved, on June 11, 2003, an Agreement and Plan of Reorganization ("Plan") pursuant to which AIM High Yield Fund ("Buying Fund"), a series of Buyer would acquire all of the assets of INVESCO High Yield Fund ("Selling Fund"), a series of INVESCO Bond Funds, Inc. ("the Reorganization"). As a result of the Reorganization, shareholders of Selling Fund would receive shares of Buying Fund in exchange for their shares of Selling Fund, and Selling Fund would cease operations.
The Plan requires approval of Selling Fund shareholders and will be submitted to the shareholders for their consideration at a meeting to be held on or around October 21, 2003. If the Plan is approved by shareholders of Selling Fund and certain conditions required by the Plan are satisfied, the transaction is expected to become effective shortly thereafter.
NOTE 11--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 JULY 31, ENDED YEAR ENDED
------------------------------------ JULY 31, DECEMBER 31,
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.70 $ 4.92 $ 7.00 $ 8.07 $ 8.77
-------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.37(a) 0.49(b) 0.68 0.47 0.85
-------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.40 (1.19) (2.03) (1.03) (0.66)
===============================================================================================================================
Total from investment operations 0.77 (0.70) (1.35) (0.56) 0.19
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.37) (0.52) (0.69) (0.49) (0.87)
-------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.03) (0.02) (0.02)
-------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- -- (0.01) -- --
===============================================================================================================================
Total distributions (0.37) (0.52) (0.73) (0.51) (0.89)
===============================================================================================================================
Net asset value, end of period $ 4.10 $ 3.70 $ 4.92 $ 7.00 $ 8.07
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 22.10% (15.36)% (19.98)% (7.12)% 2.21%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $547,092 $417,974 $683,845 $1,056,453 $1,364,502
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.16%(d) 1.07% 0.99% 0.93%(e) 0.92%
===============================================================================================================================
Ratio of net investment income to average net assets 9.64%(d) 11.15%(b) 11.98% 10.79%(e) 10.06%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 101% 59% 55% 23% 79%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have remained the same and the ratio of net investment
income to average net assets would have been 11.22%. In accordance with
the AICPA Audit and Accounting Guide for Investment Companies, per share
and ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $507,624,606.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-17
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
---------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED
------------------------------------- JULY 31, DECEMBER 31,
2003 2002 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.71 $ 4.93 $ 7.01 $ 8.07 $ 8.76
--------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.34(a) 0.45(b) 0.64 0.44 0.79
--------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.41 (1.18) (2.03) (1.03) (0.66)
================================================================================================================================
Total from investment operations 0.75 (0.73) (1.39) (0.59) 0.13
================================================================================================================================
Less distributions:
Dividends from net investment income (0.34) (0.49) (0.65) (0.45) (0.80)
--------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.03) (0.02) (0.02)
--------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- -- (0.01) -- --
================================================================================================================================
Total distributions (0.34) (0.49) (0.69) (0.47) (0.82)
================================================================================================================================
Net asset value, end of period $ 4.12 $ 3.71 $ 4.93 $ 7.01 $ 8.07
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 21.44% (15.99)% (20.60)% (7.49)% 1.46%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $530,239 $469,408 $756,704 $1,206,737 $1,559,864
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 1.91%(d) 1.82% 1.75% 1.69%(e) 1.68%
================================================================================================================================
Ratio of net investment income to average net assets 8.89%(d) 10.40%(b) 11.22% 10.03%(e) 9.30%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(f) 101% 59% 55% 23% 79%
________________________________________________________________________________________________________________________________
================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.46 and the ratio of net investment income to
average net assets would have been 10.47%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $466,399,161.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-18
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED
---------------------------------- JULY 31, DECEMBER 31,
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.70 $ 4.92 $ 6.99 $ 8.05 $ 8.74
-------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.34(a) 0.45(b) 0.65 0.44 0.78
-------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.40 (1.18) (2.03) (1.03) (0.65)
===============================================================================================================================
Total from investment operations 0.74 (0.73) (1.38) (0.59) 0.13
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.34) (0.49) (0.65) (0.45) (0.80)
-------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.03) (0.02) (0.02)
-------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- -- (0.01) -- --
===============================================================================================================================
Total distributions (0.34) (0.49) (0.69) (0.47) (0.82)
===============================================================================================================================
Net asset value, end of period $ 4.10 $ 3.70 $ 4.92 $ 6.99 $ 8.05
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 21.22% (16.02)% (20.52)% (7.51)% 1.46%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $72,086 $50,060 $81,871 $110,297 $129,675
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.91%(d) 1.82% 1.75% 1.69%(e) 1.68%
===============================================================================================================================
Ratio of net investment income to average net assets 8.89%(d) 10.40%(b) 11.22% 10.03%(e) 9.30%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 101% 59% 55% 23% 79%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.46 and the ratio of net investment income to
average net assets would have been 10.47%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $55,605,334.
(e) Annualized
(f) Not annualized for periods less than one year.
FS-19
To the Shareholders of AIM Limited Maturity Treasury Fund and the 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, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Limited Maturity Treasury Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP September 10, 2003
FS-20
FINANCIALS
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
U.S. TREASURY NOTES--100.19%
2.13% 08/31/04 $ 56,300 $ 56,836,539
----------------------------------------------------------------------------------
1.88% 09/30/04 56,400 56,788,032
----------------------------------------------------------------------------------
2.13% 10/31/04 56,400 56,937,492
----------------------------------------------------------------------------------
2.00% 11/30/04 56,400 56,823,000
----------------------------------------------------------------------------------
1.75% 12/31/04 56,400 56,647,032
----------------------------------------------------------------------------------
1.63% 01/31/05 56,400 56,506,032
----------------------------------------------------------------------------------
1.50% 02/28/05 56,400 56,338,524
----------------------------------------------------------------------------------
1.63% 03/31/05 56,700 56,709,072
----------------------------------------------------------------------------------
1.63% 04/30/05 56,600 56,573,398
----------------------------------------------------------------------------------
1.25% 05/31/05 56,300 55,851,289
----------------------------------------------------------------------------------
1.13% 06/30/05 56,300 55,649,172
----------------------------------------------------------------------------------
1.50% 07/31/05 56,300 55,974,586
__________________________________________________________________________________
==================================================================================
TOTAL INVESTMENTS (Cost
$676,402,980)--100.19% 677,634,168
__________________________________________________________________________________
==================================================================================
OTHER ASSETS LESS LIABILITIES--(0.19%) (1,318,737)
__________________________________________________________________________________
==================================================================================
NET ASSETS--100.00% $ 676,315,431
__________________________________________________________________________________
==================================================================================
|
See Notes to Financial Statements.
FS-21
JULY 31, 2003
ASSETS:
Investments, at market value (cost
$676,402,980) $677,634,168
-----------------------------------------------------------
Cash 101,191
-----------------------------------------------------------
Receivables for:
Fund shares sold 2,463,653
-----------------------------------------------------------
Interest 2,511,024
-----------------------------------------------------------
Investment for deferred compensation plan 49,248
-----------------------------------------------------------
Other assets 38,828
===========================================================
Total assets 682,798,112
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 6,112,553
-----------------------------------------------------------
Dividends 103,437
-----------------------------------------------------------
Deferred compensation plan 49,248
-----------------------------------------------------------
Accrued distribution fees 102,750
-----------------------------------------------------------
Accrued trustees' fees 1,330
-----------------------------------------------------------
Accrued transfer agent fees 88,878
-----------------------------------------------------------
Accrued operating expenses 24,485
===========================================================
Total liabilities 6,482,681
===========================================================
Net assets applicable to shares outstanding $676,315,431
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $667,185,601
-----------------------------------------------------------
Undistributed net realized gain from
investment securities 7,898,642
-----------------------------------------------------------
Unrealized appreciation of investment
securities 1,231,188
===========================================================
$676,315,431
___________________________________________________________
===========================================================
NET ASSETS:
Class A $577,992,945
___________________________________________________________
===========================================================
Class A3 $ 94,409,036
___________________________________________________________
===========================================================
Institutional Class $ 3,913,450
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 55,236,888
___________________________________________________________
===========================================================
Class A3 9,025,708
___________________________________________________________
===========================================================
Institutional Class 374,086
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.46
-----------------------------------------------------------
Offering price per share:
(Net asset value of $10.46 divided by
99.00%) $ 10.57
___________________________________________________________
===========================================================
Class A3:
Net asset value and offering price per
share $ 10.46
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 10.46
___________________________________________________________
===========================================================
|
See Notes to Financial Statements.
FS-22
FOR THE YEAR ENDED JULY 31, 2003
INVESTMENT INCOME:
Interest $17,260,351
=========================================================================
EXPENSES:
Advisory fees 1,392,547
-------------------------------------------------------------------------
Administrative services fees 174,870
-------------------------------------------------------------------------
Custodian fees 27,714
-------------------------------------------------------------------------
Distribution fees -- Class A 1,021,729
-------------------------------------------------------------------------
Distribution fees -- Class A3 140,276
-------------------------------------------------------------------------
Transfer agent fees 917,517
-------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,338
-------------------------------------------------------------------------
Trustees' fees 13,643
-------------------------------------------------------------------------
Other 251,901
=========================================================================
Total expenses 3,941,535
=========================================================================
Less: Expenses paid indirectly (11,767)
=========================================================================
Net expenses 3,929,768
=========================================================================
Net investment income 13,330,583
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 11,624,560
-------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (9,284,613)
=========================================================================
Net gain from investment securities 2,339,947
=========================================================================
Net increase in net assets resulting from operations $15,670,530
_________________________________________________________________________
=========================================================================
|
See Notes to Financial Statements.
FS-23
FOR THE YEARS ENDED JULY 31, 2003 AND 2002
2003 2002
-------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 13,330,583 $ 19,243,725
-------------------------------------------------------------------------------------------
Net realized gain from investment securities 11,624,560 12,398,048
-------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (9,284,613) 4,356,374
===========================================================================================
Net increase in net assets resulting from operations 15,670,530 35,998,147
===========================================================================================
Distributions to shareholders from net investment income:
Class A (12,750,428) (19,170,139)
-------------------------------------------------------------------------------------------
Class A3 (517,649) --
-------------------------------------------------------------------------------------------
Institutional Class (62,506) (70,078)
===========================================================================================
Total distributions from net investment income (13,330,583) (19,240,217)
===========================================================================================
Distributions to shareholders from net realized gains:
Class A (7,010,203) --
-------------------------------------------------------------------------------------------
Class A3 (129,528) --
-------------------------------------------------------------------------------------------
Institutional Class (24,193) --
===========================================================================================
Total distributions from net realized gains (7,163,924) --
===========================================================================================
Decrease in net assets resulting from distributions (20,494,507) (19,240,217)
===========================================================================================
Share transactions-net:
Class A (113,847,783) 171,767,941
-------------------------------------------------------------------------------------------
Class A3 94,792,404 --
-------------------------------------------------------------------------------------------
Institutional Class 966,624 1,091,152
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (18,088,755) 172,859,093
===========================================================================================
Net increase (decrease) in net assets (22,912,732) 189,617,023
===========================================================================================
NET ASSETS:
Beginning of year 699,228,163 509,611,140
===========================================================================================
End of year $ 676,315,431 $699,228,163
___________________________________________________________________________________________
===========================================================================================
|
See Notes to Financial Statements.
FS-24
JULY 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management company consisting of eight separate series portfolios each having an unlimited number of shares of beneficial interest. The Fund currently consists of multiple classes of shares. Matters affecting each portfolio or class are voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is to seek liquidity with minimum fluctuation in principal value, and consistent with this objective, the highest total return achievable.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
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 and commercial paper are valued at amortized cost which approximates market value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.20% on the first $500 million of the Fund's average daily net assets, plus 0.175% on the Fund's average daily net assets in excess of $500 million.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the year ended July 31, 2003, AIM was paid $174,870 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, 2003, AFS retained $401,816 for such services.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A shares, Class A3 shares and the Institutional Class shares of the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A and Class A3 shares (collectively the "Plans"). 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 and 0.35% of the average daily net assets of Class A3 shares. Of these amounts, the Fund may pay a service fee of 0.15% of the average daily net assets of Class A shares and 0.25% of the average daily net assets of Class A3 shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plan would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the
FS-25
Fund. Pursuant to the Plans, for the year ended July 31, 2003, Class A and Class A3 shares paid $1,021,729 and $140,276, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During year ended July 31, 2003, AIM Distributors retained $93,147 in front-end sales commissions from the sale of Class A shares and $26,131 from Class A shares, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS, and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $11,767 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $11,767.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid legal fees of $4,084 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The fund may participate in an interfund lending facility that AIM has established an interfund lending facility for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 was as follows:
2003 2002
--------------------------------------------------------------
Distributions paid from ordinary
income $20,494,507 $19,240,217
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 8,029,117 ----------------------------------------------------------- Unrealized appreciation -- investments 1,181,517 ----------------------------------------------------------- Temporary book/tax differences (80,804) ----------------------------------------------------------- Shares of beneficial interest 667,185,601 =========================================================== Total net assets $676,315,431 ___________________________________________________________ =========================================================== |
The difference between book-basis and tax-basis unrealized appreciation is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation difference is attributable primarily to the tax deferral of losses on wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $893,902,089 and $910,680,934, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $2,152,207
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (970,690)
===========================================================
Net unrealized appreciation of investment
securities $1,181,517
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $676,452,651.
|
FS-26
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of the utilization of a portion of the proceeds from redemptions as distributions for federal income tax purposes on July 31, 2003, undistributed net realized gains (losses) was decreased by $3,685,882 and shares of beneficial interest was increased by $3,685,882. This reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
The Fund currently consists of three different classes of shares: Class A shares, Class A3 shares and Institutional Class shares. Class A shares are sold with front-end sales charge. Class A3 shares and Institutional Class shares are sold at net asset value. Under some circumstances, Class A shares are subject to CDSC. As of the close of business on October 30, 2002, Class A shares were closed to new investors.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 25,805,338 $ 271,953,993 75,803,443 $ 786,911,782
--------------------------------------------------------------------------------------------------------------------------
Class A3* 12,760,368 134,005,850 -- --
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 220,446 2,316,869 184,259 1,912,257
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,610,631 16,920,387 1,557,231 16,184,908
--------------------------------------------------------------------------------------------------------------------------
Class A3* 55,441 581,385 -- --
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 425 4,464 238 2,477
==========================================================================================================================
Reacquired:
Class A (38,275,556) (402,722,163) (60,767,295) (631,328,749)
--------------------------------------------------------------------------------------------------------------------------
Class A3* (3,790,101) (39,794,831) -- --
--------------------------------------------------------------------------------------------------------------------------
Institutional Class (128,741) (1,354,709) (79,249) (823,582)
==========================================================================================================================
(1,741,749) $ (18,088,755) 16,698,627 $ 172,859,093
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
* Class A3 shares commenced sales on October 31, 2002.
FS-27
NOTE 10--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,
------------------------------------------------------------
2003 2002 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.53 $ 10.26 $ 9.96 $ 10.03 $ 10.07
--------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.33(a) 0.52(b) 0.51 0.47
--------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.03 0.27 0.31 (0.07) (0.04)
==========================================================================================================================
Total from investment operations 0.22 0.60 0.83 0.44 0.43
==========================================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.33) (0.53) (0.51) (0.47)
--------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.10) -- -- -- --
==========================================================================================================================
Total distributions (0.29) (0.33) (0.53) (0.51) (0.47)
==========================================================================================================================
Net asset value, end of period $ 10.46 $ 10.53 $ 10.26 $ 9.96 $ 10.03
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(c) 2.18% 5.89% 8.53% 4.50% 4.32%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $577,993 $696,259 $507,799 $300,058 $390,018
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 0.53%(d) 0.48% 0.56% 0.54% 0.54%
==========================================================================================================================
Ratio of net investment income to average net assets 1.85%(d) 3.12%(a) 5.15% 5.07% 4.61%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 124% 149% 137% 122% 184%
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.34 and the ratio of net investment income to average net
assets would have been 3.29%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of $681,152,755.
FS-28
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS A3
----------------
OCTOBER 31, 2002
(DATE OPERATIONS
COMMENCED) TO
JULY 31, 2003
--------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.59
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13
--------------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (0.04)
================================================================================
Total from investment operations 0.09
================================================================================
Less distributions:
Dividends from net investment income (0.12)
--------------------------------------------------------------------------------
Distributions from net realized gains (0.10)
================================================================================
Total distributions (0.22)
================================================================================
Net asset value, end of period $ 10.46
________________________________________________________________________________
================================================================================
Total return(a) 0.88%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $94,409
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets 0.73%(b)
================================================================================
Ratio of net investment income to average net assets 1.65%(b)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(c) 124%
________________________________________________________________________________
================================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$53,389,601.
(c) Not annualized for periods less than one year.
FS-29
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
INSTITUTIONAL CLASS
-----------------------------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.53 $10.26 $ 9.96 $10.03 $ 10.07
-------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.22 0.34(a) 0.54(b) 0.54 0.49
-------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.03 0.27 0.31 (0.07) (0.04)
===================================================================================================================
Total from investment operations 0.25 0.61 0.85 0.47 0.45
===================================================================================================================
Less distributions:
Dividends from net investment income (0.22) (0.34) (0.55) (0.54) (0.49)
-------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.10) -- -- -- --
===================================================================================================================
Total distributions (0.32) (0.34) (0.55) (0.54) (0.49)
===================================================================================================================
Net asset value, end of period $10.46 $10.53 $10.26 $ 9.96 $ 10.03
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(c) 2.42% 6.05% 8.80% 4.78% 4.55%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,913 $2,970 $1,812 $2,455 $17,131
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets 0.30%(d) 0.34% 0.33%(e) 0.29% 0.31%
===================================================================================================================
Ratio of net investment income to average net assets 2.08%(d) 3.26%(a) 5.38% 5.31% 4.84%
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate 124% 149% 137% 122% 184%
___________________________________________________________________________________________________________________
===================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and the Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.35 and the ratio of net investment income to average assets
would have been 3.43%. In accordance with the AICPA Audit and Accounting
Guide for Investment Companies, per share and ratios for periods prior
to August 1, 2001 have not been restated to reflect this change in
presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America.
(d) Ratios are based on average daily net assets of $3,080,901.
(e) Including expense reimbursement. Ratio of expenses to average net assets
excluding reimbursement is 0.41%
FS-30
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, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Money Market Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas /s/ ERNST & YOUNG LLP September 10, 2003 |
FS-31
FINANCIALS
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
COMMERCIAL PAPER-24.36%(a)
ASSET-BACKED SECURITIES-COMMERCIAL
LOANS/LEASES-7.55%
Atlantis One Funding Corp. (Rabobank-ABS
Program Sponsor),
(Acquired 04/25/03; Cost $39,831,944)
1.25%(b) 08/27/03 $40,000 $ 39,963,889
----------------------------------------------------------------------------------
(Acquired 05/20/03; Cost $34,882,361)
1.21%(b) 08/28/03 35,000 34,968,237
----------------------------------------------------------------------------------
(Acquired 05/22/03; Cost $19,926,000)
1.20%(b) 09/10/03 20,000 19,973,333
----------------------------------------------------------------------------------
Fountain Square Commercial Funding Corp.
(Fifth Third Bank-ABS Program Sponsor)
(Acquired 07/09/03; Cost $44,920,700)
1.04%(b) 09/08/03 45,000 44,950,600
==================================================================================
139,856,059
==================================================================================
ASSET-BACKED SECURITIES-FULLY BACKED-0.86%
Aquinas Funding LLC (Rabobank-ABS Program
Sponsor) (Acquired 07/10/03; Cost
$15,943,147)
1.04%(b) 11/10/03 16,000 15,953,316
==================================================================================
ASSET-BACKED SECURITIES-MULTI-PURPOSE-9.37%
Charta Corp. (Citibank N.A.-ABS Program
Sponsor) (Acquired 06/09/03; Cost
$9,980,833)
1.15%(b)(c) 08/08/03 10,000 9,997,764
----------------------------------------------------------------------------------
Edison Asset Securitization, LLC (GE Capital
Corp.-ABS Program Sponsor)
(Acquired 06/11/03; Cost $46,838,633)
1.03%(b) 10/09/03 47,000 46,907,214
----------------------------------------------------------------------------------
(Acquired 05/16/03; Cost $44,735,225)
1.19%(b) 11/10/03 45,000 44,849,762
----------------------------------------------------------------------------------
|
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
ASSET-BACKED SECURITIES-MULTI-PURPOSE-(CONTINUED)
Jupiter Securitization Corp. (Bank One
N.A.-ABS Program Sponsor)
(Acquired 07/22/03; Cost $34,793,179)
1.03%(b) 10/14/03 $34,877 $ 34,803,158
----------------------------------------------------------------------------------
Receivables Capital Corp. (Bank of America
N.A.-ABS Program Sponsor)
(Acquired 07/03/03; Cost $37,050,519)
1.04%(b)(c) 09/03/03 37,117 37,081,615
==================================================================================
173,639,513
==================================================================================
ASSET-BACKED SECURITIES-TRADE
RECEIVABLES-2.70%
FCAR Owner Trust-Series II (Ford Motor Credit
Co.-ABS Program Sponsor)
1.27% 08/19/03 50,000 49,968,250
==================================================================================
DIVERSIFIED BANKS-3.07%
Fortis Funding
(Acquired 07/10/03; Cost $56,817,347)
1.03%(b) 10/30/03 57,000 56,853,225
==================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.81%
GE Capital International Funding, Inc.-
Series A
(Acquired 04/23/03; Cost $14,905,500)
1.26%(b) 10/20/03 15,000 14,958,000
==================================================================================
Total Commercial Paper (Cost
$451,228,363) 451,228,363
==================================================================================
MASTER NOTE AGREEMENTS-8.91%(d)
Merrill Lynch Mortgage Capital, Inc.
1.29%(e) 08/18/03 70,000 70,000,000
----------------------------------------------------------------------------------
Morgan Stanley
1.20%(f) 09/15/03 95,000 95,000,000
==================================================================================
Total Master Note Agreements (Cost
$165,000,000) 165,000,000
==================================================================================
|
FS-32
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-8.56%
FEDERAL HOME LOAN BANK-5.30%
Unsec. Bonds,
3.75% 02/13/04 $18,000 $ 18,225,573
----------------------------------------------------------------------------------
1.42% 04/21/04 20,000 20,000,000
----------------------------------------------------------------------------------
1.12% 07/12/04 10,000 10,000,000
----------------------------------------------------------------------------------
1.03% 07/23/04 50,000 50,000,000
==================================================================================
98,225,573
==================================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-0.81%
Disc. Notes,
1.04% 09/11/03 15,000 14,982,233
==================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-2.45%
Unsec. Notes,
3.13% 11/15/03 45,000 45,263,717
==================================================================================
Total U.S. Government Agency Securities
(Cost $158,471,523) 158,471,523
==================================================================================
ASSET-BACKED SECURITIES-6.99%
CONSUMER RECEIVABLES-1.32%
Honda Auto Receivables 2003-2 Owner Trust,
Class A-1 Notes,
1.23% 06/11/04 15,009 15,008,903
----------------------------------------------------------------------------------
Nissan Auto Receivables 2003-A Owner Trust,
Class A-1 Notes,
1.30% 03/15/04 9,511 9,511,160
==================================================================================
24,520,063
==================================================================================
STRUCTURED INVESTMENT VEHICLES-5.67%
Beta Finance Inc., Floating Rate (Citibank
International PLC-ABS Program Sponsor)
(Acquired 10/24/02; Cost $50,000,000)
1.11%(b)(g) 10/07/03 50,000 50,000,000
----------------------------------------------------------------------------------
(Acquired 10/03/02; Cost $45,000,000)
1.11%(b)(g) 10/14/03 45,000 45,000,000
----------------------------------------------------------------------------------
Holmes Financing (No. 7) PLC (United
Kingdom)-Series 1, Class A,
1.07%(h) 04/15/04 10,000 10,000,000
==================================================================================
105,000,000
==================================================================================
Total Asset-Backed Securities (Cost
$129,520,063) 129,520,063
==================================================================================
|
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
PROMISSORY NOTES-5.40%
Goldman Sachs Group, Inc. (The)
(Acquired 03/21/03; Cost $71,000,000)
1.26%(b)(g)(i) 09/17/03 $71,000 $ 71,000,000
----------------------------------------------------------------------------------
(Acquired 03/13/03; Cost $29,000,000)
1.33%(b)(g)(i) 10/07/03 29,000 29,000,000
==================================================================================
Total Promissory Notes (Cost
$100,000,000) 100,000,000
==================================================================================
CERTIFICATES OF DEPOSIT-3.56%
Danske Bank A/S (Denmark)
2.00% 08/01/03 11,000 11,000,000
----------------------------------------------------------------------------------
National Australia Bank Ltd.
1.26% 08/24/04 20,000 20,000,000
----------------------------------------------------------------------------------
Rabobank Nederland (Netherlands)
1.19% 08/04/04 35,000 34,996,485
==================================================================================
Total Certificates of Deposit (Cost
$65,996,485) 65,996,485
==================================================================================
MEDIUM-TERM NOTES-2.70%
Money Market Trust LLY-
Series 2002-B, Floating Rate Notes,
(Acquired 12/03/02; Cost $50,000,000)
1.17%(b)(h)(i) 12/03/03 50,000 50,000,000
==================================================================================
VARIABLE RATE DEMAND
NOTES-2.52%
INSURED-0.35%
Michigan (State of) Housing Development
Authority; Series C RB,
1.05%(c)(j)(k)(l) 12/01/20 6,405 6,405,000
==================================================================================
LETTER OF CREDIT GUARANTEED-2.17%(J)(K)(M)
Colorado (State of) Health Facilities
Authority (National Benevolent
Association); Series E RB
(LOC-KBC Bank N.V.),
1.15%(1) 03/01/30 9,545 9,545,000
----------------------------------------------------------------------------------
Family Express Corp., LLC-Series A, Loan
Program Notes (LOC-Fifth Third Bank),
1.10% 04/01/28 9,070 9,070,000
----------------------------------------------------------------------------------
Miami-Dade (County of) Industrial Development
Authority (Dolphins Stadium); IDR
(LOC-Societe Generale),
1.10%(1) 07/01/22 100 100,000
----------------------------------------------------------------------------------
Mississippi (State of) Business Finance Corp.
(Viking Range Corp. Project); IDR (LOC-Bank
of America N.A.),
1.17%(1) 06/01/15 14,095 14,095,000
----------------------------------------------------------------------------------
|
FS-33
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
LETTER OF CREDIT GUARANTEED-(CONTINUED)
PxPort Blakely Communities; Series C RB
(LOC-Bank of America N.A.),
1.10%(1) 02/15/21 $ 7,500 $ 7,500,000
==================================================================================
40,310,000
==================================================================================
Total Variable Rate Demand Notes (Cost
$46,715,000) 46,715,000
==================================================================================
FUNDING AGREEMENT-0.54%
New York Life Insurance Co. (Acquired
04/03/03; Cost $10,000,000)
1.20%(b)(h)(i) 04/07/04 10,000 10,000,000
==================================================================================
Total Investments (excluding Repurchase
Agreements) (Cost $1,176,931,434) 1,176,931,434
==================================================================================
REPURCHASE AGREEMENTS-38.48%(n)
Banc of America Securities LLC
1.21%(o) 08/01/03 60,000 60,000,000
----------------------------------------------------------------------------------
Barclays Capital Inc.-New York Branch (United
Kingdom)
1.12%(p) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
|
PAR
MATURITY (000) VALUE
----------------------------------------------------------------------------------
REPURCHASE AGREEMENTS-(CONTINUED)
BNP Paribas Securities Corp.-New York Branch
(France)
1.12%(q) 08/01/03 $67,706 $ 67,706,034
----------------------------------------------------------------------------------
1.20%(r) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
Deutsche Bank Securities Inc.-New York Branch
(Germany)
1.19%(s) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
Greenwich Capital Markets, Inc.
1.12%(t) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
UBS Warburg LLC-New York Branch (Switzerland)
1.12%(u) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
Wachovia Securities, Inc.
1.12%(v) 08/01/03 85,000 85,000,000
----------------------------------------------------------------------------------
1.23%(w) 08/01/03 75,000 75,000,000
==================================================================================
Total Repurchase Agreements (Cost
$712,706,034) 712,706,034
==================================================================================
TOTAL INVESTMENTS-102.02% (Cost
$1,889,637,468)(x) 1,889,637,468
==================================================================================
OTHER ASSETS LESS LIABILITIES-(2.02%) (37,364,191)
==================================================================================
NET ASSETS-100.00% $1,852,273,277
__________________________________________________________________________________
==================================================================================
|
Investment Abbreviations:
ABS - Asset Backed Security Disc. - Discounted IDR - Industrial Development Revenue Bonds LOC - Letter of Credit RB - Revenue Bonds Unsec. - Unsecured |
Notes to Schedule of Investments:
(a) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 07/31/03 was $656,260,114,
which represented 35.43% of the Fund's net assets. Unless otherwise
indicated these securities are not considered to be illiquid.
(c) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp. or MBIA Insurance Co.
(d) 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.
(e) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one or two business day's notice based on timing of
the demand. Interest rates on master notes are redetermined daily. Rate
shown is the rate in effect on 07/31/03.
(f) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one business day's oral notice for up to 10% of
outstanding amount, otherwise, upon seven business day's written notice for
more than 10% of outstanding balance. Interest rates on master notes are
redetermined daily. Rate shown is the rate in effect on 07/31/03.
(g) Interest rates are redetermined daily. Rate shown is the rate in effect on
07/31/03.
(h) Interest rates are redetermined monthly. Rates shown are rates in effect on
07/31/03.
(i) Security considered to be illiquid. The aggregate market value of these
securities at 07/31/03 was $160,000,000 which represented 8.64% of the
Fund's net assets.
(j) Interest rates are redetermined weekly. Rates shown are rates in effect on
07/31/03.
(k) Demand security; payable upon demand by the Fund with usually no more than
seven calendar days' notice.
(l) Interest on this security is taxable income to the Fund.
(m) Principal and interest payments are guaranteed by the letter of credit
agreement.
FS-34
(n) 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. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities (money market funds only). Collateral
consisting of U.S. Government Securities and U.S. Government Agency
Securities is marked to market daily to ensure its market value is at least
102% of the sales price of the repurchase agreement. Collateral consisting
of Investment Grade Debt Securities is marked to market daily to ensure its
market value is at least 105% of the sales price of the repurchase
agreement. The investments in some repurchase agreements are through
participation with other mutual funds, private accounts and certain
non-registered investment companies managed by the investment advisor or its
affiliates.
(o) Repurchase agreement entered into 07/31/03 with a maturing value of
$60,002,017. Collateralized by $60,659,655 corporate obligations, 0.01% to
7.00% due 07/15/05 to 09/01/30 with an aggregate market value at 07/31/03 of
$63,000,001.
(p) Joint repurchase agreement entered into 07/31/03 with a maturing value of
$624,136,058. Collateralized by $625,305,000 U.S. Government obligations, 0%
to 6.25% due 02/26/04 to 09/15/11 with an aggregate market value at 07/31/03
of $636,599,808.
(q) Joint repurchase agreement entered into 07/31/03 with a maturing value of
$500,015,556. Collateralized by $455,553,000 U.S. Government obligations,
5.00% to 6.88% due 05/15/04 to 09/15/11 with an aggregate market value at
07/31/03 of $510,000,993.
(r) Repurchase agreement entered into 07/31/03 with a maturing value of
$85,002,833. Collateralized by $80,527,782 corporate obligations, 3.25% to
9.80% due 05/16/05 to 06/01/16 with an aggregate market value at 07/31/03 of
$89,250,001.
(s) Repurchase agreement entered into 07/31/03 with a maturing value of
$85,002,810. Collateralized by $201,799,264 corporate obligations, 0% to
7.71% due 03/01/06 to 07/05/35 with an aggregate market value at 07/31/03 of
$89,250,000.
(t) Joint repurchase agreement entered into 07/31/03 with a maturing value of
$500,015,556. Collateralized by $556,079,881 U.S. Government obligations,
4.50% to 7.00% due 09/01/17 to 08/01/33 with an aggregate market value at
07/31/03 of $510,002,294.
(u) Joint repurchase agreement entered into 07/31/03 with a maturing value of
$250,007,778. Collateralized by $286,330,000 U.S. Government obligations,
4.50% to 6.00% due 09/01/17 to 07/01/33 with an aggregate market value at
07/31/03 of $255,001,995.
(v) Joint repurchase agreement entered into 07/31/03 with a maturing value of
$750,023,333. Collateralized by $758,853,097 U.S. Government obligations,
4.00% to 7.25% due 02/15/04 to 07/01/33 with an aggregate market value at
07/31/03 of $765,001,266.
(w) Repurchase agreement entered into 07/31/03 with a maturing value of
$75,002,563. Collateralized by $389,240,300 corporate obligations, 0% to
7.75% due 12/18/10 to 07/11/43 with an aggregate market value at 07/31/03 of
$78,750,000.
(x) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-35
ASSETS:
Investments, excluding repurchase agreements
at value (amortized cost) $1,176,931,434
------------------------------------------------------------
Repurchase agreements 712,706,034
------------------------------------------------------------
Cash 6,499
------------------------------------------------------------
Receivables for:
Fund shares sold 38,256,721
------------------------------------------------------------
Interest 1,457,940
------------------------------------------------------------
Investment for deferred compensation plan 82,816
------------------------------------------------------------
Other assets 154,560
============================================================
Total assets 1,929,596,004
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 34,996,485
------------------------------------------------------------
Fund shares reacquired 41,337,329
------------------------------------------------------------
Dividends 53,902
------------------------------------------------------------
Deferred compensation plan 82,816
------------------------------------------------------------
Accrued distribution fees 636,946
------------------------------------------------------------
Accrued trustees' fees 1,371
------------------------------------------------------------
Accrued transfer agent fees 79,912
------------------------------------------------------------
Accrued operating expenses 133,966
============================================================
Total liabilities 77,322,727
============================================================
Net assets applicable to shares outstanding $1,852,273,277
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,852,113,368
------------------------------------------------------------
Undistributed net investment income 159,909
============================================================
$1,852,273,277
____________________________________________________________
============================================================
NET ASSETS:
AIM Cash Reserve Shares $1,188,876,324
____________________________________________________________
============================================================
Class B $ 543,810,575
____________________________________________________________
============================================================
Class C $ 113,306,025
____________________________________________________________
============================================================
Class R $ 6,280,353
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
AIM Cash Reserve Shares 1,188,857,238
____________________________________________________________
============================================================
Class B 543,801,758
____________________________________________________________
============================================================
Class C 113,304,148
____________________________________________________________
============================================================
Class R 6,280,270
____________________________________________________________
============================================================
Net asset value and offering price per share
for each class $ 1.00
____________________________________________________________
============================================================
|
See Notes to Financial Statements.
FS-36
INVESTMENT INCOME:
Interest $29,297,390
=========================================================================
EXPENSES:
Advisory fees 10,145,165
-------------------------------------------------------------------------
Administrative services fees 406,127
-------------------------------------------------------------------------
Custodian fees 76,482
-------------------------------------------------------------------------
Distribution fees -- AIM Cash Reserve Shares 2,854,476
-------------------------------------------------------------------------
Distribution fees -- Class B 6,669,844
-------------------------------------------------------------------------
Distribution fees -- Class C 1,167,526
-------------------------------------------------------------------------
Distribution fees -- Class R 17,527
-------------------------------------------------------------------------
Transfer agent fees 3,700,720
-------------------------------------------------------------------------
Trustees' fees 20,736
-------------------------------------------------------------------------
Other 637,578
=========================================================================
Total expenses 25,696,181
=========================================================================
Less: Fees waived, expenses reimbursed and expenses paid
indirectly (4,241,727)
=========================================================================
Net expenses 21,454,454
=========================================================================
Net investment income 7,842,936
=========================================================================
Net realized gain from investment securities 44,022
=========================================================================
Net increase in net assets resulting from operations $ 7,886,958
_________________________________________________________________________
=========================================================================
|
See Notes to Financial Statements.
FS-37
For the years ended July 31, 2003 and 2002
2003 2002
----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 7,842,936 $ 19,419,288
----------------------------------------------------------------------------------------------
Net realized gain from investment securities 44,022 1,145
==============================================================================================
Net increase in net assets resulting from operations 7,886,958 19,420,433
==============================================================================================
Distributions to shareholders from net investment income:
AIM Cash Reserve Shares (7,299,075) (15,341,349)
----------------------------------------------------------------------------------------------
Class B (432,412) (3,410,961)
----------------------------------------------------------------------------------------------
Class C (100,719) (666,967)
----------------------------------------------------------------------------------------------
Class R (10,730) (11)
==============================================================================================
Total distributions from net investment income (7,842,936) (19,419,288)
==============================================================================================
Distributions to shareholders from net realized gains:
AIM Cash Reserve Shares (35,590) --
----------------------------------------------------------------------------------------------
Class B (20,898) --
----------------------------------------------------------------------------------------------
Class C (3,549) --
----------------------------------------------------------------------------------------------
Class R (38) --
==============================================================================================
Total distributions from net realized gains (60,075) --
==============================================================================================
Decrease in net assets resulting from distributions (7,903,011) (19,419,288)
==============================================================================================
Share transactions-net:
AIM Cash Reserve Shares 67,004,557 184,349,260
----------------------------------------------------------------------------------------------
Class B (174,148,217) 278,519,026
----------------------------------------------------------------------------------------------
Class C (5,640,712) 32,062,975
----------------------------------------------------------------------------------------------
Class R 6,270,260 10,010
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (106,514,112) 494,941,271
==============================================================================================
Net increase (decrease) in net assets (106,530,165) 494,942,416
==============================================================================================
NET ASSETS:
Beginning of year 1,958,803,442 1,463,861,026
==============================================================================================
End of year $1,852,273,277 $1,958,803,442
______________________________________________________________________________________________
==============================================================================================
|
See Notes to Financial Statements.
FS-38
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Money Market Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to provide as high a level of current income as is consistent with the preservation of capital and liquidity. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- The Fund's securities are valued on the basis of amortized cost which approximates market value as permitted under Rule 2a-7 of the 1940 Act. This method values a security at its cost on the date of purchase and, thereafter, assumes a constant amortization to maturity of any premiums or accretion of discount.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income, adjusted for amortization of premiums and accretion of discounts on investments, is recorded on the accrual basis from settlement date.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.55% on the first $1 billion of the Fund's average daily net assets, plus 0.50% on the Fund's average daily net assets in excess of $1 billion. AIM and/or A I M Distributors, Inc. ("AIM Distributors") voluntarily waived fees and/or reimbursed expenses in order to increase the Fund's yield. Waivers and/or reimbursements may be changed from time to time. During the year ended July 31, 2003, AIM waived fees of $2,809,789.
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, 2003, AIM was paid $406,127 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, 2003, AFS retained $2,290,443 for such services.
The Trust has entered into master distribution agreements with AIM Distributors to serve as the distributor for the AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class shares of the Fund. Investor Class shares have not commenced operations. 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, Class C and Class R shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of AIM Cash Reserve shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.50% of the average daily net assets of Class R shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the AIM Cash Reserve Shares, Class B, Class C or Class R shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the AIM Cash Reserve Shares, Class B, Class C and Class R shares paid $2,854,476, $5,497,582, $943,558 and $17,527, respectively after AIM Distributors waived and/or reimbursed plan fees of $1,172,262 and $223,968 for Class B and Class C shares, respectively.
FS-39
Contingent deferred sales charges ("CDSC") are not recorded as expenses of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During year ended July 31, 2003, AIM Distributors retained $2,2310,327, $43,330, $280,508 and $0 from AIM Cash Reserve Shares, Class B, Class C and Class R shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $35,708 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $35,708.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid legal fees of $6,285 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. The Fund did not borrow or lend under the facility during the year ended July 31, 2003.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 was as follows:
2003 2002
--------------------------------------------------------------
Distributions paid from ordinary
income $7,903,011 $19,419,288
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 280,839 ------------------------------------------------------------ Temporary book/tax differences (120,930) ------------------------------------------------------------ Shares of beneficial interest 1,852,113,368 ============================================================ Total net assets $1,852,273,277 ____________________________________________________________ ============================================================ |
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
NOTE 7--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of distributions and other items on July 31, 2003, undistributed net investment income was increased by $159,909, undistributed net realized gains decreased by $48,683 and shares of beneficial interest decreased by $111,226. This reclassification had no effect on the net assets of the Fund.
FS-40
NOTE 8--SHARE INFORMATION
The Fund currently consists of five different classes of shares: AIM Cash Reserve Shares, Class B shares, Class C shares, Class R shares and Investor Class shares. AIM Cash Reserve Shares, Class R shares and Investor Class shares are sold at net asset value. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class R shares are subject to CDSC. Generally, Class B shares will automatically convert to AIM Cash Reserve Shares eight years after the end of the calendar month of purchase. Investor Class shares have not commenced operations.
CHANGES IN SHARES OUTSTANDING
---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------------------
2003 2002
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------------------------
Sold:
AIM Cash Reserve Shares 5,372,980,834 $ 5,372,980,834 7,239,176,762 $ 7,239,176,762
---------------------------------------------------------------------------------------------------------------------------------
Class B 485,890,867 485,890,867 920,671,959 920,671,959
---------------------------------------------------------------------------------------------------------------------------------
Class C 570,319,822 570,319,822 492,311,444 492,311,444
---------------------------------------------------------------------------------------------------------------------------------
Class R* 24,594,921 24,594,921 14,201 14,201
=================================================================================================================================
Issued as reinvestment of dividends:
AIM Cash Reserve Shares 6,288,154 6,288,154 12,953,250 12,953,250
---------------------------------------------------------------------------------------------------------------------------------
Class B 408,246 408,246 3,021,507 3,021,507
---------------------------------------------------------------------------------------------------------------------------------
Class C 89,880 89,880 550,550 550,550
---------------------------------------------------------------------------------------------------------------------------------
Class R* 9,756 9,756 5 5
=================================================================================================================================
Automatic conversion of Class B shares to AIM Cash
Reserve Shares:**
AIM Cash Reserve Shares 25,073,560 25,073,560 -- --
---------------------------------------------------------------------------------------------------------------------------------
Class B (25,073,560) (25,073,560) -- --
=================================================================================================================================
Reacquired:
AIM Cash Reserve Shares (5,337,337,991) (5,337,337,991) (7,067,780,752) (7,067,780,752)
---------------------------------------------------------------------------------------------------------------------------------
Class B (635,373,770) (635,373,770) (645,174,440) (645,174,440)
---------------------------------------------------------------------------------------------------------------------------------
Class C (576,050,414) (576,050,414) (460,799,019) (460,799,019)
---------------------------------------------------------------------------------------------------------------------------------
Class R* (18,334,417) (18,334,417) (4,196) (4,196)
=================================================================================================================================
(106,514,112) $ (106,514,112) 494,941,271 $ 494,941,271
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
* Class R shares commenced sales on June 3, 2002. ** Prior to the year ended July 31, 2003, conversion of Class B shares to AIM Cash Reserve Shares was included in AIM Cash Reserve Shares sold and Class B shares reacquired.
NOTE 9--SIGNIFICANT EVENT
The Board of Trustees of AIM Investment Securities Funds ("Buyer") unanimously approved, on June 11, 2003, an Agreement and Plan of Reorganization (the "Plan") pursuant to which AIM Money Market Fund ("Buying Fund"), a series of Buyer, would acquire all of the assets of INVESCO Cash Reserves Fund ("Selling Fund"), a series of INVESCO Money Market Funds, Inc. ("the Reorganization"). As a result of the Reorganization, shareholders of Selling Fund would receive shares of Buying Fund in exchange for their shares of Selling Fund, and Selling Fund would cease operations.
The Plan requires approval of Selling Fund shareholders and will be submitted to the shareholders for their consideration at a meeting to be held on October 21, 2003. If the Plan is approved by shareholders of Selling Fund and certain conditions required by the Plan are satisfied, the transaction is expected to become effective shortly thereafter.
FS-41
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CASH RESERVE
---------------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER
YEAR ENDED JULY 31, ENDED 31,
--------------------------------------- JULY 31, ----------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0064 0.0141 0.0467 0.0300(a) 0.0414 0.0453
=================================================================================================================================
Less distributions from net investment income (0.0064) (0.0141) (0.0467) (0.0300) (0.0414) (0.0453)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.64% 1.42% 4.77% 3.03% 4.22% 4.62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,188,876 $1,121,879 $937,532 $912,042 $989,478 $1,179,072
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets(c) 0.88%(d) 1.01% 1.06% 1.07%(e) 1.04% 0.99%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net
assets 0.64%(d) 1.40% 4.61% 5.15%(e) 4.16% 4.53%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.03% for the year ended July 31, 2003.
(d) Ratios are based on average net assets of $1,141,790,438.
(e) Annualized.
CLASS B
---------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER
YEAR ENDED JULY 31, ENDED 31,
----------------------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0007 0.0065 0.0392 0.0256(a) 0.0339 0.0371
=================================================================================================================================
Less distributions from net investment income (0.0007) (0.0065) (0.0392) (0.0256) (0.0339) (0.0371)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.07% 0.66% 3.99% 2.59% 3.45% 3.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $543,811 $717,967 $439,445 $289,327 $404,911 $310,534
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets(c) 1.46%(d) 1.76% 1.81% 1.82%(e) 1.79% 1.81%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net assets 0.06%(d) 0.65% 3.86% 4.40%(e) 3.41% 3.71%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.78% for the year ended July 31, 2003.
(d) Ratios are based on average net assets of $666,984,613.
(e) Annualized.
FS-42
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
---------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER
YEAR ENDED JULY 31, ENDED 31,
----------------------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0008 0.0065 0.0393 0.0256(a) 0.0339 0.0371
=================================================================================================================================
Less distributions from net investment income (0.0008) (0.0065) (0.0393) (0.0256) (0.0339) (0.0371)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.09% 0.66% 4.00% 2.59% 3.44% 3.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $113,306 $118,947 $ 86,884 $ 45,457 $ 56,636 $ 27,391
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets(c) 1.44%(d) 1.76% 1.81% 1.82%(e) 1.79% 1.81%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net assets 0.08%(d) 0.65% 3.86% 4.40%(e) 3.41% 3.71%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.78% for the year ended July 31, 2003.
(d) Ratios are based on average net assets of $116,752,566.
(e) Annualized.
CLASS R
------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
JULY 31, JULY 31,
2003 2002
--------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00
--------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0038 0.0010
============================================================================================
Less distributions from net investment income (0.0038) (0.0010)
============================================================================================
Net asset value, end of period $ 1.00 $ 1.00
____________________________________________________________________________________________
============================================================================================
Total return(a) 0.38% 0.10%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 6,280 $ 10
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets(b) 1.13%(c) 1.26%(d)
____________________________________________________________________________________________
============================================================================================
Ratio of net investment income to average net assets 0.39%(c) 1.15%(d)
____________________________________________________________________________________________
============================================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and not annualized for periods
less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.28% for the year ended July 31, 2003.
(c) Ratios are based on average net assets of $3,505,481.
(d) Annualized.
FS-43
We have audited the accompanying statement of assets and liabilities of AIM Real Estate Fund (a portfolio of AIM Advisor Funds), including the schedule of investments, as of July 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the periods presented through July 31, 2000 were audited by other auditors whose report dated September 1, 2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Real Estate Fund as of July 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP September 10, 2003
FS-44
FINANCIALS
JULY 31, 2003
MARKET
SHARES VALUE
-----------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS & COMMON
STOCKS-96.33%
APARTMENTS-13.15%
Archstone-Smith Trust 321,817 $ 8,318,969
-----------------------------------------------------------------------
Avalonbay Communities, Inc. 79,900 3,753,702
-----------------------------------------------------------------------
BRE Properties, Inc.-Class A 20,000 661,000
-----------------------------------------------------------------------
Camden Property Trust 78,300 2,921,373
-----------------------------------------------------------------------
Canadian Apartment Properties Real Estate
Investment Trust (Canada) 138,700 1,466,393
-----------------------------------------------------------------------
Equity Residential 67,900 1,894,410
-----------------------------------------------------------------------
Essex Property Trust, Inc. 241,800 14,653,080
-----------------------------------------------------------------------
Residential Equities Real Estate Investment
Trust (Canada) 105,100 1,084,971
-----------------------------------------------------------------------
United Dominion Realty Trust, Inc. 739,200 13,327,776
=======================================================================
48,081,674
=======================================================================
DIVERSIFIED-5.38%
Canadian Real Estate Investment Trust
(Canada) 32,200 317,507
-----------------------------------------------------------------------
Catellus Development Corp.(a) 130,900 3,015,936
-----------------------------------------------------------------------
Cominar Real Estate Investment Trust (Canada) 74,500 739,908
-----------------------------------------------------------------------
H&R Real Estate Investment Trust (Canada) 69,000 763,883
-----------------------------------------------------------------------
Vornado Realty Trust 323,800 14,842,992
=======================================================================
19,680,226
=======================================================================
HEALTHCARE-4.31%
Health Care Property Investors, Inc. 105,500 4,624,065
-----------------------------------------------------------------------
Health Care REIT, Inc. 137,200 4,320,428
-----------------------------------------------------------------------
Nationwide Health Properties, Inc. 102,000 1,746,240
-----------------------------------------------------------------------
Senior Housing Properties Trust 110,000 1,523,500
-----------------------------------------------------------------------
Ventas, Inc. 214,600 3,551,630
=======================================================================
15,765,863
=======================================================================
INDUSTRIAL PROPERTIES-11.62%
AMB Property Corp. 199,900 5,617,190
-----------------------------------------------------------------------
CenterPoint Properties Corp. 225,400 14,335,440
-----------------------------------------------------------------------
ProLogis 818,400 22,546,920
=======================================================================
42,499,550
=======================================================================
INDUSTRIAL/OFFICE PROPERTIES-2.60%
Kilroy Realty Corp. 121,500 3,495,555
-----------------------------------------------------------------------
Liberty Property Trust 173,450 6,016,980
=======================================================================
9,512,535
=======================================================================
|
MARKET
SHARES VALUE
-----------------------------------------------------------------------
LODGING-RESORTS-4.09%
Fairmont Hotels & Resorts Inc. (Canada) 191,400 $ 4,823,280
-----------------------------------------------------------------------
Hilton Hotels Corp. 389,200 5,682,320
-----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 137,000 4,466,200
=======================================================================
14,971,800
=======================================================================
OFFICE PROPERTIES-15.76%
Alexandria Real Estate Equities, Inc. 167,400 7,658,550
-----------------------------------------------------------------------
Arden Realty, Inc. 110,700 3,099,600
-----------------------------------------------------------------------
Boston Properties, Inc. 357,200 15,463,188
-----------------------------------------------------------------------
Brookfield Properties Corp. (Canada) 20,000 451,600
-----------------------------------------------------------------------
CarrAmerica Realty Corp. 17,400 508,254
-----------------------------------------------------------------------
Highwoods Properties, Inc. 129,900 3,005,886
-----------------------------------------------------------------------
Mack-Cali Realty Corp. 229,900 8,464,918
-----------------------------------------------------------------------
Prentiss Properties Trust 171,600 5,311,020
-----------------------------------------------------------------------
SL Green Realty Corp. 381,000 13,643,610
=======================================================================
57,606,626
=======================================================================
REGIONAL MALLS-21.56%
Borealis Retail Real Estate Investment Trust
(Canada) 237,600 1,708,501
-----------------------------------------------------------------------
CBL & Associates Properties, Inc. 261,900 12,618,342
-----------------------------------------------------------------------
General Growth Properties, Inc. 346,500 23,624,370
-----------------------------------------------------------------------
Macerich Co. (The) 322,100 12,023,993
-----------------------------------------------------------------------
Mills Corp. (The) 115,100 4,098,711
-----------------------------------------------------------------------
Rouse Co. (The) 25,000 999,750
-----------------------------------------------------------------------
Simon Property Group, Inc. 560,800 23,749,880
=======================================================================
78,823,547
=======================================================================
SHOPPING CENTERS-16.47%
Acadia Realty Trust 107,300 1,073,000
-----------------------------------------------------------------------
Chelsea Property Group, Inc. 381,900 16,650,840
-----------------------------------------------------------------------
Developers Diversified Realty Corp. 375,900 11,164,230
-----------------------------------------------------------------------
Federal Realty Investment Trust 232,600 8,110,762
-----------------------------------------------------------------------
New Plan Excel Realty Trust 226,700 5,078,080
-----------------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 167,700 7,175,883
-----------------------------------------------------------------------
Ramco-Gershenson Properties Trust 27,100 666,118
-----------------------------------------------------------------------
Regency Centers Corp. 142,700 5,191,426
-----------------------------------------------------------------------
RioCan Real Estate Investment Trust (Canada) 154,900 1,599,067
-----------------------------------------------------------------------
Urstadt Biddle Properties-Class A 259,100 3,510,805
=======================================================================
60,220,211
=======================================================================
|
FS-45
MARKET
SHARES VALUE
-----------------------------------------------------------------------
SPECIALTY PROPERTIES-1.39%
American Financial Realty Trust 186,400 $ 2,747,536
-----------------------------------------------------------------------
Entertainment Properties Trust 75,500 2,325,400
=======================================================================
5,072,936
=======================================================================
Total Real Estate Investment Trusts &
Common Stocks (Cost $288,260,116) 352,234,968
=======================================================================
MONEY MARKET FUNDS-4.98%
STIC Liquid Assets Portfolio(b) 9,094,930 9,094,930
-----------------------------------------------------------------------
STIC Prime Portfolio(b) 9,094,930 9,094,930
=======================================================================
Total Money Market Funds (Cost
$18,189,860) 18,189,860
=======================================================================
TOTAL INVESTMENTS-101.31% (Cost $306,449,976) 370,424,828
=======================================================================
OTHER ASSETS LESS LIABILITIES-(1.31%) (4,783,046)
=======================================================================
NET ASSETS-100.00% $365,641,782
_______________________________________________________________________
=======================================================================
|
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-46
JULY 31, 2003
ASSETS:
Investments, at market value (cost
$288,260,116) $352,234,968
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $18,189,860) 18,189,860
-----------------------------------------------------------
Receivables for:
Investments sold 161,910
-----------------------------------------------------------
Fund shares sold 3,431,207
-----------------------------------------------------------
Dividends 531,532
-----------------------------------------------------------
Investment for deferred compensation plan 26,177
-----------------------------------------------------------
Other assets 47,571
===========================================================
Total assets 374,623,225
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 8,115,395
-----------------------------------------------------------
Fund shares reacquired 466,713
-----------------------------------------------------------
Dividends 4,379
-----------------------------------------------------------
Deferred compensation plan 26,177
-----------------------------------------------------------
Accrued distribution fees 203,576
-----------------------------------------------------------
Accrued trustees' fees 845
-----------------------------------------------------------
Accrued transfer agent fees 126,687
-----------------------------------------------------------
Accrued operating expenses 37,671
===========================================================
Total liabilities 8,981,443
===========================================================
Net assets applicable to shares outstanding $365,641,782
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $316,741,425
-----------------------------------------------------------
Undistributed net investment income 574,152
-----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (15,650,916)
-----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 63,977,121
===========================================================
$365,641,782
___________________________________________________________
===========================================================
NET ASSETS:
Class A $177,901,039
___________________________________________________________
===========================================================
Class B $123,092,658
___________________________________________________________
===========================================================
Class C $ 64,648,085
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 10,163,942
___________________________________________________________
===========================================================
Class B 7,013,258
___________________________________________________________
===========================================================
Class C 3,690,390
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 17.50
-----------------------------------------------------------
Offering price per share:
(Net asset value of $17.50 divided by
95.25%) $ 18.37
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 17.55
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 17.52
___________________________________________________________
===========================================================
|
See Notes to Financial Statements.
FS-47
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $63,610) $11,942,995
-------------------------------------------------------------------------
Dividends from affiliated money market funds 180,305
-------------------------------------------------------------------------
Interest 11,587
=========================================================================
Total investment income 12,134,887
=========================================================================
EXPENSES:
Advisory fees 2,327,770
-------------------------------------------------------------------------
Administrative services fees 79,487
-------------------------------------------------------------------------
Custodian fees 60,596
-------------------------------------------------------------------------
Distribution fees -- Class A 414,390
-------------------------------------------------------------------------
Distribution fees -- Class B 919,868
-------------------------------------------------------------------------
Distribution fees -- Class C 482,573
-------------------------------------------------------------------------
Transfer agent fees 885,755
-------------------------------------------------------------------------
Trustees' fees 10,106
-------------------------------------------------------------------------
Other 187,412
=========================================================================
Total expenses 5,367,957
=========================================================================
Less: Fees waived and expenses paid indirectly (7,374)
=========================================================================
Net expenses 5,360,583
=========================================================================
Net investment income 6,774,304
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (4,083,840)
-------------------------------------------------------------------------
Foreign currencies (23,020)
=========================================================================
(4,106,860)
=========================================================================
Change in net unrealized appreciation of:
Investment securities 48,776,717
-------------------------------------------------------------------------
Foreign currencies 829
=========================================================================
48,777,546
=========================================================================
Net gain from investment securities and foreign currencies 44,670,686
=========================================================================
Net increase in net assets resulting from operations $51,444,990
_________________________________________________________________________
=========================================================================
|
See Notes to Financial Statements.
FS-48
2003 2002
------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 6,774,304 $ 2,902,798
------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (4,106,860) 2,344,896
------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 48,777,546 7,441,074
==========================================================================================
Net increase in net assets resulting from operations 51,444,990 12,688,768
==========================================================================================
Distributions to shareholders from net investment income:
Class A (3,329,708) (1,366,733)
------------------------------------------------------------------------------------------
Class B (2,034,884) (741,067)
------------------------------------------------------------------------------------------
Class C (1,070,734) (669,922)
==========================================================================================
Decrease in net assets resulting from distributions (6,435,326) (2,777,722)
==========================================================================================
Share transactions-net:
Class A 70,728,483 53,809,611
------------------------------------------------------------------------------------------
Class B 37,706,329 49,731,417
------------------------------------------------------------------------------------------
Class C 18,496,500 12,210,117
==========================================================================================
Net increase in net assets resulting from share
transactions 126,931,312 115,751,145
==========================================================================================
Net increase in net assets 171,940,976 125,662,191
==========================================================================================
NET ASSETS:
Beginning of year 193,700,806 68,038,615
==========================================================================================
End of year $365,641,782 $193,700,806
__________________________________________________________________________________________
==========================================================================================
|
See Notes to Financial Statements.
FS-49
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Real Estate Fund (the "Fund") is a series portfolio of AIM Advisor Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of two separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve high total return. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
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
FS-50
account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the fund's book and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
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.
G. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.90% of the Fund's average daily net assets. AIM has entered into a sub-advisory agreement with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM pays INVESCO 40% of the fee paid by the Fund to AIM. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended July 31, 2003, AIM waived fees of $2,113.
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, 2003, AIM was paid $79,487 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, 2003, AFS retained $463,931 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C and Investor Class shares of the Fund. Investor Class shares have not commenced operations. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, the Fund may pay a service fee up to 0.25% of the average daily net assets of the Class A, Class B, Class C or Investor Class shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the Class A, Class B and Class C shares paid $414,390, $919,868 and $482,573, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the year ended July 31, 2003, AIM Distributors retained $162,429 in front-end sales commissions from the sale of Class A shares and $9,515, $88 and $19,224 from Class A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $5,160 and reductions in custodian fees of $101 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $5,261.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
The law firm Kramer, Levin, Naftalis & Frankel LLP of which a trustee is a member as counsel to the Independent Trustees. During the year ended July 31, 2003, the Fund paid legal fees of $2,993.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on
FS-51
investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended July 31, 2003 and 2002 were as follows:
2003 2002
--------------------------------------------------------------
Distributions paid from ordinary
income $6,435,326 $2,777,722
______________________________________________________________
==============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 837,934 ----------------------------------------------------------- Unrealized appreciation -- investments 62,694,429 ----------------------------------------------------------- Temporary book/tax differences (34,380) ----------------------------------------------------------- Capital loss carryforward (13,350,647) ----------------------------------------------------------- Post-October capital loss deferral (1,246,979) ----------------------------------------------------------- Shares of beneficial interest 316,741,425 =========================================================== Total net assets $365,641,782 ___________________________________________________________ =========================================================== |
The difference between book-basis and tax-basis unrealized appreciation is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation difference is attributable to the tax deferral of losses on wash sales, realization for tax purposes of unrealized gains on passive foreign investment companies and other deferrals. The tax-basis unrealized appreciation on investments includes appreciation on foreign currencies of $2,269.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2007 $ 9,612,829
----------------------------------------------------------
July 31, 2008 1,275,744
----------------------------------------------------------
July 31, 2011 2,462,074
==========================================================
Total capital loss carryforward $13,350,647
__________________________________________________________
==========================================================
|
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $340,224,591 and $214,512,526, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON
A TAX BASIS
-------------------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $62,714,500
-------------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (22,340)
===================================================================
Net unrealized appreciation of investment
securities $62,692,160
___________________________________________________________________
===================================================================
Cost of investments for tax purposes is $307,732,668.
|
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency transactions and passive foreign investment companies on July 31, 2003, undistributed net investment income was decreased by $5,973, undistributed net realized gains (losses) increased by $5,938 and shares of beneficial interest increased by $35. This reclassification had no effect on the net assets of the Fund.
FS-52
NOTE 9--SHARE INFORMATION
The Fund currently consists of four different classes of shares: Class A shares, Class B shares, Class C and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Investor Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase. Investor Class shares have not commenced operations.
CHANGES IN SHARES OUTSTANDING
----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 10,040,616 $153,310,327 5,154,009 $ 76,791,735
----------------------------------------------------------------------------------------------------------------------
Class B 4,612,513 69,835,946 4,236,687 63,066,596
----------------------------------------------------------------------------------------------------------------------
Class C 2,144,150 32,601,275 1,526,796 22,598,155
======================================================================================================================
Issued as reinvestment of dividends:
Class A 199,768 3,041,849 86,632 1,253,375
----------------------------------------------------------------------------------------------------------------------
Class B 118,414 1,804,757 45,952 669,735
----------------------------------------------------------------------------------------------------------------------
Class C 60,550 921,382 40,989 588,258
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:*
Class A 158,310 2,459,992 -- --
----------------------------------------------------------------------------------------------------------------------
Class B (157,917) (2,459,992) -- --
======================================================================================================================
Reacquired:
Class A (5,900,039) (88,083,685) (1,670,317) (24,235,499)
----------------------------------------------------------------------------------------------------------------------
Class B (2,108,225) (31,474,382) (979,116) (14,004,914)
----------------------------------------------------------------------------------------------------------------------
Class C (986,180) (15,026,157) (770,478) (10,976,296)
======================================================================================================================
8,181,960 $126,931,312 7,671,154 $115,751,145
______________________________________________________________________________________________________________________
======================================================================================================================
|
* Prior to the year ended July 31, 2003, conversion of Class B shares to Class A shares were included in Class A shares sold and Class B shares reacquired.
NOTE 10--SIGNIFICANT EVENT
The Board of Trustees of AIM Advisor Funds (the "Trust") approved, on July 30, 2003, an Agreement and Plan of Reorganization (the "Plan"), which provides for the restructuring of AIM International Core Equity Fund and AIM Real Estate Fund, the two series portfolios of the Trust (each a "Fund" and, collectively, the "Funds"), as new series portfolios of AIM Investment Securities Funds ("AISF") and, in connection therewith, the sale of all of each Fund's assets and the termination of each Fund as a designated series of the Trust. AISF is an existing Delaware statutory trust. The Plan has been structured as a tax-free reorganization.
The Plan provides for a series of transactions to convert each Fund to a corresponding series (a "New Fund") of AISF. Under the Plan, each Fund will transfer all its assets to a corresponding New Fund in exchange solely for voting shares of beneficial interest in the New Fund and the New Fund's assumption of all the Fund's liabilities (collectively, the "Restructuring"). The operations of each New Fund following the Restructuring will be substantially similar to those of its predecessor Fund. AISF, like the Trust operates as an open-end management investment company.
The proposed Restructuring relates to an integration initiative announced on March 27, 2003, by AMVESCAP PLC ("AMVESCAP"), the parent company of both AIM and INVESCO, with respect to its North American mutual fund operations. AMVESCAP has recommended that certain series portfolios of funds within The AIM Family of Funds (the "AIM Funds") with few portfolios be restructured as new series of an existing Delaware statutory trust. This change should simplify the organizational structure and reduce costs of the AIM Funds.
The proposed Restructuring of each Fund requires the approval of such Funds's shareholders and will be submitted to shareholders for their consideration at a meeting to be held on October 21, 2003. If approved by shareholders and certain closing conditions required by the Plan are satisfied, the proposed Restructuring is expected to be consummated shortly thereafter. If shareholders of a Fund do no approve the proposed Restructuring, such Fund will continue to operate as a series of the Trust.
FS-53
NOTE 11--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
YEAR ENDED JULY 31, ENDED DECEMBER 31,
--------------------------------- JULY 31, ------------------
2003 2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46 $ 15.74
--------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.45(a) 0.47(a) 0.50 0.30(a) 0.42 0.58(a)
--------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.24 1.68 0.54 2.38 (0.75) (4.11)
================================================================================================================================
Total from investment operations 2.69 2.15 1.04 2.68 (0.33) (3.53)
================================================================================================================================
Less distributions:
Dividends from net investment income (0.44) (0.46) (0.52) (0.25) (0.52) (0.50)
--------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25)
================================================================================================================================
Total distributions (0.44) (0.46) (0.52) (0.25) (0.52) (0.75)
================================================================================================================================
Net asset value, end of period $ 17.50 $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 18.12% 16.10% 8.23% 25.61% (2.88)% (22.54)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $177,901 $86,411 $28,400 $23,187 $16,279 $20,087
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.72%(c) 1.77% 1.63% 1.62%(d) 1.61% 1.55%
--------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.72%(c) 1.77% 1.79% 2.05%(d) 1.73% 1.71%
================================================================================================================================
Ratio of net investment income to average net assets 2.97%(c) 3.25% 3.88% 4.49%(d) 3.70% 4.37%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 87% 77% 85% 39% 52% 69%
________________________________________________________________________________________________________________________________
================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $118,397,069.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-54
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
----------------------------------------------------------------------------------
MARCH 3, 1998
SEVEN MONTHS (DATE SALES
YEAR ENDED JULY 31, ENDED YEAR ENDED COMMENCED) TO
--------------------------------- JULY 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.29 $ 13.59 $ 13.07 $ 10.64 $11.48 $ 15.34
------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36(a) 0.38(a) 0.41 0.25(a) 0.32 0.37(a)
------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 2.24 1.68 0.53 2.39 (0.72) (3.58)
==============================================================================================================================
Total from investment operations 2.60 2.06 0.94 2.64 (0.40) (3.21)
==============================================================================================================================
Less distributions:
Dividends from net investment income (0.34) (0.36) (0.42) (0.21) (0.44) (0.40)
------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25)
==============================================================================================================================
Total distributions (0.34) (0.36) (0.42) (0.21) (0.44) (0.65)
==============================================================================================================================
Net asset value, end of period $ 17.55 $ 15.29 $ 13.59 $ 13.07 $10.64 $ 11.48
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 17.37% 15.40% 7.42% 25.08% (3.53)% (21.02)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $123,093 $69,557 $16,917 $12,722 $9,839 $ 6,901
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.37%(c) 2.41% 2.36% 2.37%(d) 2.35% 2.31%(d)
------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.37%(c) 2.41% 2.43% 2.70%(d) 2.37% 2.35%(d)
==============================================================================================================================
Ratio of net investment income to average
net assets 2.32%(c) 2.61% 3.15% 3.73%(d) 2.96% 3.62%(d)
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(e) 87% 77% 85% 39% 52% 69%
______________________________________________________________________________________________________________________________
==============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $91,986,805.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-55
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
----------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED
YEAR ENDED JULY 31, ENDED DECEMBER 31,
-------------------------------- JULY 31, ------------------
2003 2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46 $ 15.74
--------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36(a) 0.38(a) 0.41 0.25(a) 0.33(a) 0.50(a)
--------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.24 1.67 0.53 2.39 (0.73) (4.13)
================================================================================================================================
Total from investment operations 2.60 2.05 0.94 2.64 (0.40) (3.63)
================================================================================================================================
Less distributions:
Dividends from net investment income (0.34) (0.36) (0.42) (0.21) (0.44) (0.40)
--------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25)
================================================================================================================================
Total distributions (0.34) (0.36) (0.42) (0.21) (0.44) (0.65)
================================================================================================================================
Net asset value, end of period $ 17.52 $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 17.41% 15.35% 7.43% 25.13% (3.54)% (23.16)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $64,648 $37,733 $22,722 $20,306 $19,992 $32,921
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.37%(c) 2.41% 2.36% 2.37%(d) 2.35% 2.31%
--------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.37%(c) 2.41% 2.43% 2.70%(d) 2.37% 2.37%
================================================================================================================================
Ratio of net investment income to average net assets 2.32%(c) 2.61% 3.15% 3.73%(d) 2.96% 3.62%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 87% 77% 85% 39% 52% 69%
________________________________________________________________________________________________________________________________
================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $48,257,279.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-56
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Short Term Bond Fund and the Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM Short Term Bond Fund (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2003, and the related statement of operations, statement of changes in net assets and financial highlights for the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Short Term Bond Fund as of July 31, 2003, and the results of its operations, changes in its net assets and financial highlights for the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP September 10, 2003
FS-57
FINANCIALS
July 31, 2003
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
BONDS & NOTES-52.72%
AEROSPACE & DEFENSE-0.94%
Lockheed Martin Corp.,
Series A, Medium Term Notes, 8.66%,
11/30/06 $ 495,000 $ 569,646
-------------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes, 7.25%, 05/15/06 650,000 728,078
-------------------------------------------------------------------------
Raytheon Co., Sr. Unsec. Notes, 6.30%,
03/15/05 1,750,000 1,859,252
=========================================================================
3,156,976
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.46%
Bank of New York Institutional Capital Trust-
Series A, Bonds, 7.78%, 12/01/26 (Acquired
06/12/03; Cost $1,789,065)(a)(b) 1,500,000 1,539,615
=========================================================================
AUTOMOBILE MANUFACTURERS-0.61%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 2,025,000 2,052,722
=========================================================================
BROADCASTING & CABLE TV-7.18%
Clear Channel Communications, Inc.,
Sr. Unsec. Gtd. Notes, 8.00%, 11/01/08 2,000,000 2,252,500
-------------------------------------------------------------------------
Sr. Unsec. Notes, 7.88%, 06/15/05 3,590,000 3,939,379
-------------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Notes, 8.88%, 04/01/07 900,000 951,651
-------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06 1,000,000 1,190,000
-------------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 5,100,000 5,909,931
-------------------------------------------------------------------------
Cox Communications, Inc.-Class A, Unsec.
Notes, 7.50%, 08/15/04 2,495,000 2,638,438
-------------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 4.38%, 05/01/08
(Acquired 04/14/03; Cost $1,748,863)(a)(b) 1,750,000 1,773,432
-------------------------------------------------------------------------
TCI Communications, Inc.,
Medium Term Notes, 8.35%, 02/15/05 1,822,000 1,954,350
-------------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 08/01/05 575,000 631,827
-------------------------------------------------------------------------
Time Warner Inc., Unsec. Notes, 7.75%,
06/15/05 2,750,000 3,006,575
=========================================================================
24,248,083
=========================================================================
CONSUMER FINANCE-5.13%
Capital One Bank-Series 4, Sr. Global Notes,
6.50%, 07/30/04 3,100,000 3,220,125
-------------------------------------------------------------------------
Capital One Financial Corp., Sr. Unsec.
Notes, 7.25%, 12/01/03 800,000 808,760
-------------------------------------------------------------------------
7.25%, 05/01/06 3,000,000 3,183,750
-------------------------------------------------------------------------
8.75%, 02/01/07 1,000,000 1,087,350
-------------------------------------------------------------------------
CitiFinancial Credit Co., Unsec. Notes,
6.50%, 06/01/05 1,000,000 1,072,620
-------------------------------------------------------------------------
Ford Motor Credit Co., Notes, 7.50%, 06/15/04 1,200,000 1,249,236
-------------------------------------------------------------------------
Household Finance Corp.,
Medium Term Notes, 3.38%, 02/21/06 1,400,000 1,414,588
-------------------------------------------------------------------------
Sr. Unsec. Global Notes,
6.50%, 01/24/06 100,000 108,452
-------------------------------------------------------------------------
8.00%, 05/09/05 3,740,000 4,114,561
-------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$1,046,330)(a)(b) $ 1,000,000 $ 1,041,370
=========================================================================
17,300,812
=========================================================================
DIVERSIFIED BANKS-3.13%
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $776,335)(a)(b) 700,000 749,420
-------------------------------------------------------------------------
Bank One Corp., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/01/05 1,900,000 2,100,146
-------------------------------------------------------------------------
BankAmerica Institutional Capital-Series B,
Gtd. Bonds, 7.70%, 12/31/26 (Acquired
06/18/03; Cost $1,768,200)(a)(b) 1,500,000 1,550,535
-------------------------------------------------------------------------
Bankers Trust Corp., Unsec. Sub. Notes,
8.25%, 05/01/05 1,200,000 1,319,664
-------------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 1,500,000 1,600,725
-------------------------------------------------------------------------
Citicorp, Jr. Unsec. Sub. Notes, 6.38%,
01/15/06 100,000 106,645
-------------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Yankee Notes,
6.38%, 06/15/08 (Acquired 08/30/02; Cost
$53,673)(a)(b) 50,000 53,286
-------------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27 650,000 696,592
-------------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 900,000 1,056,474
-------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 250,000 276,470
-------------------------------------------------------------------------
U.S. Bancorp-Series N, Sr. Medium Term Notes,
2.75%, 03/30/06 500,000 502,190
-------------------------------------------------------------------------
Wells Fargo Financial, Inc., Global Notes,
6.13%, 02/15/06 500,000 545,480
=========================================================================
10,557,627
=========================================================================
DIVERSIFIED CAPITAL MARKETS-0.45%
Chase Manhattan Corp., Sub. Deb., 7.88%,
07/15/06 400,000 453,208
-------------------------------------------------------------------------
JPMorgan Chase Bank, Sub. Notes, 7.00%,
06/01/05 1,000,000 1,078,240
=========================================================================
1,531,448
=========================================================================
ELECTRIC UTILITIES-3.40%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 1,430,000 1,569,253
-------------------------------------------------------------------------
CenterPoint Energy, Inc., Notes, 5.88%,
06/01/08 (Acquired 05/21/03; Cost
$1,008,520)(a) 1,000,000 980,090
-------------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 2,015,000 2,104,788
-------------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 1,740,000 1,897,940
-------------------------------------------------------------------------
Niagara Mohawk Power Corp., First Mortgage
Bonds, 8.00%, 06/01/04(c) 100,000 104,678
-------------------------------------------------------------------------
Public Service Co. of New Mexico-Series A,
Sr. Unsec. Notes, 7.10%, 08/01/05 2,000,000 2,187,920
-------------------------------------------------------------------------
TXU Corp.-Series B, Sr. Unsec. Notes, 6.38%,
10/01/04(c) 2,250,000 2,366,595
-------------------------------------------------------------------------
|
FS-58
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
Wisconsin Energy Corp., Sr. Unsec. Unsub.
Notes, 5.50%, 12/01/08 $ 250,000 $ 267,273
=========================================================================
11,478,537
=========================================================================
GAS UTILITIES-0.31%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 1,000,000 1,041,790
=========================================================================
HOMEBUILDING-0.34%
Lennar Corp.-Series B, Class A, Sr. Unsec.
Gtd. Global Notes, 9.95%, 05/01/10 1,000,000 1,162,500
=========================================================================
HYPERMARKETS & SUPER CENTERS-0.20%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 600,000 666,804
=========================================================================
INTEGRATED OIL & GAS-0.52%
BP Canada Finance Co. (Canada), Unsec. Gtd.
Unsub. Global Notes, 3.38%, 10/31/07 1,000,000 993,800
-------------------------------------------------------------------------
Occidental Petroleum Corp., Sr. Unsec. Notes,
6.50%, 04/01/05 700,000 746,753
=========================================================================
1,740,553
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-6.16%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 3,427,000 3,840,022
-------------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 8.25%, 06/15/05 1,750,000 1,930,460
-------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 300,000 330,792
-------------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 700,000 791,259
-------------------------------------------------------------------------
SBC Communications Capital Corp.-Series D,
Medium Term Notes, 7.11%, 08/14/06 2,425,000 2,751,623
-------------------------------------------------------------------------
Sprint Capital Corp.,
Gtd. Global Notes, 5.88%, 05/01/04 1,400,000 1,433,376
-------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 3,040,000 3,215,651
-------------------------------------------------------------------------
7.13%, 01/30/06 15,000 16,235
-------------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes,
6.13%, 11/15/08 1,000,000 1,050,940
-------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 7.90%, 03/15/05 3,500,000 3,777,725
-------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07 1,500,000 1,666,875
=========================================================================
20,804,958
=========================================================================
INVESTMENT BANKING & BROKERAGE-2.31%
Bear Stearns Cos. Inc. (The), Sr. Unsec.
Global Notes, 3.00%, 03/30/06 1,900,000 1,914,060
-------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), Global
Bonds, 7.63%, 08/17/05 75,000 83,021
-------------------------------------------------------------------------
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03; Cost
$2,008,062)(a)(b) 1,800,000 1,973,880
-------------------------------------------------------------------------
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 125,000 143,869
-------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-(CONTINUED)
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 $ 700,000 $ 790,580
-------------------------------------------------------------------------
Merrill Lynch & Co., Inc.
Series B, Medium Term Notes,
4.54%, 03/08/05 250,000 259,595
-------------------------------------------------------------------------
7.08%, 10/03/05 690,000 756,944
-------------------------------------------------------------------------
Series E, Floating Rate Medium Term Euro
Notes, 1.36%, 06/28/04(d) 400,000 400,635
-------------------------------------------------------------------------
Morgan Stanley,
Sr. Global Notes, 7.75%, 06/15/05 1,050,000 1,157,247
-------------------------------------------------------------------------
Unsec. Notes, 6.30%, 01/15/06 300,000 324,516
=========================================================================
7,804,347
=========================================================================
LIFE & HEALTH INSURANCE-0.95%
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 500,000 550,325
-------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 2,340,000 2,646,868
=========================================================================
3,197,193
=========================================================================
MOVIES & ENTERTAINMENT-0.90%
AOL Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06 750,000 807,060
-------------------------------------------------------------------------
Viacom Inc., Sr. Unsec. Gtd. Notes, 7.15%,
05/20/05 2,060,000 2,241,877
=========================================================================
3,048,937
=========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.39%
Westar Energy, Inc., Sec. First Mortgage
Global Bonds, 7.88%, 05/01/07 1,200,000 1,323,000
=========================================================================
OIL & GAS DRILLING-0.66%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05 2,070,000 2,213,844
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.73%
Anadarko Petroleum Corp. (Canada), Unsec.
Yankee Deb., 7.38%, 05/15/06 50,000 56,015
-------------------------------------------------------------------------
Kerr-McGee Corp., Unsec. Gtd. Global Notes,
5.38%, 04/15/05 1,630,000 1,707,197
-------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp.,
Sr. Sub. Notes, 9.25%, 06/15/04 1,850,000 1,953,100
-------------------------------------------------------------------------
Unsec. Notes, 6.88%, 12/01/07 1,250,000 1,398,925
-------------------------------------------------------------------------
Nexen Inc. (Canada), Unsec. Unsub. Yankee
Notes, 7.13%, 02/04/04 700,000 716,646
=========================================================================
5,831,883
=========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.53%
Petroleos Mexicanos (Mexico), Unsec. Gtd.
Unsub. Global Notes, 6.50%, 02/01/05 1,700,000 1,795,625
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-6.10%
ASIF Global Financing XX, Sec. Notes, 2.65%,
01/17/06 (Acquired 01/08/03-07/09/03; Cost
$1,557,431)(a)(b) 1,545,000 1,555,923
-------------------------------------------------------------------------
|
FS-59
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
CIT Group Inc.,
Sr. Floating Rate Medium Term Global Notes,
2.35%, 11/25/03(d) $ 600,000 $ 601,032
-------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 2,000,000 2,197,340
-------------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$1,191,550)(a)(b) 1,000,000 1,082,790
-------------------------------------------------------------------------
General Electric Capital Corp.,
Series A, Medium Term Global Notes, 2.85%,
01/30/06 1,430,000 1,448,275
-------------------------------------------------------------------------
Sr. Medium Term Global Notes, 4.00%,
05/30/18 475,000 464,289
-------------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Notes, 4.50%, 07/15/06 1,600,000 1,604,768
-------------------------------------------------------------------------
Medium Term Notes,
4.15%, 02/07/05 750,000 758,437
-------------------------------------------------------------------------
6.38%, 01/30/04 1,460,000 1,492,208
-------------------------------------------------------------------------
International Lease Finance Corp.,
Global Notes, 2.95%, 05/23/06 1,110,000 1,109,722
-------------------------------------------------------------------------
Notes, 5.13%, 08/01/04 2,500,000 2,587,275
-------------------------------------------------------------------------
Lehman Brothers Holdings Inc., Sr. Notes,
8.75%, 03/15/05 175,000 192,661
-------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09 1,350,000 1,583,374
-------------------------------------------------------------------------
Sr. Unsec. Global Notes, 8.02%, 05/15/07 1,000,000 1,117,750
-------------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 2,500,000 2,775,700
=========================================================================
20,571,544
=========================================================================
PACKAGED FOODS & MEATS-0.39%
Kraft Foods Inc., Global Notes, 5.25%,
06/01/07 1,250,000 1,312,813
=========================================================================
PHARMACEUTICALS-0.22%
Lilly (Eli) & Co., Unsec. Unsub. Global
Notes, 2.90%, 03/15/08 750,000 732,413
=========================================================================
PUBLISHING-0.23%
News America Inc., Notes, 4.75%, 03/15/10
(Acquired 03/04/03; Cost $799,704)(a)(b) 800,000 793,024
=========================================================================
REAL ESTATE-1.57%
Camden Property Trust, Sr. Unsec. Notes,
7.00%, 11/15/03 1,585,000 1,609,029
-------------------------------------------------------------------------
EOP Operating L.P.,
Sr. Unsec. Notes, 6.50%, 06/15/04 1,650,000 1,706,447
-------------------------------------------------------------------------
Unsec. Notes, 8.38%, 03/15/06 1,750,000 1,976,188
=========================================================================
5,291,664
=========================================================================
REGIONAL BANKS-0.43%
Popular, Inc., Unsec. Sub. Notes, 6.75%,
12/15/05 1,000,000 1,056,580
-------------------------------------------------------------------------
Union Planters Bank, N.A., Unsec. Sub. Notes,
6.50%, 03/15/08 350,000 380,233
=========================================================================
1,436,813
=========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
SOVEREIGN DEBT-1.64%
Export-Import Bank of Korea (The) (South
Korea), Unsec. Putable Global Notes, 6.50%,
11/15/03 $ 2,000,000 $ 2,174,920
-------------------------------------------------------------------------
Hydro-Quebec (Canada)-Series B, Gtd. Medium
Term Yankee Notes, 6.52%, 02/23/06(c) 1,150,000 1,252,281
-------------------------------------------------------------------------
Japan Bank for International Coop. (Japan),
Unsec. Gtd. Euro Bonds, 6.50%, 10/06/05 75,000 81,562
-------------------------------------------------------------------------
United Mexican States (Mexico), Global Notes,
4.63%, 10/08/08 2,000,000 2,010,500
=========================================================================
5,519,263
=========================================================================
THRIFTS & MORTGAGE FINANCE-0.67%
Countrywide Home Loans, Inc.
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 1,175,000 1,256,616
-------------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 1,000,000 1,016,130
=========================================================================
2,272,746
=========================================================================
TOBACCO-0.73%
Altria Group, Inc., Notes,
6.80%, 12/01/03 1,950,000 1,971,938
-------------------------------------------------------------------------
7.13%, 10/01/04 480,000 486,600
=========================================================================
2,458,538
=========================================================================
TRUCKING-0.66%
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 2,000,000 2,245,680
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.78%
Cingular Wireless LLC, Sr. Unsec. Global
Notes, 5.63%, 12/15/06 1,805,000 1,966,602
-------------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 6,145,000 7,420,088
-------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 2,780,000 3,384,650
=========================================================================
12,771,340
=========================================================================
Total Bonds & Notes (Cost $177,763,318) 177,903,092
=========================================================================
ASSET-BACKED SECURITIES-1.66%
OTHER DIVERSIFIED FINANCIAL SERVICES-1.66%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
10/03/02; Cost $826,403)(a)(b) 763,139 823,297
-------------------------------------------------------------------------
First Industrial Realty Trust, Inc., Pass
Through Ctfs., 7.38%, 05/15/04 (Acquired
02/06/03; Cost $2,097,000)(a)(b) 2,000,000 2,072,220
-------------------------------------------------------------------------
Yorkshire Power (Cayman Islands)-Series
2000-1, Pass Through Ctfs., 8.25%, 02/15/05
(Acquired 06/19/03; Cost $2,725,725)(a)(b) 2,500,000 2,694,525
=========================================================================
Total Asset-Backed Securities (Cost
$5,578,867) 5,590,042
=========================================================================
|
FS-60
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-43.20%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-11.00%
Pass Through Ctfs.,
8.00%, 11/20/12 $ 1,696,989 $ 1,819,585
-------------------------------------------------------------------------
7.50%, 06/01/16 to 09/01/29 10,793,757 11,510,635
-------------------------------------------------------------------------
7.00%, 12/01/16 to 01/01/33 7,841,674 8,309,729
-------------------------------------------------------------------------
6.00%, 02/01/17 to 03/01/23 8,262,680 8,453,920
-------------------------------------------------------------------------
8.50%, 02/01/19 to 08/17/26 6,454,909 7,033,987
=========================================================================
37,127,856
=========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-19.41%
Pass Through Ctfs.,
7.50%, 02/01/15 to 01/01/21 4,849,086 5,193,738
-------------------------------------------------------------------------
7.00%, 04/01/15 to 02/01/33 30,217,670 32,028,680
-------------------------------------------------------------------------
6.50%, 11/01/16 to 07/01/31 5,050,941 5,315,356
-------------------------------------------------------------------------
8.00%, 09/01/17 to 12/01/32 20,088,296 21,669,786
-------------------------------------------------------------------------
8.50%, 11/01/24 1,197,362 1,305,101
=========================================================================
65,512,661
=========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-12.79%
Pass Through Ctfs.,
7.00%, 05/15/17 to 06/15/32 14,016,623 14,864,003
-------------------------------------------------------------------------
6.00%, 06/15/18 to 07/15/33 8,045,965 8,253,481
-------------------------------------------------------------------------
7.50%, 06/15/23 to 01/15/32 8,511,316 9,080,471
-------------------------------------------------------------------------
6.50%, 07/15/23 to 04/15/33 10,529,219 10,957,864
=========================================================================
43,155,819
=========================================================================
Total U.S. Government Agency Securities
(Cost $146,361,404) 145,796,336
=========================================================================
U.S. TREASURY NOTES-3.48%
2.13%, 10/31/04 $ 1,800,000 $ 1,817,154
-------------------------------------------------------------------------
1.50%, 07/31/05 10,000,000 9,942,200
=========================================================================
Total U.S. Treasury Notes (Cost
$11,761,838) 11,759,354
=========================================================================
SHARES
MONEY MARKET FUNDS-0.19%
STIC Liquid Assets Portfolio(e) 322,088 322,088
-------------------------------------------------------------------------
STIC Prime Portfolio(e) 322,088 322,088
=========================================================================
Total Money Market Funds (Cost $644,176) 644,176
=========================================================================
TOTAL INVESTMENTS-101.25% (Cost $342,109,603) 341,693,000
=========================================================================
OTHER ASSETS LESS LIABILITIES-(1.25%) (4,213,018)
=========================================================================
NET ASSETS-100.00% $337,479,982
_________________________________________________________________________
=========================================================================
|
Investment Abbreviations:
Ctfs. - Certificates Deb. - Debentures Gtd. - Guaranteed Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated |
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 07/31/03 was $18,683,407,
which represented 5.54% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(b) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 07/31/03 was $17,703,317 which represented
5.25% of the Fund's net assets.
(c) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Financial Security Assurance or MBIA
Insurance Corp.
(d) Interest rates are redetermined monthly. Rates shown are rates in effect on
07/31/03.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-61
July 31, 2003
ASSETS:
Investments, at market value (cost
$341,465,427) $341,048,824
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $644,176) 644,176
-----------------------------------------------------------
Receivables for:
Investments sold 16,702,613
-----------------------------------------------------------
Fund shares sold 4,823,998
-----------------------------------------------------------
Dividends and interest 3,737,584
-----------------------------------------------------------
Investment for deferred compensation plan 2,794
-----------------------------------------------------------
Other assets 56,180
===========================================================
Total assets 367,016,169
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 22,398,417
-----------------------------------------------------------
Fund shares reacquired 6,914,138
-----------------------------------------------------------
Dividends 90,885
-----------------------------------------------------------
Deferred compensation plan 2,794
-----------------------------------------------------------
Accrued distribution fees 73,985
-----------------------------------------------------------
Accrued trustees' fees 844
-----------------------------------------------------------
Accrued transfer agent fees 14,183
-----------------------------------------------------------
Accrued operating expenses 40,941
===========================================================
Total liabilities 29,536,187
===========================================================
Net assets applicable to shares outstanding $337,479,982
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $338,905,872
-----------------------------------------------------------
Undistributed net investment income (4,438)
-----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and futures contracts (1,004,849)
-----------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (416,603)
===========================================================
$337,479,982
___________________________________________________________
===========================================================
CLASS C:
Shares outstanding, $0.01 par value per share 33,687,921
===========================================================
Net asset value and offering price per share $ 10.02
___________________________________________________________
===========================================================
|
For the period August 30, 2002 (date operations commenced) through July 31, 2003
INVESTMENT INCOME:
Interest $3,648,941
-----------------------------------------------------------
Dividends from affiliated money market funds 70,725
===========================================================
Total investment income 3,719,666
===========================================================
EXPENSES:
Advisory fees 598,592
-----------------------------------------------------------
Administrative services fees 45,890
-----------------------------------------------------------
Custodian fees 30,473
-----------------------------------------------------------
Distribution fees 1,496,479
-----------------------------------------------------------
Transfer agent fees 92,949
-----------------------------------------------------------
Trustees' fees 10,066
-----------------------------------------------------------
Other 125,876
===========================================================
Total expenses 2,400,325
===========================================================
Less: Fees waived and expenses paid indirectly (603,201)
===========================================================
Net expenses 1,797,124
===========================================================
Net investment income 1,922,542
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 725,428
-----------------------------------------------------------
Futures contracts (2,962)
===========================================================
722,466
===========================================================
Change in net unrealized appreciation
(depreciation) of investment securities (416,603)
===========================================================
Net gain from investment securities and futures
contracts 305,863
===========================================================
Net increase in net assets resulting from
operations $2,228,405
___________________________________________________________
===========================================================
|
See Notes to Financial Statements.
FS-62
For the period August 30, 2002 (date operations commenced) through July 31, 2003
----------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,922,542
----------------------------------------------------------------------------
Net realized gain from investment securities and futures
contracts 722,466
----------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (416,603)
============================================================================
Net increase in net assets resulting from operations 2,228,405
============================================================================
Distributions to shareholders from net investment income (3,757,098)
----------------------------------------------------------------------------
Return of capital (68,668)
============================================================================
Decrease in net assets resulting from distributions (3,825,766)
============================================================================
Share transactions-net 339,077,343
============================================================================
Net increase in net assets 337,479,982
============================================================================
NET ASSETS:
Beginning of period --
============================================================================
End of period $337,479,982
____________________________________________________________________________
============================================================================
|
See Notes to Financial Statements.
FS-63
NOTES TO FINANCIAL STATEMENTS
July 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Short Term Bond Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers one class of shares. The Fund commenced operations on August 30, 2002. Matters affecting each portfolio will be voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income consistent with the preservation of capital. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures
FS-64
position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks also include to varying degrees, the risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.40% of the Fund's average daily net assets. AIM has contractually agreed to waive and/or reimburse expenses (excluding interest, taxes, dividends on short sales, fund merger and reorganization expenses, extraordinary items and increases in expenses due to expense offset arrangements, if any) of Class C shares to the extent necessary to limit the total annual fund operating expenses of Class C to 1.20%. To the extent that the annualized expense ratio does not exceed the contractual expense limitation, AIM will retain the ability to be reimbursed for such fee waivers or reimbursements prior to the end of the fiscal year. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the period August 30, 2002 (date operations commenced) through July 31, 2003, AIM waived fees of $761.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the period August 30, 2002 (date operations commenced) through July 31, 2003, AIM was paid $45,890 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the period August 30, 2002 (date operations commenced) through July 31, 2003, AFS retained $51,878 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") pursuant to which AIM Distributors serves as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class C shares (the "Plan"). The Fund, pursuant to the Plan, pays AIM Distributors compensation at the annual rate of 1.00% of the Fund's average daily net assets of Class C shares. Of these amounts, the Fund may pay a service fee up to 0.25% of the average daily net assets of the Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plan would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the Fund. AIM Distributors has contractually agreed to waive 0.40% of the Rule 12b-1 plan fees on Class C shares. Pursuant to the Plan, for the period August 30, 2002 (date operations commenced) through July 31, 2003 the Class C shares paid $897,887 after AIM Distributors waived plan fees of $598,592.
Contingent deferred sales charges ("CDSC") are not recorded as an expense of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the period August 30, 2002 (date operations commenced) to July 31, 2003, AIM Distributors retained $5,546 from Class C shares for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the period August 30, 2002 (date operations commenced) through July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $1,775 and reductions in custodian fees of $2,073 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $3,848.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the period August 30, 2002 (date operations commenced) through July 31, 2003, the Fund paid legal fees of $1,750 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net
FS-65
assets for the period. The committed line of credit facility expired May 20, 2003.
During the period August 30, 2002 (date operations commenced) through July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the period August 30, 2002 (date operations commenced) through July 31, 2003 was as follows:
AUGUST 30, 2002
(DATE OPERATIONS
COMMENCED) TO
JULY 31, 2003
----------------------------------------------------------
Distributions paid from ordinary
income $3,757,098
----------------------------------------------------------
Return of capital 68,668
==========================================================
Total distributions $3,825,766
__________________________________________________________
==========================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Unrealized appreciation (depreciation) -- investments $ (446,059) ----------------------------------------------------------- Temporary book/tax differences (4,438) ----------------------------------------------------------- Capital loss carryforward (20,292) ----------------------------------------------------------- Post-October capital loss deferral (955,101) ----------------------------------------------------------- Shares of beneficial interest 338,905,872 =========================================================== Total net assets $337,479,982 ___________________________________________________________ =========================================================== |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2011 $20,292
==========================================================
Total capital loss carryforward $20,292
__________________________________________________________
==========================================================
|
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the period August 30, 2002 (date operations commenced) through July 31, 2003 was $485,301,832 and $139,376,489, respectively.
The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of July 31, 2003 is as follows:
Aggregate unrealized appreciation of investment securities $ 2,345,827 ----------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (2,791,886) =========================================================== Net unrealized appreciation (depreciation) of investment securities $ (446,059) ___________________________________________________________ =========================================================== Cost of investments for tax purposes is $342,139,059. |
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of certain stock issuance costs, paydown gains (losses) and distributions in excess of income earnings and profits on July 31, 2003, undistributed net investment income was increased by $1,898,786, undistributed net realized gains (losses) decreased by $1,727,315 and shares of beneficial interest decreased by $171,471. This reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
The Fund currently offers Class C shares. Class C shares are sold at net asset value. Under some circumstances, Class C shares are subject to CDSC.
CHANGES IN SHARES OUTSTANDING
---------------------------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
COMMENCED) TO
JULY 31, 2003
----------------------------
SHARES AMOUNT
---------------------------------------------------------------
Sold 50,609,851 $ 509,493,749
---------------------------------------------------------------
Issued as reinvestment of
dividends 317,302 3,197,003
---------------------------------------------------------------
Reacquired (17,239,232) (173,613,409)
===============================================================
33,687,921 $ 339,077,343
_______________________________________________________________
===============================================================
|
FS-66
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding during the period August 30, 2002 (date operations commenced) through July 31, 2003.
CLASS C
----------------
AUGUST 30, 2002
(DATE OPERATIONS
COMMENCED) TO
JULY 31,
2003
-------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.01
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12(a)
-------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.14
===============================================================================
Total from investment operations 0.26
===============================================================================
Less distributions:
Dividends from net investment income (0.25)
-------------------------------------------------------------------------------
Return of capital (0.00)
===============================================================================
Total distributions (0.25)
===============================================================================
Net asset value, end of period $ 10.02
_______________________________________________________________________________
===============================================================================
Total return(b) 2.58%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $337,480
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets:
With fee waivers 1.20%(c)
-------------------------------------------------------------------------------
Without fee waivers 1.60%(c)
===============================================================================
Ratio of net investment income to average net assets 1.28%(c)
_______________________________________________________________________________
===============================================================================
Portfolio turnover rate(d) 88%
_______________________________________________________________________________
===============================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$162,563,918.
(d) Not annualized.
FS-67
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Total Return Bond Fund and the Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM Total Return Bond Fund (a portfolio of AIM Investment Securities Funds), including the schedule of investments, as of July 31, 2003, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Total Return Bond Fund as of July 31, 2003, the results of its operations for the year then ended, and the changes in its net assets and financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Houston, Texas -s- ERNST & YOUNG LLP September 10, 2003
FS-68
FINANCIALS
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
BONDS & NOTES-52.11%
AEROSPACE & DEFENSE-0.63%
Lockheed Martin Corp.,
Unsec. Gtd. Unsub. Notes, 7.25%, 05/15/06 $ 150,000 $ 168,018
-----------------------------------------------------------------------
Series A, Medium Term Notes, 8.66%,
11/30/06 225,000 258,930
-----------------------------------------------------------------------
Raytheon Co.,
Notes, 6.75%, 08/15/07 40,000 44,418
-----------------------------------------------------------------------
Sr. Unsec. Notes, 6.30%, 03/15/05 75,000 79,682
=======================================================================
551,048
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.37%
Bank of New York Co., Inc. (The), Sub. Medium
Term Notes, 7.17%, 03/24/28 750,000 115,500
-----------------------------------------------------------------------
Bank of New York Institutional Capital Trust-
Series A, Bonds, 7.78%, 12/01/26 (Acquired
06/12/03; Cost $238,542)(a)(b) 200,000 205,282
=======================================================================
320,782
=======================================================================
AUTOMOBILE MANUFACTURERS-0.64%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 550,000 557,529
=======================================================================
BROADCASTING & CABLE TV-4.77%
Clear Channel Communications, Inc.,
Sr. Unsec. Gtd. Notes, 8.00%, 11/01/08 500,000 563,125
-----------------------------------------------------------------------
Sr. Unsec. Notes, 7.88%, 06/15/05 175,000 192,031
-----------------------------------------------------------------------
Comcast Cable Communications, Inc., Unsec.
Unsub. Notes, 8.88%, 05/01/17 400,000 489,868
-----------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Notes, 8.88%, 04/01/07 150,000 158,608
-----------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06 200,000 238,000
-----------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 1,100,000 1,274,691
-----------------------------------------------------------------------
Cox Communications, Inc.,
Sr. Unsec. Putable Deb., 6.53%, 02/01/08 110,000 118,985
-----------------------------------------------------------------------
Unsec. Notes, 4.63%, 06/01/13 100,000 93,470
-----------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 4.38%, 05/01/08
(Acquired 04/14/03; Cost $249,838)(a)(b) 250,000 253,347
-----------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 300,000 343,455
-----------------------------------------------------------------------
TCI Communications, Inc., Medium Term Notes,
8.35%, 02/15/05 350,000 375,424
-----------------------------------------------------------------------
Time Warner Inc., Unsec. Notes, 7.75%,
06/15/05 50,000 54,665
=======================================================================
4,155,669
=======================================================================
CONSUMER FINANCE-3.96%
Capital One Bank-Series 4, Sr. Global Notes,
6.50%, 07/30/04 125,000 129,844
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
Capital One Financial Corp., Sr. Unsec.
Notes,
7.25%, 12/01/03 $ 150,000 $ 151,642
-----------------------------------------------------------------------
7.25%, 05/01/06 675,000 716,344
-----------------------------------------------------------------------
8.75%, 02/01/07 200,000 217,470
-----------------------------------------------------------------------
Ford Motor Credit Co.,
Notes, 7.50%, 06/15/04 75,000 78,077
-----------------------------------------------------------------------
Unsec. Global Notes,
6.70%, 07/16/04 270,000 280,155
-----------------------------------------------------------------------
6.88%, 02/01/06 235,000 247,927
-----------------------------------------------------------------------
Household Finance Corp.,
Global Notes, 6.38%, 11/27/12 200,000 211,220
-----------------------------------------------------------------------
Medium Term Notes, 3.38%, 02/21/06 50,000 50,521
-----------------------------------------------------------------------
Sr. Unsec. Global Notes,
6.50%, 01/24/06 100,000 108,452
-----------------------------------------------------------------------
7.63%, 05/17/32 345,000 387,307
-----------------------------------------------------------------------
8.00%, 05/09/05 700,000 770,105
-----------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$104,633)(a)(b) 100,000 104,137
=======================================================================
3,453,201
=======================================================================
DISTILLERS & VINTNERS-0.27%
Diageo PLC (United Kingdom), Sr. Unsec. Gtd.
Putable Notes, 7.45%, 04/15/05 200,000 236,904
=======================================================================
DIVERSIFIED BANKS-5.28%
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $83,179)(a)(b) 75,000 80,295
-----------------------------------------------------------------------
Bank of America Corp.-Series B, Putable Sub.
Medium Term Notes, 8.57%, 11/15/04 150,000 187,623
-----------------------------------------------------------------------
Bank One Corp., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/01/05 250,000 276,335
-----------------------------------------------------------------------
BankAmerica Capital II-Series 2, Jr. Unsec.
Gtd. Sub. Notes, 8.00%, 12/15/26 150,000 156,622
-----------------------------------------------------------------------
BankAmerica Institutional Capital-Series B,
Gtd. Bonds, 7.70%, 12/31/26 (Acquired
06/18/03; Cost $235,760)(a)(b) 200,000 206,738
-----------------------------------------------------------------------
Barnett Capital I, Gtd. Notes, 8.06%,
12/01/26 175,000 188,883
-----------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 400,000 426,860
-----------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$379,629)(a)(b) 300,000 323,826
-----------------------------------------------------------------------
Citicorp, Jr. Unsec. Sub. Notes, 6.38%,
01/15/06 100,000 106,645
-----------------------------------------------------------------------
Comerica Inc., Sub. Notes, 4.80%, 05/01/15 100,000 94,101
-----------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Global Notes, 5.20%, 05/21/13 350,000 331,905
-----------------------------------------------------------------------
Unsec. Global Notes, 6.88%, 03/15/12 200,000 213,560
-----------------------------------------------------------------------
|
FS-69
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Danske Bank A/S (Denmark), Sub. Yankee Notes,
6.38%, 06/15/08 (Acquired 08/30/02; Cost
107,346)(a)(b) $ 100,000 $ 106,572
-----------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27 160,000 171,469
-----------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 250,000 293,465
-----------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
1.25%, 06/29/49(c) 300,000 238,363
-----------------------------------------------------------------------
NBD Bank N.A., Unsec. Putable Sub. Deb.,
8.25%, 11/01/04 250,000 298,842
-----------------------------------------------------------------------
Royal Bank of Scotland Group PLC (United
Kingdom), Sub. Yankee Notes, 4.70%,
07/03/18 175,000 158,261
-----------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 100,000 110,588
-----------------------------------------------------------------------
Scotland International Finance No. 2 B.V.
(Netherlands), Sub. Notes, 4.25%, 05/23/13
(Acquired 05/20/03; Cost $199,500)(a)(b) 200,000 185,824
-----------------------------------------------------------------------
U.S. Bancorp-Series N, Sr. Medium Term Notes,
2.75%, 03/30/06 50,000 50,219
-----------------------------------------------------------------------
U.S. Bank, N.A., Sub. Global Notes, 4.80%,
04/15/15 300,000 283,644
-----------------------------------------------------------------------
Wells Fargo Financial, Inc., Global Notes,
6.13%, 02/15/06 100,000 109,096
=======================================================================
4,599,736
=======================================================================
DIVERSIFIED CAPITAL MARKETS-0.54%
Chase Manhattan Corp., Sub. Deb., 7.88%,
07/15/06 100,000 113,302
-----------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%, 10/29/49 300,000 361,263
=======================================================================
474,565
=======================================================================
ELECTRIC UTILITIES-4.64%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 50,000 54,869
-----------------------------------------------------------------------
American Electric Power Co., Inc., Sr. Unsec.
Unsub. Notes, 5.25%, 06/01/15 150,000 140,181
-----------------------------------------------------------------------
CenterPoint Energy, Inc.,
Bonds, 6.85%, 06/01/15 (Acquired 05/21/03;
Cost $499,790)(a) 500,000 471,855
-----------------------------------------------------------------------
Notes, 5.88%, 06/01/08 (Acquired 05/21/03;
Cost $100,852))(a) 100,000 98,009
-----------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 100,000 104,456
-----------------------------------------------------------------------
Duke Energy Corp.,
Bonds, 6.45%, 10/15/32 80,000 77,159
-----------------------------------------------------------------------
First Mortgage Bonds, 3.75%, 03/05/08
(Acquired 02/20/03; Cost $99,709)(a)(b) 100,000 99,772
-----------------------------------------------------------------------
Hydro-Quebec (Canada), Gtd. Floating Rate
Euro Notes, 1.31%, 09/29/49(c) 350,000 306,361
-----------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 650,000 709,000
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
MidAmerican Energy Holdings Co., Sr. Unsec.
Global Notes, 3.50%, 05/15/08 $ 350,000 $ 339,342
-----------------------------------------------------------------------
Niagara Mohawk Power Corp., First Mortgage
Bonds, 8.00%, 06/01/04(d) 210,000 219,824
-----------------------------------------------------------------------
Public Service Co. of Colorado, First
Mortgage Bonds, 4.88%, 03/01/13 (Acquired
03/07/03; Cost $139,796)(a)(b) 140,000 136,151
-----------------------------------------------------------------------
Public Service Co. of New Mexico-Series A,
Sr. Unsec. Notes, 7.10%, 08/01/05 270,000 295,369
-----------------------------------------------------------------------
South Carolina Electric & Gas Co., First
Mortgage Bonds, 5.30%, 05/15/33 150,000 132,696
-----------------------------------------------------------------------
Southern Power Co., Bonds, 4.88%, 07/15/15
(Acquired 07/01/03; Cost $179,528)(a)(b) 180,000 165,764
-----------------------------------------------------------------------
TXU Corp.-Series B, Sr. Unsec. Notes, 6.38%,
10/01/04(d) 100,000 105,182
-----------------------------------------------------------------------
Wisconsin Public Service Corp., Sr. Sec.
Notes, 4.88%, 12/01/12 500,000 494,960
-----------------------------------------------------------------------
Xcel Energy, Inc., Sr. Notes, 3.40%, 07/01/08
(Acquired 06/19/03; Cost $99,807)(a)(b) 100,000 95,374
=======================================================================
4,046,324
=======================================================================
ENVIRONMENTAL SERVICES-0.18%
Waste Management, Inc., Unsec. Putable Notes,
7.10%, 08/01/03 150,000 154,716
=======================================================================
GAS UTILITIES-0.63%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 200,000 208,358
-----------------------------------------------------------------------
Kinder Morgan, Inc., Sr. Unsec. Notes, 6.80%,
03/01/08 250,000 275,787
-----------------------------------------------------------------------
MCN Corp., First Mortgage Bonds, 5.70%,
03/15/33 75,000 69,562
=======================================================================
553,707
=======================================================================
HEALTH CARE FACILITIES-0.11%
HCA Inc., Notes, 6.25%, 02/15/13 100,000 94,580
=======================================================================
HOMEBUILDING-0.61%
M.D.C. Holdings, Inc., Sr. Unsec. Gtd. Notes,
5.50%, 05/15/13 400,000 377,092
-----------------------------------------------------------------------
Pulte Homes, Inc., Sr. Unsec. Notes, 6.38%,
05/15/33 175,000 157,850
=======================================================================
534,942
=======================================================================
HOUSEWARES & SPECIALTIES-0.41%
American Greetings Corp., Unsec. Putable
Notes, 6.10%, 08/01/08 350,000 360,062
=======================================================================
HYPERMARKETS & SUPER CENTERS-0.16%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 125,000 138,917
=======================================================================
INTEGRATED OIL & GAS-0.84%
Occidental Petroleum Corp.,
Sr. Unsec. Notes,
6.50%, 04/01/05 250,000 266,697
-----------------------------------------------------------------------
7.38%, 11/15/08 60,000 68,047
-----------------------------------------------------------------------
|
FS-70
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
INTEGRATED OIL & GAS-(CONTINUED)
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 $ 30,000 $ 32,896
-----------------------------------------------------------------------
TGT Pipeline LLC, Bonds, 5.20%, 06/01/18
(Acquired 05/22/03; Cost $398,968)(a)(b) 400,000 365,656
=======================================================================
733,296
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-5.11%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 100,000 112,052
-----------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 8.25%, 06/15/05 125,000 137,890
-----------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 10.00%, 03/01/31 250,000 314,053
-----------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 75,000 82,698
-----------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 150,000 169,556
-----------------------------------------------------------------------
SBC Communications Capital Corp.-Series D,
Medium Term Notes, 7.11%, 08/14/06 85,000 96,449
-----------------------------------------------------------------------
Sprint Capital Corp.,
Gtd. Global Notes, 5.88%, 05/01/04 300,000 307,152
-----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 750,000 793,335
-----------------------------------------------------------------------
7.13%, 01/30/06 50,000 54,116
-----------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes,
6.13%, 11/15/08 300,000 315,282
-----------------------------------------------------------------------
Unsec. Gtd. Global Notes,
7.90%, 03/15/05 550,000 593,642
-----------------------------------------------------------------------
8.75%, 03/15/32 300,000 331,350
-----------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07 500,000 555,625
-----------------------------------------------------------------------
Verizon Global Funding Corp., Sr. Unsec.
Unsub. Global Notes, 7.75%, 12/01/30 200,000 223,678
-----------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 350,000 363,807
=======================================================================
4,450,685
=======================================================================
INVESTMENT BANKING & BROKERAGE-1.95%
Bear Stearns Cos. Inc. (The), Sr. Unsec.
Global Notes, 3.00%, 03/30/06 20,000 20,148
-----------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), Global
Bonds, 7.63%, 08/17/05 150,000 166,043
-----------------------------------------------------------------------
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03; Cost
$167,339)(a)(b) 150,000 164,490
-----------------------------------------------------------------------
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 250,000 287,737
-----------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 150,000 169,410
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-(CONTINUED)
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes, 4.54%, 03/08/05 $ 250,000 $ 259,595
-----------------------------------------------------------------------
Morgan Stanley,
Sr. Global Notes, 7.75%, 06/15/05 375,000 413,303
-----------------------------------------------------------------------
Unsec. Notes, 6.30%, 01/15/06 200,000 216,344
=======================================================================
1,697,070
=======================================================================
LIFE & HEALTH INSURANCE-0.40%
John Hancock Global Funding II, Notes, 5.00%,
07/27/07 (Acquired 06/12/02; Cost
$99,945)(a)(b) 100,000 104,683
-----------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 120,000 132,078
-----------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 100,000 113,114
=======================================================================
349,875
=======================================================================
MOVIES & ENTERTAINMENT-0.80%
AOL Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06 400,000 430,432
-----------------------------------------------------------------------
Viacom Inc., Sr. Unsec. Gtd. Global Bonds,
5.50%, 05/15/33 300,000 265,755
=======================================================================
696,187
=======================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.44%
Westar Energy, Inc., Sec. First Mortgage
Global Bonds, 7.88%, 05/01/07 350,000 385,875
=======================================================================
MUNICIPALITIES-0.41%
Illinois (State of); Unlimited Tax Pension
Series 2003 GO, 5.10%, 06/01/33(e) 425,000 359,741
=======================================================================
OIL & GAS DRILLING-0.12%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05 100,000 106,949
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.01%
Anadarko Petroleum Corp. (Canada), Unsec.
Yankee Deb., 7.38%, 05/15/06 250,000 280,075
-----------------------------------------------------------------------
Burlington Resources Finance Co. (Canada),
Sr. Unsec. Gtd. Bonds, 7.20%, 08/15/31 150,000 165,915
-----------------------------------------------------------------------
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired 05/20/03; Cost
$154,842)(a)(b) 149,389 144,681
-----------------------------------------------------------------------
Kerr-McGee Corp., Unsec. Gtd. Global Notes,
5.38%, 04/15/05 150,000 157,104
-----------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Sr. Sub.
Notes, 9.25%, 06/15/04 125,000 131,966
=======================================================================
879,741
=======================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.18%
Petroleos Mexicanos (Mexico), Unsec. Gtd.
Unsub. Global Notes, 6.50%, 02/01/05 150,000 158,438
=======================================================================
|
FS-71
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-7.63%
American General Finance Corp.-Series H,
Medium Term Notes, 2.75%, 06/15/08 $ 150,000 $ 141,570
-----------------------------------------------------------------------
ASIF Global Financing XIX, Sec. Notes, 4.90%,
01/17/13 (Acquired 01/08/03; Cost
$199,374)(a)(b) 200,000 194,328
-----------------------------------------------------------------------
ASIF Global Financing XX, Sec. Notes, 2.65%,
01/17/06 (Acquired 01/08/03; Cost
$149,763)(a)(b) 150,000 151,061
-----------------------------------------------------------------------
Associates Corp. of North America, Sub. Deb.,
8.15%, 08/01/09 375,000 440,573
-----------------------------------------------------------------------
Auburn Hills Trust, Unsec. Gtd. Deb., 12.38%,
05/01/20 200,000 274,624
-----------------------------------------------------------------------
CIT Group Inc.,
Sr. Floating Rate Medium Term Global Notes,
2.35%, 11/25/03(f) 100,000 100,172
-----------------------------------------------------------------------
Sr. Global Notes, 7.13%, 10/15/04 40,000 42,488
-----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 175,000 192,267
-----------------------------------------------------------------------
Citigroup Capital II, Jr. Gtd. Sub. Bonds,
7.75%, 12/01/36 350,000 369,796
-----------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$178,733)(a)(b) 150,000 162,419
-----------------------------------------------------------------------
FMR Corp., Bonds, 7.57%, 06/15/29 (Acquired
05/01/02-07/25/02; Cost $218,028)(a)(b) 200,000 231,462
-----------------------------------------------------------------------
General Electric Capital Corp.,
Gtd. Sub. Notes, 8.13%, 05/15/12 215,000 254,188
-----------------------------------------------------------------------
Series A, Medium Term Global Notes,
2.85%, 01/30/06 25,000 25,320
-----------------------------------------------------------------------
5.00%, 06/15/07 200,000 211,550
-----------------------------------------------------------------------
6.00%, 06/15/12 100,000 105,042
-----------------------------------------------------------------------
6.80%, 11/01/05 400,000 438,528
-----------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Bonds, 8.00%, 11/01/31 150,000 146,475
-----------------------------------------------------------------------
Global Notes,
4.50%, 07/15/06 175,000 175,522
-----------------------------------------------------------------------
5.13%, 05/09/08 125,000 121,151
-----------------------------------------------------------------------
Medium Term Notes,
4.15%, 02/07/05 550,000 556,188
-----------------------------------------------------------------------
6.38%, 01/30/04 150,000 153,309
-----------------------------------------------------------------------
Heller Financial, Inc.-Class A,
Sr. Unsec. Global Notes, 8.00%, 06/15/05 400,000 441,768
-----------------------------------------------------------------------
Unsec. Global Notes, 7.38%, 11/01/09 60,000 68,897
-----------------------------------------------------------------------
International Lease Finance Corp.,
Global Notes, 2.95%, 05/23/06 100,000 99,975
-----------------------------------------------------------------------
Notes, 5.13%, 08/01/04 50,000 51,746
-----------------------------------------------------------------------
Lehman Brothers Holdings Inc., Sr. Notes,
8.75%, 03/15/05 250,000 275,230
-----------------------------------------------------------------------
NiSource Finance Corp., Bonds, 5.40%,
07/15/14 250,000 242,058
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Pemex Finance Ltd. (Cayman Islands)- Series
1999-2, Class A1, Global Bonds, 9.69%,
08/15/09 $ 100,000 $ 117,287
-----------------------------------------------------------------------
Pemex Project Funding Master Trust, Notes,
7.38%, 12/15/14 (Acquired 05/28/03; Cost
$275,348)(a)(b) 250,000 259,603
-----------------------------------------------------------------------
Regional Diversified Funding, Sr. Notes,
9.25%, 03/15/30 (Acquired 01/10/03; Cost
$165,305)(a)(b) 147,325 162,276
-----------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 400,000 444,112
=======================================================================
6,650,985
=======================================================================
PACKAGED FOODS & MEATS-0.34%
Kraft Foods Inc.,
Global Notes,
5.25%, 06/01/07 60,000 63,015
-----------------------------------------------------------------------
5.63%, 11/01/11 100,000 101,082
-----------------------------------------------------------------------
6.25%, 06/01/12 125,000 131,204
=======================================================================
295,301
=======================================================================
PHARMACEUTICALS-0.06%
Lilly (Eli) & Co., Unsec. Unsub. Global
Notes, 2.90%, 03/15/08 50,000 48,828
=======================================================================
PUBLISHING-0.78%
News America Holdings, Sr. Unsec. Gtd. Deb.,
7.70%, 10/30/25 200,000 218,280
-----------------------------------------------------------------------
News America Inc.,
Bonds, 6.55%, 03/15/33
(Acquired 03/04/03; Cost $199,578)(a)(b) 200,000 201,084
-----------------------------------------------------------------------
Notes, 4.75%, 03/15/10 (Acquired 03/04/03;
Cost $149,945)(a)(b) 150,000 148,692
-----------------------------------------------------------------------
Sr. Putable Deb., 6.75%, 01/09/10 100,000 107,962
=======================================================================
676,018
=======================================================================
REAL ESTATE-1.48%
EOP Operating L.P.,
Sr. Unsec. Notes,
6.50%, 06/15/04 110,000 113,763
-----------------------------------------------------------------------
7.25%, 06/15/28 100,000 102,588
-----------------------------------------------------------------------
Unsec. Gtd. Notes, 6.75%, 02/15/12 20,000 21,553
-----------------------------------------------------------------------
Unsec. Notes, 8.38%, 03/15/06 500,000 564,625
-----------------------------------------------------------------------
Simon Property Group, L.P., Notes, 5.45%,
03/15/13 (Acquired 03/13/03; Cost
$499,015)(a)(b) 500,000 488,545
=======================================================================
1,291,074
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.50%
Dominion Resources, Inc.-Series F, Sr. Unsec.
Putable Notes, 5.25%, 08/01/15 450,000 432,081
=======================================================================
|
FS-72
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
REGIONAL BANKS-1.00%
Greater Bay Bancorp, Sr. Notes, 5.25%,
03/31/08 (Acquired 03/19/03; Cost
$494,580)(a)(b) $ 500,000 $ 492,520
-----------------------------------------------------------------------
KeyBank N.A., Sr. Notes, 4.10%, 06/30/05 100,000 103,480
-----------------------------------------------------------------------
Union Planters Bank, N.A., Unsec. Sub. Notes,
6.50%, 03/15/08 250,000 271,595
=======================================================================
867,595
=======================================================================
SOVEREIGN DEBT-1.74%
Japan Bank for International Coop. (Japan),
Unsec. Gtd. Euro Bonds, 6.50%, 10/06/05 100,000 108,750
-----------------------------------------------------------------------
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13 60,000 69,378
-----------------------------------------------------------------------
United Mexican States (Mexico),
Global Notes,
4.63%, 10/08/08 300,000 301,575
-----------------------------------------------------------------------
6.63%, 03/03/15 150,000 150,188
-----------------------------------------------------------------------
7.50%, 04/08/33 700,000 688,625
-----------------------------------------------------------------------
Series A, Medium Term Global Notes,
6.38%, 01/16/13 200,000 201,800
=======================================================================
1,520,316
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.27%
Countrywide Home Loans, Inc.,
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 125,000 133,683
-----------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 100,000 101,613
=======================================================================
235,296
=======================================================================
TOBACCO-1.22%
Altria Group, Inc., Notes,
6.80%, 12/01/03 950,000 960,688
-----------------------------------------------------------------------
7.13%, 10/01/04 100,000 101,375
=======================================================================
1,062,063
=======================================================================
TRUCKING-0.52%
Roadway Corp., Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08 400,000 449,136
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.11%
AT&T Wireless Services Inc., Sr. Unsec.
Unsub. Global Notes, 8.75%, 03/01/31 300,000 348,096
-----------------------------------------------------------------------
Cingular Wireless LLC, Sr. Unsec. Global
Notes, 5.63%, 12/15/06 150,000 163,430
-----------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 700,000 845,250
-----------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 400,000 487,000
=======================================================================
1,843,776
=======================================================================
Total Bonds & Notes (Cost $45,898,225) 45,423,008
=======================================================================
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
ASSET-BACKED SECURITIES-1.02%
OTHER DIVERSIFIED FINANCIAL SERVICES-1.02%
Citicorp Lease-Series 1999-1,
Class A1, Pass Through Ctfs., 7.22%,
06/15/05 (Acquired 05/08/02-10/03/02; Cost
$295,332)(a)(b) $ 277,505 $ 299,381
-----------------------------------------------------------------------
Class A2, Pass Through Ctfs., 8.04%,
12/15/19 (Acquired 08/20/02; Cost
$166,614)(a)(b) 150,000 166,360
-----------------------------------------------------------------------
First Industrial Realty Trust, Inc., Pass
Through Ctfs., 7.38%, 05/15/04 (Acquired
02/06/03; Cost $104,850)(a)(b) 100,000 103,611
-----------------------------------------------------------------------
Yorkshire Power (Cayman Islands)-Series
2000-1, Pass Through Ctfs., 8.25%, 02/15/05
(Acquired 06/19/03; Cost $327,087)(a)(b) 300,000 323,343
=======================================================================
892,695
=======================================================================
Total Asset-Backed Securities (Cost
$883,575) 892,695
=======================================================================
U.S. GOVERNMENT AGENCY SECURITIES-36.58%
FEDERAL HOME LOAN BANK-1.41%
Unsec. Bonds,
4.88%, 04/16/04 to 05/15/07 650,000 684,685
-----------------------------------------------------------------------
5.70%, 03/03/09 500,000 542,060
=======================================================================
1,226,745
=======================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-8.59%
Pass Through Ctfs.,
6.00%, 08/01/14 to 10/01/32 3,732,040 3,804,046
-----------------------------------------------------------------------
5.50%, 05/01/16 619,622 631,695
-----------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32 1,108,148 1,142,949
-----------------------------------------------------------------------
7.00%, 06/01/16 to 06/01/32 508,488 533,795
-----------------------------------------------------------------------
7.50%, 04/01/17 to 03/01/32 796,350 846,877
-----------------------------------------------------------------------
Unsec. Notes,
4.88%, 03/15/07 500,000 530,995
=======================================================================
7,490,357
=======================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-20.76%
Deb.,
5.88%, 02/02/06 350,000 379,554
-----------------------------------------------------------------------
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 148,373 157,406
-----------------------------------------------------------------------
7.00%, 12/01/15 to 02/01/33 2,657,635 2,788,924
-----------------------------------------------------------------------
6.50%, 05/01/16 to 10/01/32 4,223,198 4,349,508
-----------------------------------------------------------------------
6.00%, 01/01/17 to 03/01/33 4,154,543 4,219,458
-----------------------------------------------------------------------
5.50%, 09/01/17 533,041 543,610
-----------------------------------------------------------------------
8.00%, 08/01/21 to 04/01/32 1,203,423 1,293,912
-----------------------------------------------------------------------
Pass Through Ctfs., TBA,(g)
5.00%, 08/01/18 1,542,000 1,542,649
-----------------------------------------------------------------------
5.50%, 08/01/33 818,000 808,919
-----------------------------------------------------------------------
|
FS-73
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-(CONTINUED)
Unsec. Bonds,
6.63%, 11/15/30 $ 45,000 $ 48,241
-----------------------------------------------------------------------
Unsec. Notes,
5.25%, 06/15/06 300,000 322,104
-----------------------------------------------------------------------
3.25%, 11/15/07 1,200,000 1,190,820
-----------------------------------------------------------------------
Unsec. Sub. Notes,
4.75%, 01/02/07 150,000 158,102
-----------------------------------------------------------------------
5.25%, 08/01/12 300,000 298,500
=======================================================================
18,101,707
=======================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-5.16%
Pass Through Ctfs.,
7.50%, 06/15/23 to 05/15/32 695,965 741,747
-----------------------------------------------------------------------
8.50%, 02/15/25 66,997 72,736
-----------------------------------------------------------------------
8.00%, 08/15/25 25,476 27,592
-----------------------------------------------------------------------
7.00%, 04/15/28 to 01/15/32 795,809 835,605
-----------------------------------------------------------------------
6.00%, 11/15/28 to 02/15/33 1,560,920 1,591,195
-----------------------------------------------------------------------
6.50%, 01/15/29 to 07/15/32 1,187,376 1,229,313
=======================================================================
4,498,188
=======================================================================
TENNESSEE VALLEY AUTHORITY-0.66%
Unsec. Bonds,
7.14%, 05/23/12 500,000 572,760
=======================================================================
Total U.S. Government Agency Securities
(Cost $32,025,968) 31,889,757
=======================================================================
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
U.S. TREASURY SECURITIES-11.86%
U.S. TREASURY NOTES-9.11%
2.13%, 10/31/04 $1,100,000 $ 1,110,483
-----------------------------------------------------------------------
1.50%, 07/31/05 1,000,000 994,220
-----------------------------------------------------------------------
6.50%, 10/15/06 100,000 112,234
-----------------------------------------------------------------------
4.75%, 11/15/08 1,700,000 1,805,723
-----------------------------------------------------------------------
5.00%, 02/15/11 1,000,000 1,056,090
-----------------------------------------------------------------------
3.88%, 02/15/13 3,000,000 2,862,180
=======================================================================
7,940,930
=======================================================================
U.S. TREASURY BONDS-2.75%
7.25%, 05/15/16 235,000 286,185
-----------------------------------------------------------------------
7.50%, 11/15/16 1,350,000 1,675,053
-----------------------------------------------------------------------
6.25%, 08/15/23 400,000 439,124
=======================================================================
2,400,362
=======================================================================
Total U.S. Treasury Securities (Cost
$10,618,805) 10,341,292
=======================================================================
SHARES
MONEY MARKET FUNDS-1.72%
STIC Liquid Assets Portfolio(h) 750,113 750,113
-----------------------------------------------------------------------
STIC Prime Portfolio(h) 750,113 750,113
=======================================================================
Total Money Market Funds (Cost
$1,500,226) 1,500,226
=======================================================================
TOTAL INVESTMENTS-103.29% (Cost $90,926,799) 90,046,978
=======================================================================
OTHER ASSETS LESS LIABILITIES-(3.29%) (2,871,700)
=======================================================================
NET ASSETS-100.00% $87,175,278
_______________________________________________________________________
=======================================================================
|
Investment Abbreviations:
Ctfs. - Certificates Deb. - Debentures GO - General Obligation Bonds Gtd. - Guaranteed Jr. - Junior Sec. - Secured Sr. - Senior Sub. - Subordinated TBA - To Be Announced Unsec. - Unsecured Unsub. - Unsubordinated |
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 07/31/03 was $6,697,141,
which represented 7.68% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered illiquid.
(b) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 07/31/03 was $6,127,277 which represented
7.03% of the Fund's net assets.
(c) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 07/31/03.
(d) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Financial Security Assurance or MBIA
Insurance Corp.
(e) Interest on this security is taxable income to the Fund.
(f) Interest rates are redetermined monthly. Rates shown are rates in effect on
07/31/03.
(g) Security purchased on forward commitment basis. These securities are subject
to dollar roll transactions. See Note 1 Section C.
(h) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-74
ASSETS:
Investments, at market value (cost
$89,426,573) $88,546,752
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $1,500,226) 1,500,226
-----------------------------------------------------------
Receivables for:
Investments sold 2,018,666
-----------------------------------------------------------
Dividends and interest 1,057,614
-----------------------------------------------------------
Fund shares sold 179,558
-----------------------------------------------------------
Due from advisor 18,620
-----------------------------------------------------------
Investment for deferred compensation plan 4,456
-----------------------------------------------------------
Other assets 14,881
===========================================================
Total assets 93,340,773
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 5,677,505
-----------------------------------------------------------
Fund shares reacquired 339,280
-----------------------------------------------------------
Dividends 22,523
-----------------------------------------------------------
Deferred compensation plan 4,456
-----------------------------------------------------------
Accrued distribution fees 55,881
-----------------------------------------------------------
Accrued trustees' fees 791
-----------------------------------------------------------
Accrued transfer agent fees 33,947
-----------------------------------------------------------
Accrued operating expenses 31,112
===========================================================
Total liabilities 6,165,495
===========================================================
Net assets applicable to shares outstanding $87,175,278
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $87,302,343
-----------------------------------------------------------
Undistributed net investment income (5,473)
-----------------------------------------------------------
Undistributed net realized gain from
investment securities and futures contracts 758,229
-----------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (879,821)
===========================================================
$87,175,278
___________________________________________________________
===========================================================
NET ASSETS:
Class A $30,336,007
___________________________________________________________
===========================================================
Class B $47,654,575
___________________________________________________________
===========================================================
Class C $ 9,184,696
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 2,930,167
___________________________________________________________
===========================================================
Class B 4,602,982
___________________________________________________________
===========================================================
Class C 887,086
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.35
-----------------------------------------------------------
Offering price per share:
(Net asset value of $10.35 divided by
95.25%) $ 10.87
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.35
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.35
___________________________________________________________
===========================================================
|
See Notes to Financial Statements.
FS-75
INVESTMENT INCOME:
Interest $ 2,469,189
-------------------------------------------------------------------------
Dividends from affiliated money market funds 29,251
=========================================================================
Total investment income 2,498,440
=========================================================================
EXPENSES:
Advisory fees 306,590
-------------------------------------------------------------------------
Administrative services fees 50,000
-------------------------------------------------------------------------
Custodian fees 30,361
-------------------------------------------------------------------------
Distribution fees -- Class A 73,324
-------------------------------------------------------------------------
Distribution fees -- Class B 335,706
-------------------------------------------------------------------------
Distribution fees -- Class C 67,977
-------------------------------------------------------------------------
Transfer agent fees 202,615
-------------------------------------------------------------------------
Trustees' fees 8,875
-------------------------------------------------------------------------
Registration and filing fees 62,945
-------------------------------------------------------------------------
Other 66,446
=========================================================================
Total expenses 1,204,839
=========================================================================
Less: Fees waived and expenses paid indirectly (288,467)
=========================================================================
Net expenses 916,372
=========================================================================
Net investment income 1,582,068
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 1,398,556
-------------------------------------------------------------------------
Futures contracts 46,592
=========================================================================
1,445,148
=========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (1,022,343)
=========================================================================
Net gain from investment securities and futures contracts 422,805
=========================================================================
Net increase in net assets resulting from operations $ 2,004,873
_________________________________________________________________________
=========================================================================
|
See Notes to Financial Statements.
FS-76
For the year ended July 31, 2003 and the period December 31, 2001 (Date operations commenced) to July 31, 2002
2003 2002
----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,582,068 $ 139,633
----------------------------------------------------------------------------------------
Net realized gain from investment securities and futures
contracts 1,445,148 87,097
----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (1,022,343) 142,522
========================================================================================
Net increase in net assets resulting from operations 2,004,873 369,252
========================================================================================
Distributions to shareholders from net investment income:
Class A (797,837) (77,172)
----------------------------------------------------------------------------------------
Class B (1,033,094) (73,438)
----------------------------------------------------------------------------------------
Class C (208,766) (27,624)
========================================================================================
Total distributions from net investment income (2,039,697) (178,234)
========================================================================================
Distributions to shareholders from net realized gains:
Class A (29,369) --
----------------------------------------------------------------------------------------
Class B (47,717) --
----------------------------------------------------------------------------------------
Class C (8,496) --
========================================================================================
Total distributions from net realized gains (85,582) --
========================================================================================
Decrease in net assets resulting from distributions (2,125,279) (178,234)
========================================================================================
Share transactions-net:
Class A 21,104,305 9,251,803
----------------------------------------------------------------------------------------
Class B 33,005,431 14,591,873
----------------------------------------------------------------------------------------
Class C 6,138,256 3,012,998
========================================================================================
Net increase in net assets resulting from share
transactions 60,247,992 26,856,674
========================================================================================
Net increase in net assets 60,127,586 27,047,692
========================================================================================
NET ASSETS:
Beginning of year 27,047,692 --
========================================================================================
End of year $87,175,278 $27,047,692
________________________________________________________________________________________
========================================================================================
|
See Notes to Financial Statements.
FS-77
NOTES TO FINANCIAL STATEMENTS
July 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Total Return Bond Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eight separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve maximum total return consistent with preservation of capital. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar security (same type, coupon and maturity) from the institution at a later date at an agreed upon price. The mortgage-backed securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on securities sold. Proceeds of the sale will be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. The Fund will segregate assets to cover its
FS-78
obligations under dollar roll transactions. The difference between the selling price and the future repurchase price is recorded as an adjustment to interest income.
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
F. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks also include to varying degrees, the risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities.
G. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $500 million of the Fund's average daily net assets, plus 0.45% on the next $500 million of the Fund's average daily net assets, plus 0.40% on the Fund's average daily net assets in excess of $1 billion. AIM Distributors has agreed to waive up to 0.10% of the Rule 12b-1 plan fees on Class A shares and AIM has contractually agreed to waive advisory fees and/or reimburse expenses for Class A, Class B and Class C shares to the extent necessary to limit total annual operating expenses of Class A shares to 1.25% and has voluntarily agreed to waive advisory fees and/or reimburse expenses of Class A, Class B and Class C shares to the extent necessary to limit total annual operating expenses of Class A shares to 1.00%. The expense limitations exclude interest, taxes, dividends on short sales, fund merger and reorganization expenses, extraordinary items and increases in expenses due to expense offset arrangements, if any. Voluntary fee waivers or reimbursements may be rescinded at any time without further notice to investors. During periods of voluntary fee waivers and reimbursements, to the extent that the annualized expense ratio does not exceed the contractual expense limit for the fiscal year, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended July 31, 2003, AIM waived fees of $266,097.
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, 2003, 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, 2003, AFS retained $112,730 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares. Of these amounts, the Fund may pay a service fee up to 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the year ended July 31, 2003, the Class A, Class B and Class C shares paid AIM Distributors $52,374, $335,706 and $67,977, respectively after AIM Distributors waived Class A plan fees of $20,950.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to
FS-79
remittance to the shareholder. During the year ended July 31, 2003, AIM Distributors retained $56,983 in front-end sales commissions from the sale of Class A shares and $0, $44 and $2,635 from Class A, Class B shares and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AFS and/or AIM Distributors.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2003, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $1,189 and reductions in custodian fees of $231 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $1,420.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested.
During the year ended July 31, 2003, the Fund paid $2,694 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. The Fund did not borrow or lend under the facility during the year ended July 31, 2003.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of credit facility with State Street Bank and Trust
Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or
(ii) the limits set by its prospectus for borrowings. The Fund and other funds
advised by AIM which are parties to the line of credit can borrow on a first
come, first served basis. Principal on each loan outstanding shall bear interest
at the bid rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund could borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which were parties to the line of credit could borrow on a first come, first served basis. The funds which were party to the line of credit were charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee was allocated among the funds based on their respective average net assets for the period. The committed line of credit facility expired May 20, 2003.
During the year ended July 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under either the committed line of credit facility or the uncommitted unsecured revolving line of credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the year ended July 31, 2003 and the period December 31, 2001 (date operations commenced) through July 31, 2002 were as follows:
2003 2002
-------------------------------------------------------------
Distributions paid from ordinary
income $2,125,279 $178,234
_____________________________________________________________
=============================================================
|
Tax Components of Net Assets:
As of July 31, 2003, the components of net assets on a tax basis were as follows:
Undistributed ordinary income $ 758,523 ----------------------------------------------------------- Unrealized appreciation (depreciation) -- investments (880,115) ----------------------------------------------------------- Temporary book/tax differences (5,473) ----------------------------------------------------------- Shares of beneficial interest 87,302,343 =========================================================== Total net assets $87,175,278 ___________________________________________________________ =========================================================== |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended July 31, 2003 was $244,598,621 and $167,959,126, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $ 844,346
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,724,461)
===========================================================
Net unrealized appreciation (depreciation)
of investment securities $ (880,115)
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $90,927,093.
|
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of the utilization of a portion of the proceeds from redemptions as distributions for federal income tax purposes, stock issuance cost and paydown gains (losses) on July 31, 2003, undistributed net investment income was increased by $453,374, undistributed net realized gains decreased by $680,162 and shares of beneficial interest increased by $226,788. This reclassification had no effect on the net assets of the Fund.
FS-80
NOTE 9--SHARE INFORMATION
The Fund currently offers three classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED) TO
YEAR ENDED 2003 JULY 31, 2002
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,675,553 $ 38,439,296 992,436 $10,034,790
--------------------------------------------------------------------------------------------------------------------
Class B 4,564,339 47,687,420 1,538,451 15,590,664
--------------------------------------------------------------------------------------------------------------------
Class C 1,230,567 12,857,366 385,449 3,888,452
====================================================================================================================
Issued as reinvestment of dividends:
Class A 72,052 755,569 7,294 73,755
--------------------------------------------------------------------------------------------------------------------
Class B 88,787 931,209 6,117 61,932
--------------------------------------------------------------------------------------------------------------------
Class C 18,930 198,523 2,532 25,581
====================================================================================================================
Automatic conversion of Class B shares to Class A shares*:
Class A 79,038 832,366 -- --
--------------------------------------------------------------------------------------------------------------------
Class B (79,022) (832,366) -- --
====================================================================================================================
Reacquired:
Class A (1,811,444) (18,922,926) (84,762) (856,742)
--------------------------------------------------------------------------------------------------------------------
Class B (1,411,242) (14,780,832) (104,448) (1,060,723)
--------------------------------------------------------------------------------------------------------------------
Class C (661,171) (6,917,633) (89,221) (901,035)
====================================================================================================================
5,766,387 $ 60,247,992 2,653,848 $26,856,674
____________________________________________________________________________________________________________________
====================================================================================================================
|
* Prior to the year ended July 31, 2003, conversion of Class B shares to Class A shares were included in Class A shares sold and Class B shares reacquired.
FS-81
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
----------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
JULY 31, JULY 31,
2003 2002
------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.19 $10.00
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.32(a) 0.18(a)
------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.26 0.23
================================================================================================
Total from investment operations 0.58 0.41
================================================================================================
Less distributions:
Dividends from net investment income (0.40) (0.22)
------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) --
================================================================================================
Total distributions (0.42) (0.22)
================================================================================================
Net asset value, end of period $ 10.35 $10.19
________________________________________________________________________________________________
================================================================================================
Total return(b) 5.77% 4.09%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,336 $9,325
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.00%(c) 1.00%(d)
------------------------------------------------------------------------------------------------
Without fee waivers 1.54%(c) 3.21%(d)
================================================================================================
Ratio of net investment income to average net assets 3.07%(c) 3.10%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 284% 215%
________________________________________________________________________________________________
================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $20,949,696.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-82
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
----------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
JULY 31, JULY 31,
2003 2002
------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.19 $ 10.00
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24(a) 0.14(a)
------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.27 0.22
================================================================================================
Total from investment operations 0.51 0.36
================================================================================================
Less distributions:
Dividends from net investment income (0.33) (0.17)
------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) --
================================================================================================
Total distributions (0.35) (0.17)
================================================================================================
Net asset value, end of period $ 10.35 $ 10.19
________________________________________________________________________________________________
================================================================================================
Total return(b) 4.98% 3.65%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $47,655 $14,678
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c) 1.75%(d)
------------------------------------------------------------------------------------------------
Without fee waivers 2.19%(c) 3.86%(d)
================================================================================================
Ratio of net investment income to average net assets 2.32%(c) 2.35%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 284% 215%
________________________________________________________________________________________________
================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $33,570,591.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-83
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
----------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
JULY 31, JULY 31,
2003 2002
------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.19 $10.00
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24(a) 0.14(a)
------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.27 0.22
================================================================================================
Total from investment operations 0.51 0.36
================================================================================================
Less distributions:
Dividends from net investment income (0.33) (0.17)
------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) --
================================================================================================
Total distributions (0.35) (0.17)
================================================================================================
Net asset value, end of period $10.35 $10.19
________________________________________________________________________________________________
================================================================================================
Total return(b) 4.98% 3.65%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,185 $3,045
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c) 1.75%(d)
------------------------------------------------------------------------------------------------
Without fee waivers 2.19%(c) 3.86%(d)
================================================================================================
Ratio of net investment income to average net assets 2.32%(c) 2.35%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 284% 215%
________________________________________________________________________________________________
================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $6,797,674.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-84
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
BONDS & NOTES-90.16%
AEROSPACE & DEFENSE-1.63%
Armor Holdings, Inc., Sr. Sub. Notes, 8.25%,
08/15/13 (Acquired 08/06/03; Cost
$1,897,883)(a) $ 1,930,000 $ 2,123,000
---------------------------------------------------------------------------
BE Aerospace, Inc., Sr. Unsec. Notes, 8.50%,
10/01/10 (Acquired 10/02/03; Cost
$600,000)(a) 600,000 651,000
---------------------------------------------------------------------------
DRS Technologies, Inc., Sr. Sub. Notes,
6.88%, 11/01/13 (Acquired 10/16/03; Cost
$1,815,000)(a) 1,815,000 1,878,525
---------------------------------------------------------------------------
Hexcel Corp., Sr. Unsec. Sub. Notes, 9.75%,
01/15/09 10,790,000 11,356,475
---------------------------------------------------------------------------
L-3 Communications Corp., Sr. Sub. Notes,
6.13%, 01/15/14 (Acquired 12/16/03; Cost
$6,787,557)(a)(b) 6,915,000 6,915,000
---------------------------------------------------------------------------
Orbital Sciences Corp.-Series B, Sr. Global
Notes, 9.00%, 07/15/11 1,880,000 2,030,400
===========================================================================
24,954,400
===========================================================================
AIRLINES-1.80%
Continental Airlines, Inc., Notes, 8.00%,
12/15/05 4,575,000 4,460,625
---------------------------------------------------------------------------
Delta Air Lines, Inc.,
Unsec. Notes, 7.90%, 12/15/09 11,985,000 9,588,000
---------------------------------------------------------------------------
Series C, Medium Term Notes, 6.65%,
03/15/04 4,415,000 4,437,075
---------------------------------------------------------------------------
Northwest Airlines Inc.,
Sr. Unsec. Gtd. Notes, 8.88%, 06/01/06 5,095,000 4,840,250
---------------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes, 8.52%, 04/07/04 4,255,000 4,276,275
===========================================================================
27,602,225
===========================================================================
ALTERNATIVE CARRIERS-0.16%
Block Communications, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 9.25%, 04/15/09 2,250,000 2,458,125
===========================================================================
APPAREL RETAIL-0.17%
Mothers Work, Inc., Sr. Unsec. Gtd. Notes,
11.25%, 08/01/10 2,405,000 2,633,475
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.46%
Warnaco Inc., Sr. Notes, 8.88%, 06/15/13
(Acquired 06/05/03-07/07/03; Cost
$3,797,400)(a) 3,725,000 3,967,125
---------------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr. Unsec.
Gtd. Sub. Global Notes, 10.88%, 08/15/11 2,675,000 3,129,750
===========================================================================
7,096,875
===========================================================================
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
AUTO PARTS & EQUIPMENT-1.36%
Collins & Aikman Products Co., Sr. Unsec.
Gtd. Global Notes, 10.75%, 12/31/11 $ 1,145,000 $ 1,139,275
---------------------------------------------------------------------------
Dana Corp., Unsec. Global Notes, 10.13%,
03/15/10 1,800,000 2,079,000
---------------------------------------------------------------------------
Dura Operating Corp., Sr. Notes, 8.63%,
04/15/12 (Acquired 10/29/03; Cost
$1,850,000)(a) 1,850,000 1,988,750
---------------------------------------------------------------------------
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%, 03/15/07
(Acquired 03/20/97-09/24/99; Cost
$25,988,502)(a)(b)(c)(d) 26,310,000 65,775
---------------------------------------------------------------------------
Metaldyne Corp., Sr. Unsec. Gtd. Notes,
10.00%, 11/01/13 (Acquired 10/20/03; Cost
$2,270,000)(a) 2,270,000 2,349,450
---------------------------------------------------------------------------
Tenneco Automotive Inc.
Series B, Sr. Sec. Second Lien Global
Notes, 10.25%, 07/15/13 2,920,000 3,401,800
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 11.63%,
10/15/09 4,646,000 5,040,910
---------------------------------------------------------------------------
TRW Automotive Inc., Sr. Global Notes, 9.38%,
02/15/13 4,180,000 4,765,200
===========================================================================
20,830,160
===========================================================================
BROADCASTING & CABLE TV-11.77%
Adelphia Communications Corp.,
Sr. Unsec. Notes, 10.88%, 10/01/10
(Acquired 09/15/00-12/10/03; Cost
$17,934,068)(c) 21,785,000 21,948,387
---------------------------------------------------------------------------
9.50%, 03/01/05(c) 925,000 996,687
---------------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 9.88%, 03/01/07
(Acquired 08/21/00-12/19/00; Cost
$3,987,163)(c) 4,220,000 4,251,650
---------------------------------------------------------------------------
Allbritton Communications Co., Sr. Unsec.
Sub. Global Notes, 7.75%, 12/15/12 1,865,000 1,962,912
---------------------------------------------------------------------------
Avalon Cable LLC, Sr. Notes, 11.88%, 12/01/08 5,759,489 6,105,059
---------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp., Sr.
Unsec. Sub. Disc. Notes, 9.92%, 04/01/11(e) 9,515,000 8,373,200
---------------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 11.13%,
01/15/11 18,230,000 17,227,350
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.25%, 04/01/07 1,500,000 1,417,500
---------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr.
Unsec. Yankee Deb., 11.20%, 11/15/07 14,660,000 14,733,300
---------------------------------------------------------------------------
DIRECTV Holdings LLC/ DIRECTV Financing Co.,
Inc., Sr. Unsec. Gtd. Global Notes, 8.38%,
03/15/13 7,795,000 8,905,787
---------------------------------------------------------------------------
EchoStar DBS Corp., Sr. Unsec. Gtd. Global
Notes, 9.13%, 01/15/09 975,000 1,106,625
---------------------------------------------------------------------------
|
FS-85
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Granite Broadcasting Corp., Sr. Sec. Notes,
9.75%, 12/01/10 (Acquired
12/08/03-12/12/03; Cost $4,565,449)(a)(b) $ 4,620,000 $ 4,620,000
---------------------------------------------------------------------------
Knology, Inc., Sr. Unsec. PIK Notes, 12.00%,
11/30/09 (Acquired 01/06/98-01/07/04; Cost
$21,845,530)(a) 15,436,359 15,706,495
---------------------------------------------------------------------------
Mediacom Broadband LLC, Sr. Unsec. Gtd.
Global Notes, 11.00%, 07/15/13 7,410,000 8,262,150
---------------------------------------------------------------------------
Nextmedia Operating Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.75%, 07/01/11 1,930,000 2,195,375
---------------------------------------------------------------------------
Paxson Communications Corp.,
Sr. Unsec. Gtd. Disc. Sub. Global Notes,
12.25%, 01/15/09(e) 1,000,000 885,000
---------------------------------------------------------------------------
Pegasus Communications Corp.
Series B, Sr. Notes, 9.63%, 10/15/05 3,535,000 3,517,325
---------------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 12.50%,
08/01/07 11,960,000 12,139,400
---------------------------------------------------------------------------
Renaissance Media Group LLC, Sr. Unsec. Gtd.
Notes, 10.00%, 04/15/08 3,498,000 3,672,900
---------------------------------------------------------------------------
Salem Communications Holding Corp.-Series B,
Sr. Unsec. Gtd. Sub. Global Notes, 9.00%,
07/01/11 5,495,000 6,113,187
---------------------------------------------------------------------------
Spanish Broadcasting System, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 9.63%, 11/01/09 4,669,000 5,013,339
---------------------------------------------------------------------------
Telewest Communications PLC (Broadcasting-
Television, Radio & Cable), Sr. Unsec.
Global Deb., 11.00%, 10/01/07(c) 16,370,000 12,195,650
---------------------------------------------------------------------------
XM Satellite Radio Inc., Sr. Sec. Global
Notes, 12.00%, 06/15/10 16,135,000 18,474,575
---------------------------------------------------------------------------
Young Broadcasting Inc., Sr. Sub. Gtd. Global
Notes, 10.00%, 03/01/11 735,000 797,475
===========================================================================
180,621,328
===========================================================================
BUILDING PRODUCTS-0.38%
Building Materials Corp., Sr. Unsec. Gtd.
Notes, 8.00%, 12/01/08 5,800,000 5,771,000
===========================================================================
CASINOS & GAMING-1.27%
Caesars Entertainment, Inc., Sr. Unsec. Sub.
Global Notes, 8.13%, 05/15/11 3,615,000 4,121,100
---------------------------------------------------------------------------
Herbst Gaming, Inc.-Series B, Sr. Sec. Global
Notes, 10.75%, 09/01/08 4,745,000 5,397,437
---------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Global Notes, 8.00%, 04/01/12 910,000 1,003,275
---------------------------------------------------------------------------
Penn National Gaming, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Global Notes, 11.13%,
03/01/08 2,230,000 2,531,050
---------------------------------------------------------------------------
Poster Financial Group Inc., Sr. Sec. Notes,
8.75%, 12/01/11 (Acquired
11/18/03-11/19/03; Cost $1,873,125)(a) 1,850,000 1,947,125
---------------------------------------------------------------------------
Venetian Casino Resort, LLC, Sec. Gtd.
Mortgage Global Notes, 11.00%, 06/15/10 3,905,000 4,490,750
===========================================================================
19,490,737
===========================================================================
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
COMMODITY CHEMICALS-1.31%
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08 $11,000,000 $ 12,045,000
---------------------------------------------------------------------------
ISP Chemco Inc.-Series B, Sr. Unsec. Gtd.
Sub. Global Notes, 10.25%, 07/01/11 3,840,000 4,281,600
---------------------------------------------------------------------------
Lyondell Chemical Co.-Series B, Sr. Sec. Gtd.
Notes, 9.88%, 05/01/07 1,000,000 1,025,000
---------------------------------------------------------------------------
Methanex Corp. (Canada), Sr. Unsec. Notes,
8.75%, 08/15/12 2,420,000 2,740,650
===========================================================================
20,092,250
===========================================================================
COMMUNICATIONS EQUIPMENT-0.94%
Corning Inc., Unsec. Deb., 6.75%, 09/15/13 2,310,000 2,402,400
---------------------------------------------------------------------------
Lucent Technologies Inc.,
Unsec. Unsub. Global Deb., 6.45%, 03/15/29 7,515,000 6,368,962
---------------------------------------------------------------------------
Unsec. Unsub. Notes, 7.25%, 07/15/06 1,835,000 1,910,694
---------------------------------------------------------------------------
Nortel Network Ltd. (Canada), Sr. Global
Notes, 6.13%, 02/15/06 3,605,000 3,767,225
===========================================================================
14,449,281
===========================================================================
CONSTRUCTION & ENGINEERING-0.10%
Schuff Steel Co., Sr. Unsec. Gtd. Notes,
10.50%, 06/01/08 2,120,000 1,590,000
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.19%
Case New Holland Inc., Sr. Notes, 9.25%,
08/01/11 (Acquired 07/29/03-08/18/03; Cost
$5,632,776)(a) 5,695,000 6,492,300
---------------------------------------------------------------------------
Terex Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 07/15/11 9,185,000 10,195,350
---------------------------------------------------------------------------
Wabtec Corp., Sr. Unsec. Gtd. Global Notes,
6.88%, 07/31/13 1,545,000 1,653,150
===========================================================================
18,340,800
===========================================================================
CONSUMER FINANCE-0.32%
Dollar Financial Group, Inc., Sr. Gtd. Notes,
9.75%, 11/15/11 (Acquired 11/07/03; Cost
$4,615,000)(a) 4,615,000 4,914,975
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.11%
Iron Mountain Inc., Sr. Unsec. Gtd. Sub.
Notes, 6.63%, 01/01/16 1,660,000 1,622,650
===========================================================================
DEPARTMENT STORES-0.58%
JC Penney Co. Inc., Sr. Unsec. Notes, 8.00%,
03/01/10 7,760,000 8,885,200
===========================================================================
DISTILLERS & VINTNERS-0.09%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12 1,220,000 1,342,000
===========================================================================
|
FS-86
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
DIVERSIFIED CHEMICALS-0.10%
FMC Corp., Sr. Sec. Global Notes, 10.25%,
11/01/09 $ 1,295,000 $ 1,537,812
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.26%
Corrections Corp. of America, Sr. Notes,
7.50%, 05/01/11 1,000,000 1,057,500
---------------------------------------------------------------------------
Geo Group Inc. (The), Sr. Unsec. Global
Notes, 8.25%, 07/15/13 2,820,000 3,045,600
---------------------------------------------------------------------------
United Rentals (North America), Inc.,
Sr. Sub. Notes, 7.75%, 11/15/13 (Acquired
10/28/03; Cost $5,445,000)(a) 5,445,000 5,553,900
---------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Global Notes,
10.75%, 04/15/08 5,455,000 6,300,525
---------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Notes, 10.75%,
04/15/08 2,925,000 3,378,375
===========================================================================
19,335,900
===========================================================================
DIVERSIFIED METALS & MINING-0.12%
Massey Energy Co., Sr. Notes, 6.63%, 11/15/10
(Acquired 11/05/03; Cost $1,850,000)(a) 1,850,000 1,905,500
===========================================================================
DRUG RETAIL-0.76%
Rite Aid Corp., Sr. Global Notes, 9.25%,
06/01/13 10,610,000 11,671,000
===========================================================================
ELECTRIC UTILITIES-2.95%
Allegheny Energy Supply Co., LLC, Unsec.
Global Notes, 7.80%, 03/15/11 3,680,000 3,661,600
---------------------------------------------------------------------------
Alliant Energy Resources, Inc., Sr. Unsec.
Gtd. Conv. Global PHONES, 2.50%, 02/15/30 76,000 2,726,500
---------------------------------------------------------------------------
CMS Energy Corp., Sr. Notes, 7.75%, 08/01/10
(Acquired 07/09/03; Cost $1,376,419)(a) 1,395,000 1,471,725
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08 4,140,000 4,554,000
---------------------------------------------------------------------------
Dynegy Holdings Inc., Sr. Sec. Gtd. Second
Priority Notes, 10.13%, 07/15/13 (Acquired
08/01/03-08/21/03; Cost $8,084,832)(a) 8,130,000 9,197,062
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.75%, 02/15/12 1,935,000 1,964,025
---------------------------------------------------------------------------
LSP Energy L.P./LSP Batesville Funding Corp.-
Series C, Sr. Sec. Bonds, 7.16%, 01/15/14 3,922,750 3,966,018
---------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08 6,950,000 7,419,125
---------------------------------------------------------------------------
Niagara Mohawk Power Corp., First Mortgage
Bonds, 9.75%, 11/01/05 3,200,000 3,624,704
---------------------------------------------------------------------------
Orion Power Holdings, Inc., Sr. Unsec. Global
Notes, 12.00%, 05/01/10 2,905,000 3,660,300
---------------------------------------------------------------------------
PG&E Corp., Sr. Sec. Notes, 6.88%, 07/15/08
(Acquired 06/27/03; Cost $1,735,000)(a) 1,735,000 1,883,325
---------------------------------------------------------------------------
PSE&G Energy Holdings LLC, Unsec. Global
Notes, 7.75%, 04/16/07 1,000,000 1,075,000
===========================================================================
45,203,384
===========================================================================
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRICAL COMPONENTS & EQUIPMENT-1.12%
Midwest Generation LLC-Series B., Global Pass
Through Ctfs., 8.56%, 01/02/16 $12,890,000 $ 14,114,550
---------------------------------------------------------------------------
Thomas & Betts Corp., Sr. Unsec. Notes,
7.25%, 06/01/13 2,885,000 3,115,800
===========================================================================
17,230,350
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.03%
Communications & Power Industries, Inc., Sr.
Sub. Notes, 8.00%, 02/01/12 (Acquired
01/15/04; Cost $500,000)(a)(b) 500,000 517,500
===========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.51%
Flextronics International Ltd. (Singapore),
Sr. Sub. Global Notes, 6.50%, 05/15/13 2,000,000 2,090,000
---------------------------------------------------------------------------
Sanmina-SCI Corp., Sr. Sec. Gtd. Global
Notes, 10.38%, 01/15/10 4,830,000 5,699,400
===========================================================================
7,789,400
===========================================================================
ENVIRONMENTAL SERVICES-0.88%
Allied Waste North America, Inc., Sr. Notes,
7.88%, 04/15/13 1,390,000 1,522,050
---------------------------------------------------------------------------
Series B, Sr. Gtd. Global Notes, 8.88%,
04/01/08 850,000 954,125
---------------------------------------------------------------------------
Series B, Sr. Sec. Gtd. Sub. Global Notes,
8.50%, 12/01/08 8,620,000 9,675,950
---------------------------------------------------------------------------
Synagro Technologies, Inc., Sr. Unsec. Sub.
Global Notes, 9.50%, 04/01/09 1,280,000 1,420,800
===========================================================================
13,572,925
===========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.69%
IMC Global Inc., Sr. Notes, 10.88%, 08/01/13
(Acquired 07/18/03-08/20/03; Cost
$6,940,553)(a) 7,045,000 8,841,475
---------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Global Notes,
11.25%, 06/01/11 1,450,000 1,747,250
===========================================================================
10,588,725
===========================================================================
FOOD DISTRIBUTORS-0.10%
Pinnacle Foods Holding Corp., Sr. Sub. Notes,
8.25%, 12/01/13 (Acquired 11/20/03; Cost
$1,385,000)(a) 1,385,000 1,475,025
===========================================================================
FOOD RETAIL-0.84%
Ahold Finance USA, Inc., Sr. Unsec. Gtd.
Unsub. Notes, 8.25%, 07/15/10 4,630,000 5,116,150
---------------------------------------------------------------------------
Series 2001, Class A-1, Gtd. Pass Through
Ctfs., 7.82%, 01/02/20 7,371,962 7,703,700
===========================================================================
12,819,850
===========================================================================
|
FS-87
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
FOREST PRODUCTS-0.10%
Millar Western Forest Products Ltd. (Canada),
Sr. Notes, 7.75%, 11/15/13 (Acquired
11/20/03; Cost $1,385,000)(a) $ 1,385,000 $ 1,478,487
===========================================================================
GAS UTILITIES-0.47%
Northwest Pipelines Corp., Unsec. Deb. 6.63%,
12/01/07 1,500,000 1,582,500
---------------------------------------------------------------------------
SEMCO Energy, Inc.,
Sr. Global Notes, 7.75%, 05/15/13 1,890,000 2,032,544
---------------------------------------------------------------------------
Sr. Unsec. Global Notes, 7.13%, 05/15/08 1,885,000 1,988,675
---------------------------------------------------------------------------
Southern Natural Gas Co., Sr. Unsec. Global
Notes, 8.88%, 03/15/10 1,450,000 1,633,062
===========================================================================
7,236,781
===========================================================================
GENERAL MERCHANDISE STORES-0.71%
Couche-Tard US L.P./Couche-Tard Finance
Corp., Sr. Sub. Notes, 7.50%, 12/15/13
(Acquired 12/11/03; Cost $2,300,000(a)(b)) 2,300,000 2,472,500
---------------------------------------------------------------------------
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 10/15/07 8,100,000 8,424,000
===========================================================================
10,896,500
===========================================================================
HEALTH CARE DISTRIBUTORS-0.43%
AmerisourceBergen Corp., Sr. Unsec. Gtd.
Global Notes, 7.25%, 11/15/12 4,130,000 4,439,750
---------------------------------------------------------------------------
National Nephrology Associates, Inc., Sr.
Sub. Notes, 9.00%, 11/01/11 (Acquired
10/16/03; Cost $910,000)(a) 910,000 948,675
---------------------------------------------------------------------------
Rotech Healthcare Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 9.50%, 04/01/12 1,150,000 1,219,000
===========================================================================
6,607,425
===========================================================================
HEALTH CARE EQUIPMENT-0.67%
Medex, Inc., Sr. Sub. Notes, 8.88%, 05/15/13
(Acquired 05/14/03-08/05/03; Cost
$4,238,900)(a) 4,125,000 4,506,562
---------------------------------------------------------------------------
MedQuest Inc.-Series B, Sr. Unsec. Gtd. Sub.
Notes, 11.88%, 08/15/12 2,880,000 3,225,600
---------------------------------------------------------------------------
Vicar Operating, Inc., Sr. Unsec. Gtd. Notes,
9.88%, 12/01/09 2,300,000 2,547,250
===========================================================================
10,279,412
===========================================================================
HEALTH CARE FACILITIES-1.70%
Alderwoods Group, Inc., Sr. Unsec. Gtd.
Bonds, 12.25%, 01/02/09 2,140,000 2,407,500
---------------------------------------------------------------------------
Ardent Health Services, LLC, Sr. Sub. Notes,
10.00%, 08/15/13 (Acquired 08/07/03; Cost
$1,930,000)(a) 1,930,000 2,142,300
---------------------------------------------------------------------------
Genesis HealthCare Corp., Sr. Sub. Notes,
8.00%, 10/15/13 (Acquired 10/23/03; Cost
$1,815,000)(a) 1,815,000 1,923,900
---------------------------------------------------------------------------
Hanger Orthopedic Group, Inc., Sr. Unsec.
Gtd. Global Notes, 10.38%, 02/15/09 1,920,000 2,198,400
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
HEALTH CARE FACILITIES-(CONTINUED)
Triad Hospitals, Inc., Sr. Sub. Notes, 7.00%,
11/15/13 (Acquired 11/06/03; Cost
$9,200,000)(a) $ 9,200,000 $ 9,568,000
---------------------------------------------------------------------------
United Surgical Partners International, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes, 10.00%,
12/15/11 6,840,000 7,866,000
===========================================================================
26,106,100
===========================================================================
HEALTH CARE SERVICES-0.26%
Quintiles Transnational Corp., Sr. Sub.
Notes, 10.00%, 10/01/13 (Acquired 09/12/03;
Cost $3,750,000)(a) 3,750,000 3,993,750
===========================================================================
HEALTH CARE SUPPLIES-1.14%
Advanced Medical Optics, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 9.25%, 07/15/10 1,386,000 1,545,390
---------------------------------------------------------------------------
DJ Orthopedics LLC/DJ Orthopedics Capital
Corp., Sr. Unsec. Gtd. Sub. Notes, 12.63%,
06/15/09 5,765,000 6,399,150
---------------------------------------------------------------------------
Fisher Scientific International Inc., Sr.
Unsec. Sub. Global Notes, 8.13%, 05/01/12 8,790,000 9,504,187
===========================================================================
17,448,727
===========================================================================
HOME FURNISHINGS-0.12%
Interface, Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 9.50%, 02/01/14 (Acquired
01/27/04; Cost $1,840,000)(a)(b) 1,840,000 1,835,400
===========================================================================
HOMEBUILDING-1.20%
Beazer Homes USA, Inc., Sr. Unsec. Gtd.
Global Notes, 8.38%, 04/15/12 3,775,000 4,228,000
---------------------------------------------------------------------------
Schuler Homes, Inc. Sr. Unsec. Gtd. Sub.
Global Notes, 10.50%, 07/15/11 3,000,000 3,495,000
---------------------------------------------------------------------------
Technical Olympic USA, Inc., Sr. Unsec. Gtd.
Global Notes, 9.00%, 07/01/10 2,910,000 3,201,000
---------------------------------------------------------------------------
WCI Communities, Inc.,
Sr. Sub. Notes, 7.88%, 10/01/13 (Acquired
09/24/03; Cost $1,860,000)(a) 1,860,000 1,999,500
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes, 10.63%,
02/15/11 4,770,000 5,449,725
===========================================================================
18,373,225
===========================================================================
HOTELS, RESORTS & CRUISE LINES-3.24%
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%,
12/01/12 2,140,000 2,402,150
---------------------------------------------------------------------------
HMH Properties Inc.-Series B, Sr. Sec. Gtd.
Notes, 7.88%, 08/01/08 5,720,000 5,934,500
---------------------------------------------------------------------------
Intrawest Corp. (Canada),
Sr. Unsec. Gtd. Global Notes, 10.50%,
02/01/10 8,145,000 9,061,312
---------------------------------------------------------------------------
Sr. Unsec. Global Notes, 7.50%, 10/15/13 2,720,000 2,869,600
---------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr.
Unsec. Gtd. Sub. Global Notes, 8.88%,
08/15/11 4,780,000 5,222,150
---------------------------------------------------------------------------
|
FS-88
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-(CONTINUED)
La Quinta Properties, Inc., Sr. Global Notes,
8.88%, 03/15/11 $ 4,830,000 $ 5,409,600
---------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia), Sr.
Unsec. Notes, 8.00%, 05/15/10 2,845,000 3,143,725
---------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 8.75%,
02/02/11 7,470,000 8,627,850
---------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
Sr. Gtd. Global Notes, 7.88%, 05/01/12 6,235,000 6,983,200
===========================================================================
49,654,087
===========================================================================
HOUSEWARES & SPECIALTIES-0.20%
Jarden Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.75%, 05/01/12 2,814,000 3,116,505
===========================================================================
INDUSTRIAL CONGLOMERATES-0.44%
Tyco International Group S.A. (Luxembourg)
-Series A, Sr. Unsec. Gtd. Unsub. Conv.
Putable Deb., 2.75%, 01/15/08 (Acquired
01/07/03; Cost $2,334,000)(a) 2,334,000 2,996,272
---------------------------------------------------------------------------
-Series B, Sr. Unsec. Gtd. Unsub. Conv.
Putable Deb., 3.13%, 01/15/15 (Acquired
01/07/03; Cost $2,674,000)(a) 2,674,000 3,686,777
===========================================================================
6,683,049
===========================================================================
INDUSTRIAL MACHINERY-1.34%
Cabot Safety Corp., Sr. Sub. Notes, 12.50%,
07/15/05 5,630,000 5,714,450
---------------------------------------------------------------------------
Manitowoc Co., Inc. (The), Sr. Unsec. Gtd.
Sub. Global Notes, 10.50%, 08/01/12 5,720,000 6,549,400
---------------------------------------------------------------------------
Wolverine Tube, Inc., Sr. Notes, 7.38%,
08/01/08 (Acquired 04/24/03-10/20/03; Cost
$5,356,881)(a) 5,855,000 5,518,337
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.50%,
04/01/09 2,725,000 2,827,188
===========================================================================
20,609,375
===========================================================================
INTEGRATED OIL & GAS-1.60%
PDVSA Finance Ltd. (Cayman Islands), Global
Notes, 8.50%, 11/16/12 15,935,000 15,536,625
---------------------------------------------------------------------------
Petrobras International Finance Co. (Cayman
Islands), Sr. Unsec. Unsub. Global Notes,
9.13%, 07/02/13 8,365,000 9,076,025
===========================================================================
24,612,650
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-3.66%
FairPoint Communications, Inc.-Series B, Sr.
Unsec. Sub. Notes, 9.50%, 05/01/08 825,000 825,000
---------------------------------------------------------------------------
LCI International, Inc., Sr. Notes, 7.25%,
06/15/07 4,825,000 4,728,500
---------------------------------------------------------------------------
Madison River Capital LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10 6,010,000 6,580,950
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
NTELOS Inc., Sr. Unsec. Conv. Notes, 9.00%,
08/15/13 (Acquired 04/10/03; Cost
$4,950,000)(a)(b)(d) $ 4,950,000 $ 4,950,000
---------------------------------------------------------------------------
PTC International Finance II S.A.
(Luxembourg), Sr. Unsec. Gtd. Sub. Yankee
Notes, 11.25%, 12/01/09 1,065,000 1,163,513
---------------------------------------------------------------------------
Qwest Capital Funding, Inc.,
Unsec. Gtd. Global Notes,
7.00%, 08/03/09 13,160,000 12,732,300
---------------------------------------------------------------------------
7.25%, 02/15/11 18,440,000 17,840,700
---------------------------------------------------------------------------
Qwest Communications International Inc., Sr.
Floating Rate Notes,
4.63%, 02/15/09 (Acquired 01/30/04; Cost
3,680,000)(a)(g) 3,680,000 3,680,000
---------------------------------------------------------------------------
7.25%, 02/15/11 (Acquired 01/30/04; Cost
3,680,000)(a)(g) 3,680,000 3,654,994
===========================================================================
56,155,957
===========================================================================
LEISURE FACILITIES-0.68%
Six Flags, Inc., Sr. Notes, 9.63%, 06/01/14
(Acquired 12/02/03-12/10/03; Cost
$6,611,063)(a) 6,460,000 6,960,650
---------------------------------------------------------------------------
Universal City Development Partners, Sr.
Notes, 11.75%, 04/01/10 (Acquired 03/21/03;
Cost $2,866,186)(a) 2,900,000 3,447,375
===========================================================================
10,408,025
===========================================================================
LEISURE PRODUCTS-0.13%
Bombardier Recreational Products Inc.
(Canada), Sr. Sub. Notes, 8.38%, 12/15/13
(Acquired 12/11/03; Cost $1,845,000)(a)(b) 1,845,000 1,974,150
===========================================================================
LIFE & HEALTH INSURANCE-0.12%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $1,877,504)(a) 1,900,000 1,898,157
===========================================================================
MARINE-0.51%
Overseas Shipholding Group, Inc., Sr. Unsec.
Global Notes, 8.25%, 03/15/13 5,665,000 6,231,500
---------------------------------------------------------------------------
Stena A.B. (Sweden), Sr. Unsec. Global Notes,
9.63%, 12/01/12 1,415,000 1,623,713
===========================================================================
7,855,213
===========================================================================
METAL & GLASS CONTAINERS-3.52%
AEP Industries Inc., Sr. Unsec. Sub. Notes,
9.88%, 11/15/07 2,045,000 2,121,688
---------------------------------------------------------------------------
Anchor Glass Container Corp., Sr. Sec. Global
Notes, 11.00%, 02/15/13 6,490,000 7,658,200
---------------------------------------------------------------------------
BWAY Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 10.00%, 10/15/10 800,000 882,000
---------------------------------------------------------------------------
Constar International Inc., Sr. Sub. Notes,
11.00%, 12/01/12 2,020,000 1,828,100
---------------------------------------------------------------------------
|
FS-89
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
METAL & GLASS CONTAINERS-(CONTINUED)
Crown European Holdings S.A. (France),
Sr. Sec. Global Notes, 9.50%, 03/01/11 $ 7,545,000 $ 8,525,850
---------------------------------------------------------------------------
Sr. Sec. Global Notes, 10.88%, 03/01/13 1,000,000 1,180,000
---------------------------------------------------------------------------
Greif Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/01/12 4,775,000 5,264,438
---------------------------------------------------------------------------
Owens-Brockway Glass Container Inc.,
Sr. Sec. Gtd. Global Notes,
7.75%, 05/15/11 2,715,000 2,891,475
---------------------------------------------------------------------------
8.75%, 11/15/12 3,900,000 4,329,000
---------------------------------------------------------------------------
Owens-Brockway Glass Container Inc., Sr.
Unsec. Gtd. Global Notes, 8.25%, 05/15/13 4,150,000 4,523,500
---------------------------------------------------------------------------
Owens-Illinois, Inc., Sr. Unsec. Deb., 7.50%,
05/15/10 3,675,000 3,803,625
---------------------------------------------------------------------------
Plastipak Holdings Inc., Sr. Unsec. Gtd.
Global Notes, 10.75%, 09/01/11 4,870,000 5,478,750
---------------------------------------------------------------------------
Pliant Corp., Sr. Sec. Second Lien Global
Notes, 11.13%, 09/01/09 3,775,000 3,907,125
---------------------------------------------------------------------------
Stone Container Corp., Sr. Unsec. Global
Notes, 8.38%, 07/01/12 165,000 181,500
---------------------------------------------------------------------------
U.S. Can Corp., Sr. Sec. Notes 10.88%,
07/15/10 1,395,000 1,457,775
===========================================================================
54,033,026
===========================================================================
MOVIES & ENTERTAINMENT-0.48%
AMC Entertainment Inc., Sr. Unsec. Sub.
Notes, 9.88%, 02/01/12 4,000,000 4,440,000
---------------------------------------------------------------------------
River Rock Entertainment Authority, Sr.
Notes, 9.75%, 11/01/11 (Acquired 11/04/03;
Cost $1,825,044)(a) 1,850,000 2,044,250
---------------------------------------------------------------------------
Sun Media Corp. (Canada), Sr. Unsec. Gtd.
Global Notes, 7.63%, 02/15/13 825,000 895,125
===========================================================================
7,379,375
===========================================================================
MULTI-UTILITIES & UNREGULATED POWER-6.89%
AES Corp. (The),
Sr. Sec. Second Priority Notes, 8.75%,
05/15/13 (Acquired 05/01/03-08/12/03; Cost
$3,664,525)(a) 3,700,000 4,093,125
---------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 8.50%, 11/01/07 8,845,000 9,110,350
---------------------------------------------------------------------------
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19 8,676,973 9,631,441
---------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08 6,295,000 5,161,900
---------------------------------------------------------------------------
Calpine Corp.,
Sr. Sec. Notes, 8.75%, 07/15/13 (Acquired
07/10/03-11/07/03; Cost $6,752,525)(a) 6,810,000 6,588,675
---------------------------------------------------------------------------
Sr. Unsec. Conv. Putable Notes, 4.00%,
12/26/04 3,330,000 3,309,188
---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.25%, 08/15/05 13,470,000 13,133,250
---------------------------------------------------------------------------
El Paso Production Holding Co., Sr. Unsec.
Gtd. Global Notes, 7.75%, 06/01/13 10,960,000 10,905,200
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
MULTI-UTILITIES & UNREGULATED POWER-(CONTINUED)
Mirant Americas Generation, LLC, Sr. Unsec.
Notes, 7.63%, 05/01/06 (Acquired 05/01/03-
07/10/03; Cost $7,725,725)(b)(f) $ 9,685,000 $ 8,377,525
---------------------------------------------------------------------------
Northwest Pipelines Corp., Sr. Unsec. Gtd.
Global Notes, 8.13%, 03/01/10 630,000 693,788
---------------------------------------------------------------------------
NRG Energy, Inc., Sr. Sec. Second Priority
Notes, 8.00%, 12/15/13 (Acquired 12/17/03-
01/21/04; Cost $5,530,000)(a)(b) 5,350,000 5,564,000
---------------------------------------------------------------------------
Reliant Energy Mid-Atlantic Power Holdings,
LLC-Series B, Sr. Unsec. Pass Through
Ctfs., 9.24%, 07/02/17 2,956,853 3,385,596
---------------------------------------------------------------------------
Reliant Resources, Inc.,
Sec. Global Notes, 9.50%, 07/15/13 4,805,000 5,237,450
---------------------------------------------------------------------------
Sr. Sec. Global Notes, 9.25%, 07/15/10 4,805,000 5,201,413
---------------------------------------------------------------------------
Williams Cos., Inc. (The),
Sr. Notes, 7.13%, 09/01/11 9,580,000 10,106,900
---------------------------------------------------------------------------
Sr. Notes, 8.63%, 06/01/10 4,665,000 5,178,150
===========================================================================
105,677,951
===========================================================================
OFFICE ELECTRONICS-0.79%
Xerox Corp.,
Sr. Unsec. Notes, 7.13%, 06/15/10 3,650,000 3,932,875
---------------------------------------------------------------------------
7.63%, 06/15/13 7,545,000 8,148,600
===========================================================================
12,081,475
===========================================================================
OFFICE SERVICES & SUPPLIES-0.33%
IOS Capital, Inc., Sr. Unsec. Notes, 7.25%,
06/30/08 2,920,000 3,157,250
---------------------------------------------------------------------------
Moore North America Finance Inc., Sr. Notes,
7.88%, 01/15/11 1,650,000 1,864,500
===========================================================================
5,021,750
===========================================================================
OIL & GAS DRILLING-0.35%
Pride International, Inc., Sr. Unsec. Notes,
10.00%, 06/01/09 5,000,000 5,362,500
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.26%
Grant Prideco Escrow Corp., Sr. Unsec. Gtd.
Global Notes, 9.00%, 12/15/09 2,740,000 3,096,200
---------------------------------------------------------------------------
Grant Prideco, Inc.-Series B, Sr. Unsec. Gtd.
Global Notes, 9.63%, 12/01/07 1,475,000 1,696,250
---------------------------------------------------------------------------
GulfMark Offshore, Inc., Sr. Unsec. Gtd.
Notes, 8.75%, 06/01/08 3,600,000 3,717,000
---------------------------------------------------------------------------
Hanover Compressor Co.,
Sr. Notes, 8.63%, 12/15/10 1,845,000 1,983,375
---------------------------------------------------------------------------
Sub. Disc. Notes, 11.00%, 03/31/07(h) 1,850,000 1,406,000
---------------------------------------------------------------------------
SESI, LLC, Sr. Unsec. Gtd. Global Notes,
8.88%, 05/15/11 6,815,000 7,462,425
===========================================================================
19,361,250
===========================================================================
|
FS-90
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-0.12%
Vintage Petroleum, Inc., Sr. Unsec. Global
Notes, 8.25%, 05/01/12 $ 1,685,000 $ 1,878,775
===========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-2.02%
CITGO Petroleum Corp., Sr. Unsec. Global
Notes, 11.38%, 02/01/11 9,530,000 11,483,650
---------------------------------------------------------------------------
El Paso CGP Co., Unsec. Notes, 7.75%,
06/15/10 2,990,000 2,821,813
---------------------------------------------------------------------------
GulfTerra Energy Partners, L.P.,
Sr. Unsec. Global Notes, 6.25%, 06/01/10 2,805,000 2,938,238
---------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Sub. Global
Notes, 8.50%, 06/01/11 6,801,000 7,753,140
---------------------------------------------------------------------------
Premcor Refining Group Inc. (The),
Sr. Unsec. Global Notes,
7.50%, 06/15/15 3,740,000 4,034,525
---------------------------------------------------------------------------
9.50%, 02/01/13 1,665,000 1,950,131
===========================================================================
30,981,497
===========================================================================
PACKAGED FOODS & MEATS-1.04%
Burns Philip Capital Property Ltd./Burns
Philip Capital U.S., Inc., Sr. Unsec.
Notes, 9.50%, 11/15/10 (Acquired 08/21/03;
Cost $3,615,300)(a) 3,510,000 3,798,487
---------------------------------------------------------------------------
Del Monte Corp., Sr. Unsec. Sub. Global
Notes, 8.63%, 12/15/12 1,505,000 1,685,600
---------------------------------------------------------------------------
Dole Food Co., Inc., Sr. Unsec. Global Notes,
8.88%, 03/15/11 9,485,000 10,504,638
===========================================================================
15,988,725
===========================================================================
PAPER PACKAGING-0.26%
Jefferson Smurfit Corp., Sr. Unsec. Gtd.
Unsub. Global Notes, 7.50%, 06/01/13 3,775,000 3,982,625
===========================================================================
PAPER PRODUCTS-2.05%
Appleton Papers Inc.-Series B, Sr. Unsec.
Gtd. Sub. Global Notes, 12.50%, 12/15/08 1,490,000 1,698,600
---------------------------------------------------------------------------
Bowater Inc., Global Notes, 6.50%, 06/15/13 8,220,000 8,044,010
---------------------------------------------------------------------------
Cascades Inc. (Canada), Sr. Unsec. Global
Notes, 7.25%, 02/15/13 5,455,000 5,891,400
---------------------------------------------------------------------------
Georgia-Pacific Corp.,
Sr. Gtd. Global Notes, 7.38%, 07/15/08 3,850,000 4,138,750
---------------------------------------------------------------------------
Sr. Notes, 8.00%, 01/15/24 (Acquired
12/04/03; Cost $2,770,000)(a)(b) 2,770,000 2,866,950
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
8.88%, 02/01/10 5,320,000 6,091,400
---------------------------------------------------------------------------
9.38%, 02/01/13 1,625,000 1,860,625
---------------------------------------------------------------------------
Norske Skog Canada Ltd. (Canada)-Series D,
Sr. Unsec. Gtd. Global Notes, 8.63%,
06/15/11 800,000 848,000
===========================================================================
31,439,735
===========================================================================
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
PERSONAL PRODUCTS-0.94%
Central Garden & Pet Co., Sr. Unsec. Gtd.
Sub. Global Notes, 9.13%, 02/01/13 $ 1,440,000 $ 1,623,600
---------------------------------------------------------------------------
Elizabeth Arden, Inc., Sr. Unsec. Gtd. Sub.
Notes, 7.75%, 01/15/14 (Acquired 01/08/04;
Cost $6,450,000)(a)(b) 6,450,000 6,643,500
---------------------------------------------------------------------------
Herbalife International, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 11.75%, 07/15/10 5,270,000 6,139,550
===========================================================================
14,406,650
===========================================================================
PHARMACEUTICALS-1.42%
aaiPharma Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 11.00%, 04/01/10 7,950,000 9,102,750
---------------------------------------------------------------------------
Athena Neurosciences Finance, LLC., Sr.
Unsec. Gtd. Unsub. Notes, 7.25%, 02/21/08 10,105,000 9,801,850
---------------------------------------------------------------------------
Valeant Pharmaceuticals International, Sr.
Notes, 7.00%, 12/15/11 (Acquired 12/09/03;
Cost $2,781,100)(a)(b) 2,765,000 2,861,775
===========================================================================
21,766,375
===========================================================================
PUBLISHING-1.04%
Dex Media East LLC/Dex Media East Finance
Co., Sr. Unsec. Gtd. Global Notes, 9.88%,
11/15/09 1,175,000 1,339,500
---------------------------------------------------------------------------
Dex Media Inc., Disc. Notes, 9.00%, 11/15/13
(Acquired 11/03/03; Cost $1,781,498)(a)(e) 2,770,000 1,918,225
---------------------------------------------------------------------------
Medianews Group Inc., Sr. Sub. Notes, 6.88%,
10/01/13 (Acquired 11/20/03; Cost
$3,201,996)(a) 3,230,000 3,310,750
---------------------------------------------------------------------------
PRIMEDIA Inc., Sr. Notes, 8.00%, 05/15/13
(Acquired 05/08/03-08/18/03; Cost
$7,600,681)(a) 7,665,000 7,818,300
===========================================================================
Von Hoffmann Corp., Sr. Unsec. Gtd. Notes,
10.25%, 03/15/09 (Acquired 10/07/03; Cost
$1,518,875)(a) 1,450,000 1,566,000
===========================================================================
15,952,775
===========================================================================
RAILROADS-1.06%
Grupo Transportacion Ferroviaria Mexicana,
S.A. de C.V. (Mexico), Sr. Gtd. Yankee
Notes, 10.25%, 06/15/07 3,395,000 3,564,750
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Yankee Deb., 11.75%,
06/15/09 8,223,000 8,469,690
---------------------------------------------------------------------------
Kansas City Southern Railway, Sr. Unsec. Gtd.
Global Notes, 9.50%, 10/01/08 3,829,000 4,312,411
===========================================================================
16,346,851
===========================================================================
REAL ESTATE-1.22%
Host Marriott L.P.
Series G, Sr. Gtd. Global Notes, 9.25%,
10/01/07 5,400,000 6,061,500
---------------------------------------------------------------------------
Series I, Unsec. Gtd. Global Notes, 9.50%,
01/15/07 1,420,000 1,592,175
---------------------------------------------------------------------------
|
FS-91
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
REAL ESTATE-(CONTINUED)
iStar Financial Inc.,
Sr. Unsec. Notes,
6.50%, 12/15/13 $ 3,690,000 $ 3,828,375
---------------------------------------------------------------------------
8.75%, 08/15/08 615,000 705,713
---------------------------------------------------------------------------
MeriStar Hospitality Corp., Sr. Unsec. Gtd.
Global Notes, 9.13%, 01/15/11 4,570,000 4,889,900
---------------------------------------------------------------------------
Ventas Realty L.P./Ventas Capital Corp., Sr.
Unsec. Gtd. Global Notes, 8.75%, 05/01/09 1,525,000 1,700,375
===========================================================================
18,778,038
===========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.13%
LNR Property Corp., Sr. Sub. Notes, 7.25%,
10/15/13 (Acquired 10/15/03; Cost
$1,850,000)(a) 1,850,000 1,970,250
===========================================================================
REGIONAL BANKS-0.55%
Western Financial Bank, Unsec. Sub. Deb.,
8.88%, 08/01/07 95,000 97,375
---------------------------------------------------------------------------
9.63%, 05/15/12 7,225,000 8,308,750
===========================================================================
8,406,125
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.13%
Amkor Technology, Inc., Sr. Unsec. Global
Notes, 7.75%, 05/15/13 1,880,000 2,011,600
===========================================================================
SEMICONDUCTORS-0.36%
Viasystems Inc., Sr. Sub. Notes, 10.50%,
01/15/11 (Acquired 12/12/03-01/05/04; Cost
$5,146,163)(a)(b) 5,005,000 5,580,575
===========================================================================
SOFT DRINKS-0.06%
Cott Beverages Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 8.00%, 12/15/11 850,000 935,000
===========================================================================
SPECIALTY CHEMICALS-3.27%
Huntsman Advanced Materials LLC, Sr. Sec.
Second Lien Notes, 11.00%, 07/15/10
(Acquired 06/23/03; Cost $2,730,000)(a) 2,730,000 3,105,375
---------------------------------------------------------------------------
Huntsman International LLC, Sr. Unsec. Gtd.
Global Notes, 9.88%, 03/01/09 12,790,000 14,005,050
---------------------------------------------------------------------------
Huntsman LLC, Sr. Gtd. Notes, 11.63%,
10/15/10 (Acquired 09/16/03-12/03/03; Cost
$5,044,112)(a) 5,095,000 5,375,225
---------------------------------------------------------------------------
Millennium America Inc.,
Sr. Notes, 9.25%, 06/15/08 (Acquired
04/22/03-11/12/03; Cost $2,860,913)(a) 2,680,000 2,948,000
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 9.25%,
06/15/08 1,285,000 1,413,500
---------------------------------------------------------------------------
Nalco Finance Holdings Inc., Sr. Disc. Notes,
9.00%, 02/01/14 (Acquired 01/15/04; Cost
$5,318,658)(a)(b)(e) 8,280,000 5,299,200
---------------------------------------------------------------------------
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11 9,355,000 9,775,975
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
SPECIALTY CHEMICALS-(CONTINUED)
Resolution Performance Products LLC, Sec.
Notes, 8.00%, 12/15/09 (Acquired 12/17/03;
Cost $350,000)(a)(b) $ 350,000 $ 362,250
---------------------------------------------------------------------------
Rhodia S.A. (France), Sr. Notes, 7.63%,
06/01/10 (Acquired 05/20/03; Cost
$1,860,000)(a) 1,860,000 1,748,400
---------------------------------------------------------------------------
Westlake Chemical Corp., Sr. Unsec. Gtd.
Global Notes, 8.75%, 07/15/11 5,585,000 6,087,650
===========================================================================
50,120,625
===========================================================================
SPECIALTY STORES-0.68%
CSK Auto Inc., Sr. Gtd. Sub. Notes, 7.00%,
01/15/14 (Acquired 01/09/04; Cost
$2,300,000)(a)(b) 2,300,000 2,334,500
---------------------------------------------------------------------------
Petco Animal Supplies Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 10.75%, 11/01/11 4,740,000 5,664,300
---------------------------------------------------------------------------
Petro Stopping Centers L.P., Sr. Unsec.
Notes, 10.50%, 02/01/07 2,400,000 2,466,000
===========================================================================
10,464,800
===========================================================================
STEEL-0.79%
IPSCO, Inc. (Canada), Sr. Global Notes,
8.75%, 06/01/13 5,935,000 6,780,738
---------------------------------------------------------------------------
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 6,150,000 5,289,000
===========================================================================
12,069,738
===========================================================================
TRUCKING-0.38%
Laidlaw International Inc., Sr. Notes,
10.75%, 06/15/11 (Acquired 05/22/03-
11/20/03; Cost $5,487,752)(a) 5,045,000 5,801,750
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-7.30%
AirGate PCS, Inc., Sr. Sub. Disc. Notes,
13.50%, 10/01/09(e)(i) 9,975,000 9,426,375
---------------------------------------------------------------------------
Alamosa (Delaware), Inc., Sr. Unsec. Gtd.
Disc. Notes, 12.00%, 07/31/09(e) 5,113,000 4,678,395
---------------------------------------------------------------------------
American Tower Corp., Sr. Global Notes,
9.38%, 02/01/09 9,905,000 10,573,588
---------------------------------------------------------------------------
American Tower Escrow Corp., Unsec. Disc.
Global Notes, 8.00%, 08/01/08(h) 7,220,000 5,072,050
---------------------------------------------------------------------------
Centennial Communications Corp./Centennial
Cellular Operating Co.,
Sr. Notes, 8.13%, 02/01/14 (Acquired
01/16/04; Cost $1,750,000)(a)(b) 1,750,000 1,723,750
---------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.13%,
06/15/13 8,380,000 9,092,300
---------------------------------------------------------------------------
Crown Castle International Corp., Sr. Global
Notes, 9.38%, 08/01/11 4,500,000 4,995,000
---------------------------------------------------------------------------
Dobson Communications Corp., Sr. Global
Notes, 8.88%, 10/01/13 5,565,000 5,787,600
---------------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc.
Global Notes, 14.00%, 10/01/10 (Acquired
09/19/00-10/12/01; Cost
$2,606,889)(b)(e)(f) 5,150,000 1,545,000
---------------------------------------------------------------------------
|
FS-92
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
Innova S. de R.L. (Mexico), Notes, 9.38%,
09/19/13 (Acquired 09/12/03-12/02/03; Cost
$9,311,744)(a) $ 9,205,000 $ 9,872,363
---------------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%,
07/15/10 (Acquired 06/30/00-11/08/01; Cost
$3,623,101)(b)(e)(f) 6,335,000 1,678,775
---------------------------------------------------------------------------
IWO Holdings, Inc., Sr. Unsec. Gtd. Global
Notes, 14.00%, 01/15/11 10,740,000 2,309,100
---------------------------------------------------------------------------
Millicom International Cellular S.A.
(Luxembourg), Sr. Unsec. Notes, 10.00%,
12/01/13 (Acquired 11/19/03; Cost
$925,000)(a) 925,000 971,250
---------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Unsec.
Notes, 7.38%, 08/01/15 4,410,000 4,740,750
---------------------------------------------------------------------------
Nextel Partners, Inc., Sr. Global Notes,
8.13%, 07/01/11 3,710,000 3,914,050
---------------------------------------------------------------------------
NII Holdings Ltd. (Cayman Islands), Sr. Sec.
Disc. Euro Notes, 13.00%, 11/01/09(e) 1,012,189 1,047,616
---------------------------------------------------------------------------
Rural Cellular Corp., Sr. Unsec. Global
Notes, 9.88%, 02/01/10 6,505,000 6,927,825
---------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Global
Notes, 10.25%, 02/01/09 8,845,000 8,933,450
---------------------------------------------------------------------------
SBA Telecommunications Inc./SBA
Communications Corp., Sr. Disc. Notes,
9.75%, 12/15/11 (Acquired
12/08/03-01/30/04; Cost
$4,377,615)(a)(b)(e) 6,255,000 4,503,600
---------------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Unsec. Gtd.
Disc. Global Notes, 14.00%, 05/15/10(e) 3,102,000 2,892,615
---------------------------------------------------------------------------
US Unwired Inc.-Series B, Sr. Unsec. Gtd.
Sub. Disc. Notes, 13.38%, 11/01/09(e) 6,935,000 6,276,175
---------------------------------------------------------------------------
Western Wireless Corp., Sr. Unsec. Global
Notes, 9.25%, 07/15/13 4,650,000 5,045,250
===========================================================================
112,006,877
===========================================================================
Total Bonds & Notes (Cost $1,309,308,224) 1,383,372,540
===========================================================================
WARRANTS & OTHER EQUITY INTERESTS-5.75%
ALTERNATIVE CARRIERS-0.00%
KMC Telecom Holdings, Inc.-Wts.,
expiring 01/31/08(j) 35 9
---------------------------------------------------------------------------
WAM!NET Inc.-Wts., expiring 03/01/05(j) 17,100 171
===========================================================================
180
===========================================================================
BROADCASTING & CABLE TV-2.16%
CSC Holdings, Inc.-Series M, 11.13% Pfd 106,050 11,214,788
---------------------------------------------------------------------------
Knology, Inc.-Wts., expiring 10/22/07
(Acquired 03/12/98-02/01/00; Cost
$270)(a)(b)(d)(j) 47,295 0
---------------------------------------------------------------------------
Knology, Inc.(k) 64,931 694,763
---------------------------------------------------------------------------
NTL Inc.(k) 91,503 6,070,309
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
MARKET
SHARES VALUE
BROADCASTING & CABLE TV-(CONTINUED)
UnitedGlobalCom, Inc.
Class A(k) 1,442,463 $ 13,703,399
---------------------------------------------------------------------------
Rts.(j) 403,890 1,353,030
---------------------------------------------------------------------------
XM Satellite Radio Inc.-Wts.,
expiring 03/15/10(j) 3,750 206,250
===========================================================================
33,242,539
===========================================================================
COMMUNICATIONS EQUIPMENT-0.00%
Loral Space & Communications, Ltd.-Wts.,
expiring 12/26/06(j) 74,000 2,220
===========================================================================
CONSTRUCTION MATERIALS-0.00%
Dayton Superior Corp.-Wts., expiring 06/15/09
(Acquired 08/07/00-01/30/01; Cost
$10,000)(a)(b)(j) 10,780 11
===========================================================================
GENERAL MERCHANDISE STORES-0.01%
Travelcenters, of America, Inc.
-Wts., expiring 05/01/09 (Acquired
01/29/01; Cost $0)(a)(b)(j) 14,700 77,175
---------------------------------------------------------------------------
-Wts., expiring 05/01/09(j) 4,900 25,725
===========================================================================
102,900
===========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.
Series B, Pfd. Wts., expiring 11/15/09
(Acquired 06/13/00; Cost $0)(a)(b)(j) 21,155 0
---------------------------------------------------------------------------
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(a)(b)(j) 21,155 0
===========================================================================
0
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.64%
McLeodUSA Inc.-Wts., expiring 04/16/07(j) 117,164 97,246
---------------------------------------------------------------------------
NTELOS Inc.
(Acquired 09/10/03; Cost
$5,437,500)(a)(b)(d)(k) 246,764 5,330,103
---------------------------------------------------------------------------
Wts., expiring 08/15/10 (Acquired 07/21/00-
11/15/00; Cost $214,160)(a)(b)(j) 33,035 330
---------------------------------------------------------------------------
XO Communications, Inc.(k) 528,477 3,863,167
---------------------------------------------------------------------------
Series A, Wts., expiring 01/16/10(j) 68,148 238,518
---------------------------------------------------------------------------
Series B, Wts., expiring 01/16/10(j) 51,111 153,333
---------------------------------------------------------------------------
Series C, Wts., expiring 01/16/10(j) 51,111 122,666
===========================================================================
9,805,363
===========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.68%
AES Trust VII-$3.00 Conv. Pfd. 226,045 10,454,581
===========================================================================
PUBLISHING-0.69%
PRIMEDIA Inc.
Series D, 10.00% Pfd. 70,250 6,954,750
---------------------------------------------------------------------------
Series F, 9.20% Pfd. 37,800 3,600,450
===========================================================================
10,555,200
===========================================================================
|
FS-93
MARKET
SHARES VALUE
---------------------------------------------------------------------------
RAILROADS-0.07%
RailAmerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(a)(b)(j) 15,525 $ 1,042,038
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.50%
Alamosa Holdings, Inc.-Series B, Conv. Pfd.
$18.75 6,433 2,960,801
---------------------------------------------------------------------------
American Tower Corp.-Wts., expiring 08/01/08
(Acquired 01/22/03-04/29/03; Cost
$414,167)(a)(b)(j) 7,220 1,063,145
---------------------------------------------------------------------------
Horizon PCS, Inc.-Wts., expiring 10/01/10
(Acquired 05/02/01; Cost $0)(a)(b)(j) 29,480 295
---------------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 07/15/10 (Acquired
01/29/01; Cost $0)(a)(b)(j) 6,880 69
---------------------------------------------------------------------------
IWO Holdings Inc.-Wts., expiring 01/15/11
(Acquired 08/24/01; Cost $0)(a)(b)(j) 14,340 143
---------------------------------------------------------------------------
NII Holdings Inc.-Class B(k) 109,549 10,432,351
---------------------------------------------------------------------------
SpectraSite, Inc.(k) 233,224 8,535,998
---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
MARKET
SHARES VALUE
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
UbiquiTel Inc.-Wts., expiring 04/15/10
(Acquired 08/10/00; Cost $0)(a)(b)(j) 27,680 $ 277
===========================================================================
22,993,079
===========================================================================
Total Warrants & Other Equity Interests
(Cost $64,655,499) 88,198,111
===========================================================================
MONEY MARKET FUNDS-2.98%
Liquid Assets Portfolio(l) 22,908,549 22,908,549
---------------------------------------------------------------------------
STIC Prime Portfolio(l) 22,908,549 22,908,549
===========================================================================
Total Money Market Funds (Cost
$45,817,098) 45,817,098
===========================================================================
TOTAL INVESTMENTS-98.89% (Cost
$1,419,780,821) 1,517,387,749
===========================================================================
OTHER ASSETS LESS LIABILITIES-1.11% 17,041,005
===========================================================================
NET ASSETS-100.00% $1,534,428,754
___________________________________________________________________________
===========================================================================
|
Investment Abbreviations:
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
PHONES - Participation Hybrid Option
Notes
PIK - Payment in Kind
Rts. - Rights
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
|
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/04 was $262,284,929,
which represented 17.09% of the Fund's net assets. Not considered to be
illiquid unless otherwise indicated.
(b) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 01/31/04 was $80,205,311 which represented
5.23% of the Fund's net assets.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(e) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(f) Defaulted security. Issuer has filed for protection under Chapter 11 of the
U.S. Bankruptcy Code.
(g) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 01/31/04.
(h) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(i) Consists of more than one class of securities traded together as a unit.
(j) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(k) Non-income producing security.
(l) The money market fund and the Fund are affiliated by having the same
advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-94
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$1,373,963,723) $ 1,471,570,651
------------------------------------------------------------
Investments in affiliated money market
funds (cost $45,817,098) 45,817,098
------------------------------------------------------------
Total investments (cost $1,419,780,821) 1,517,387,749
------------------------------------------------------------
Cash 2,621,811
------------------------------------------------------------
Receivables for:
Investments sold 29,018,109
------------------------------------------------------------
Fund shares sold 1,736,494
------------------------------------------------------------
Dividends and interest 27,751,660
------------------------------------------------------------
Investments matured (Note 8) 6,000
------------------------------------------------------------
Amount due from advisor 36,533
------------------------------------------------------------
Investment for deferred compensation and
retirement plans 208,204
------------------------------------------------------------
Other assets 147,401
============================================================
Total assets 1,578,913,961
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 23,517,078
------------------------------------------------------------
Fund shares reacquired 15,571,255
------------------------------------------------------------
Dividends 3,314,714
------------------------------------------------------------
Deferred compensation and retirement
plans 319,931
------------------------------------------------------------
Accrued distribution fees 708,439
------------------------------------------------------------
Accrued trustees' fees 1,263
------------------------------------------------------------
Accrued transfer agent fees 819,658
------------------------------------------------------------
Accrued operating expenses 232,869
============================================================
Total liabilities 44,485,207
============================================================
Net assets applicable to shares outstanding $ 1,534,428,754
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 3,344,906,282
------------------------------------------------------------
Undistributed net investment income (2,800,989)
------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (1,905,283,467)
------------------------------------------------------------
Unrealized appreciation of investment
securities 97,606,928
============================================================
$ 1,534,428,754
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 632,985,736
____________________________________________________________
============================================================
Class B $ 528,072,013
____________________________________________________________
============================================================
Class C $ 99,854,404
____________________________________________________________
============================================================
Investor Class $ 273,516,601
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 140,841,922
____________________________________________________________
============================================================
Class B 117,131,566
____________________________________________________________
============================================================
Class C 22,231,241
____________________________________________________________
============================================================
Investor Class 60,847,386
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 4.49
------------------------------------------------------------
Offering price per share:
(Net asset value of $4.49 divided by
95.25%) $ 4.71
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 4.51
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 4.49
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 4.50
____________________________________________________________
============================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-95
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest $ 59,806,256
--------------------------------------------------------------------------
Dividends 2,722,862
--------------------------------------------------------------------------
Dividends from affiliated money market funds 188,637
==========================================================================
Total investment income 62,717,755
==========================================================================
EXPENSES:
Advisory fees 3,541,354
--------------------------------------------------------------------------
Administrative services fees 171,766
--------------------------------------------------------------------------
Custodian fees 67,636
--------------------------------------------------------------------------
Distribution fees
Class A 773,902
--------------------------------------------------------------------------
Class B 2,653,477
--------------------------------------------------------------------------
Class C 433,377
--------------------------------------------------------------------------
Investor Class 170,437
--------------------------------------------------------------------------
Transfer agent fees 1,548,040
--------------------------------------------------------------------------
Trustees' fees 14,058
--------------------------------------------------------------------------
Other 388,293
==========================================================================
Total expenses 9,762,340
==========================================================================
Less: Fees waived and expense offset arrangements (25,074)
==========================================================================
Net expenses 9,737,266
==========================================================================
Net investment income 52,980,489
==========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 23,908,207
--------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 106,424,521
==========================================================================
Net gain from investment securities 130,332,728
==========================================================================
Net increase in net assets resulting from operations $183,313,217
__________________________________________________________________________
==========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-96
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 52,980,489 $ 95,342,128
----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 23,908,207 (164,599,730)
----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 106,424,521 278,571,487
==============================================================================================
Net increase in net assets resulting from operations 183,313,217 209,313,885
==============================================================================================
Distributions to shareholders from net investment income:
Class A (26,347,010) (48,175,551)
----------------------------------------------------------------------------------------------
Class B (20,624,803) (41,662,189)
----------------------------------------------------------------------------------------------
Class C (3,403,412) (4,898,704)
----------------------------------------------------------------------------------------------
Investor Class (6,095,393) --
==============================================================================================
Decrease in net assets resulting from distributions (56,470,618) (94,736,444)
==============================================================================================
Share transactions-net:
Class A 27,819,543 68,038,018
----------------------------------------------------------------------------------------------
Class B (49,817,912) 13,140,786
----------------------------------------------------------------------------------------------
Class C 19,948,441 16,219,386
----------------------------------------------------------------------------------------------
Investor Class 260,218,166 --
==============================================================================================
Net increase in net assets resulting from share
transactions 258,168,238 97,398,190
==============================================================================================
Net increase in net assets 385,010,837 211,975,631
==============================================================================================
NET ASSETS:
Beginning of period 1,149,417,917 937,442,286
==============================================================================================
End of period (including undistributed net investment
income (loss) of $(2,800,989) and $689,140 for 2004 and
2003, respectively) $1,534,428,754 $1,149,417,917
______________________________________________________________________________________________
==============================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-97
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures and exchange-traded funds.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if
FS-98
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. REDEMPTION FEES -- Effective November 24, 2003, the Fund instituted a 2% redemption fee on certain share classes that is to be retained by the Fund to offset transaction costs and other expenses associated with short-term redemptions and exchanges. The fee, subject to certain exceptions, is imposed on certain redemptions, including exchanges of shares held less than 30 days. The redemption fee is accounted for as an addition to paid-in-capital by the Fund and is allocated among the share classes based on the relative net assets of each class.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% on the first $200 million of the Fund's average daily net assets, plus 0.55% on the next $300 million of the Fund's average daily net assets, plus 0.50% on the next $500 million of the Fund's average daily net assets, plus 0.45% on the Fund's average daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the six months ended January 31, 2004, AIM waived fees of $4,489.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $171,766 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $625,123 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C and Investor Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Class A, Class B and Class C Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C shares. Of these amounts, 0.25% of the average daily net assets of the Class A, Class B or Class C shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges, that may be paid by any class of shares of the Fund. The Fund, pursuant to the Investor Class Plan, pays AIM Distributors for its actual expenses incurred pursuant to the Investor Class Plan for the period, up to a maximum annual rate of 0.25% of the average daily net assets of the Investor Class shares. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A, Class B, Class C and Investor Class shares paid $773,902, $2,653,477, $433,377 and $170,437, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the six months ended January 31, 2004, AIM Distributors retained $81,183 in front-end sales commissions from the sale of Class A shares and $528,051, $2,510 and $9,672 from Class A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees to invest daily available cash balances in affiliated money market funds. Each day the prior day's balance invested in the affiliated money market fund is redeemed in full and a new purchase amount is submitted to invest the current day's available cash. The table below shows the transactions in and earnings from investments in affiliated money market funds for the period ended January 31, 2004.
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/2003 AT COST SALES (DEPRECIATION) 01/31/2004 INCOME GAIN (LOSS)
----------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $ -- $ 175,815,959 $(152,907,410) $ -- $22,908,549 $94,745 $ --
----------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio -- 175,815,959 (152,907,410) -- $22,908,549 93,892 --
======================================================================================================================
$ -- $ 351,631,918 $(305,814,820) $ -- $45,817,098 $188,637 $ --
______________________________________________________________________________________________________________________
======================================================================================================================
|
FS-99
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts and custodian credits resulting from periodic overnight cash balances at the custodian. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $6,700 and reductions in custodian fees of $13,885 under expense offset arrangements, which resulted in a reduction of the Fund's total expenses of $20,585.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of
$4,498 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
------------------------------------------------------------
July 31, 2006 $ 115,531,161
------------------------------------------------------------
July 31, 2007 297,433,797
------------------------------------------------------------
July 31, 2008 303,063,104
------------------------------------------------------------
July 31, 2009 150,303,692
------------------------------------------------------------
July 31, 2010 473,407,401
------------------------------------------------------------
July 31, 2011 495,360,561
============================================================
Total capital loss carryforward $1,835,099,716
____________________________________________________________
============================================================
|
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $504,697,210 and $646,658,479, respectively.
Receivable for investments matured represents the estimated proceeds to the Fund by Candescent Technologies Corp. which is in default with respect to the principal payments on $600,000 par value, Senior Unsecured Guaranteed Subordinated Debentures, 8.00%, which was due May 1, 2003. This estimate was determined in accordance with the fair valuation procedures authorized by the Board of Trustees.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $ 99,553,304
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (54,231,140)
===========================================================
Net unrealized appreciation (depreciation) of
investment securities $ 45,322,164
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $1,472,065,585.
|
FS-100
NOTE 9--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares, Class B shares, Class C and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Investor Class shares are sold at net asset value. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 60,724,311 $ 251,259,827 163,631,121 $ 631,077,903
----------------------------------------------------------------------------------------------------------------------------
Class B 12,501,959 53,145,245 30,851,723 117,940,158
----------------------------------------------------------------------------------------------------------------------------
Class C 6,503,962 27,871,437 12,379,160 47,768,358
----------------------------------------------------------------------------------------------------------------------------
Investor Class(a) 2,207,228 9,650,657 -- --
============================================================================================================================
Issued as reinvestment of dividends:
Class A 3,868,577 16,683,474 7,455,053 28,454,055
----------------------------------------------------------------------------------------------------------------------------
Class B 2,503,290 10,831,845 5,176,658 19,722,338
----------------------------------------------------------------------------------------------------------------------------
Class C 545,095 2,358,560 768,448 2,934,254
----------------------------------------------------------------------------------------------------------------------------
Investor Class(a) 1,172,152 5,172,967 -- --
============================================================================================================================
Issued in connection with acquisitions:
Class A 3,472,810(b) 14,863,501(b) 8,999,611(c) 37,602,120(c)
----------------------------------------------------------------------------------------------------------------------------
Class B 625,758(b) 2,692,622(b) 10,480,525(c) 43,922,476(c)
----------------------------------------------------------------------------------------------------------------------------
Class C 3,933,894(b) 16,848,468(b) 1,949,995(c) 8,144,636(c)
----------------------------------------------------------------------------------------------------------------------------
Investor Class(a) 67,146,021(b) 287,723,965(b) -- --
============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 7,814,824 33,346,772 7,570,103 29,132,839
----------------------------------------------------------------------------------------------------------------------------
Class B (7,790,026) (33,346,772) (7,535,951) (29,132,839)
============================================================================================================================
Reacquired:
Class A (68,317,378) (288,334,031) (167,318,004) (658,228,899)
----------------------------------------------------------------------------------------------------------------------------
Class B (19,481,424) (83,140,852) (36,609,427) (139,311,347)
----------------------------------------------------------------------------------------------------------------------------
Class C (6,320,674) (27,130,024) (11,045,541) (42,627,862)
----------------------------------------------------------------------------------------------------------------------------
Investor Class(a) (9,678,015) (42,329,423) -- --
============================================================================================================================
61,432,364 $ 258,168,238(d) 26,753,474 $ 97,398,190
____________________________________________________________________________________________________________________________
============================================================================================================================
|
(a) Investor Class shares commenced sales on September 30, 2003.
(b) As of the opening of business on November 03, 2003, the Fund acquired all of
the net assets of INVESCO High Yield Fund pursuant to a plan of
reorganization approved by INVESCO High Yield Fund shareholders on October,
21 2003. The acquisition was accomplished by a tax-free exchange of
75,178,483 shares of the Fund for 83,984,532 shares of INVESCO High Yield
Fund outstanding as of the close of business October 31, 2003. INVESCO High
Yield Fund net assets at that date of $322,128,556 including $25,898,307 of
unrealized appreciation, were combined with those of the Fund. On the
acquisition date, INVESCO High Yield Fund had undistributed net investment
income (loss) of $(101,808) and undistributed net realized gain of
$(462,951,117). The aggregate net assets of the Fund immediately before the
acquisition were $1,216,112,386.
(c) As of the opening of business on June 23, 2003, the Fund acquired all of the
net assets of AIM High Yield Fund II pursuant to a plan of reorganization
approved by AIM High Yield Fund II shareholders on June 4, 2003. The
acquisition was accomplished by a tax-free exchange of 21,430,131 shares of
the Fund for 14,799,134 shares of AIM High Yield Fund II outstanding as of
the close of business June 20, 2003. AIM High Yield Fund II net assets at
that date of $89,669,232 including $(611,924) of unrealized appreciation
(depreciation), were combined with those of the Fund. On the acquisition
date, AIM High Yield Fund II had undistributed net investment income (loss)
of $(338,019) and undistributed net realized gain (loss) of $(73,445,461).
The aggregate net assets of the Fund immediately before the acquisition were
$1,256,561,728.
(d) Net of redemption fees of $1,632, $1,395, $226, and $522 for Class A, Class
B, Class C and Investor Class shares respectively, based on the relative net
assets of each class.
FS-101
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
-----------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.10 $ 3.70 $ 4.92 $ 7.00 $ 8.07 $ 8.77
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.37(a) 0.49(b) 0.68 0.47 0.85
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.40 0.40 (1.19) (2.03) (1.03) (0.66)
=================================================================================================================================
Total from investment operations 0.57 0.77 (0.70) (1.35) (0.56) 0.19
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.37) (0.52) (0.69) (0.49) (0.87)
---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income -- -- -- (0.01) -- --
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (0.03) (0.02) (0.02)
=================================================================================================================================
Total distributions (0.18) (0.37) (0.52) (0.73) (0.51) (0.89)
=================================================================================================================================
Redemption fees added to beneficial
interest 0.00 -- -- -- -- --
=================================================================================================================================
Net asset value, end of period $ 4.49 $ 4.10 $ 3.70 $ 4.92 $ 7.00 $ 8.07
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 14.24% 22.10% (15.36)% (19.98)% (7.12)% 2.21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $632,986 $547,092 $417,974 $683,845 $1,056,453 $1,364,502
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.08%(d) 1.16% 1.07% 0.99% 0.93%(e) 0.92%
=================================================================================================================================
Ratio of net investment income to
average net assets 8.06%(d) 9.64% 11.15%(b) 11.98% 10.79%(e) 10.06%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 42% 101% 59% 55% 23% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have remained the same and the ratio of net investment income to average
net assets would have been 11.22%. In accordance with the AICPA Audit
and Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$615,756,735.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-102
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-----------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.12 $ 3.71 $ 4.93 $ 7.01 $ 8.07 $ 8.76
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.34(a) 0.45(b) 0.64 0.44 0.79
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.40 0.41 (1.18) (2.03) (1.03) (0.66)
=================================================================================================================================
Total from investment operations 0.56 0.75 (0.73) (1.39) (0.59) 0.13
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.17) (0.34) (0.49) (0.65) (0.45) (0.80)
---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income -- -- -- (0.01) -- --
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (0.03) (0.02) (0.02)
=================================================================================================================================
Total distributions (0.17) (0.34) (0.49) (0.69) (0.47) (0.82)
=================================================================================================================================
Redemption fees added to beneficial
interest 0.00 -- -- -- -- --
=================================================================================================================================
Net asset value, end of period $ 4.51 $ 4.12 $ 3.71 $ 4.93 $ 7.01 $ 8.07
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 13.78% 21.44% (15.99)% (20.60)% (7.49)% 1.46%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $528,072 $530,239 $469,408 $756,704 $1,206,737 $1,559,864
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.83%(d) 1.91% 1.82% 1.75% 1.69%(e) 1.68%
=================================================================================================================================
Ratio of net investment income to
average net assets 7.31%(d) 8.89% 10.40%(b) 11.22% 10.03%(e) 9.30%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 42% 101% 59% 55% 23% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.46 and the ratio of net investment income to average net
assets would have been 10.47%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$527,811,262.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-103
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
--------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, --------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.10 $ 3.70 $ 4.92 $ 6.99 $ 8.05 $ 8.74
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.34(a) 0.45(b) 0.65 0.44 0.78
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.40 0.40 (1.18) (2.03) (1.03) (0.65)
=================================================================================================================================
Total from investment operations 0.56 0.74 (0.73) (1.38) (0.59) 0.13
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.17) (0.34) (0.49) (0.65) (0.45) (0.80)
---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income -- -- -- (0.01) -- --
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (0.03) (0.02) (0.02)
=================================================================================================================================
Total distributions (0.17) (0.34) (0.49) (0.69) (0.47) (0.82)
=================================================================================================================================
Redemption fees added to beneficial
interest 0.00 -- -- -- -- --
=================================================================================================================================
Net asset value, end of period $ 4.49 $ 4.10 $ 3.70 $ 4.92 $ 6.99 $ 8.05
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 13.85% 21.22% (16.02)% (20.52)% (7.51)% 1.46%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $99,854 $72,086 $50,060 $81,871 $110,297 $129,675
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.83%(d) 1.91% 1.82% 1.75% 1.69%(e) 1.68%
=================================================================================================================================
Ratio of net investment income to average
net assets 7.31%(d) 8.89% 10.40%(b) 11.22% 10.03%(e) 9.30%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 42% 101% 59% 55% 23% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.46 and the ratio of net investment income to average net
assets would have been 10.47%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$86,204,340.
(e) Annualized
(f) Not annualized for periods less than one year.
FS-104
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR CLASS
---------------------
SEPTEMBER 30, 2003
(DATE SALES
COMMENCED) TO
JANUARY 31, 2004
-----------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.20
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
-----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.31
===================================================================================
Total from investment operations 0.43
===================================================================================
Less dividends from net investment income (0.13)
===================================================================================
Redemption fees added to beneficial interest 0.00
===================================================================================
Net asset value, end of period $ 4.50
___________________________________________________________________________________
===================================================================================
Total return(b) 10.23%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $273,517
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets 1.06%(c)
===================================================================================
Ratio of net investment income to average net assets 8.06%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(d) 42%
___________________________________________________________________________________
===================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios annualized and are based on average daily net assets of
$202,861,768.
(d) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
FS-105
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-106
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PAR
MATURITY (000) VALUE
--------------------------------------------------------------------------------
U.S. TREASURY NOTES--99.91%
1.50% 02/28/05 $43,000 $ 43,114,380
--------------------------------------------------------------------------------
1.63% 03/31/05 43,200 43,355,088
--------------------------------------------------------------------------------
1.63% 04/30/05 43,600 43,743,008
--------------------------------------------------------------------------------
1.25% 05/31/05 43,600 43,511,492
--------------------------------------------------------------------------------
1.13% 06/30/05 43,600 43,409,468
--------------------------------------------------------------------------------
1.50% 07/31/05 43,600 43,593,024
--------------------------------------------------------------------------------
2.00% 08/31/05 43,600 43,886,016
--------------------------------------------------------------------------------
1.63% 09/30/05 43,600 43,613,516
--------------------------------------------------------------------------------
1.63% 10/31/05 43,600 43,579,508
--------------------------------------------------------------------------------
1.88% 11/30/05 43,600 43,702,024
--------------------------------------------------------------------------------
1.88% 12/31/05 43,500 43,574,820
--------------------------------------------------------------------------------
1.88% 01/31/06 43,000 43,050,439
________________________________________________________________________________
================================================================================
TOTAL INVESTMENTS (Cost $520,947,203)--99.91% 522,132,783
________________________________________________________________________________
================================================================================
OTHER ASSETS LESS LIABILITIES--0.09% 480,191
________________________________________________________________________________
================================================================================
NET ASSETS--100.00% $522,612,974
________________________________________________________________________________
================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-107
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$520,947,203) $522,132,783
-----------------------------------------------------------
Receivables for:
Investments sold 43,664,411
-----------------------------------------------------------
Fund shares sold 592,855
-----------------------------------------------------------
Interest 2,514,932
-----------------------------------------------------------
Investment for deferred compensation and
retirement plans 66,842
-----------------------------------------------------------
Other assets 79,380
===========================================================
Total assets 569,051,203
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 43,038,883
-----------------------------------------------------------
Fund shares reacquired 2,948,778
-----------------------------------------------------------
Amount due custodian bank 74,046
-----------------------------------------------------------
Dividends 83,449
-----------------------------------------------------------
Deferred compensation and retirement plans 90,473
-----------------------------------------------------------
Accrued distribution fees 76,788
-----------------------------------------------------------
Accrued trustees' fees 880
-----------------------------------------------------------
Accrued transfer agent fees 124,932
===========================================================
Total liabilities 46,438,229
===========================================================
Net assets applicable to shares outstanding $522,612,974
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $520,458,538
-----------------------------------------------------------
Undistributed net investment income 45
-----------------------------------------------------------
Undistributed net realized gain from
investment securities 968,811
-----------------------------------------------------------
Unrealized appreciation of investment
securities 1,185,580
===========================================================
$522,612,974
___________________________________________________________
===========================================================
NET ASSETS:
Class A $453,431,204
___________________________________________________________
===========================================================
Class A3 $ 65,396,027
___________________________________________________________
===========================================================
Institutional Class $ 3,785,743
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 43,893,855
___________________________________________________________
===========================================================
Class A3 6,332,473
___________________________________________________________
===========================================================
Institutional Class 366,546
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.33
-----------------------------------------------------------
Offering price per share:
(Net asset value of $10.33 divided
by 99.00%) $ 10.43
___________________________________________________________
===========================================================
Class A3:
Net asset value and offering price per
share $ 10.33
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 10.33
___________________________________________________________
===========================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-108
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest $5,033,918
========================================================================
EXPENSES:
Advisory fees 587,419
------------------------------------------------------------------------
Administrative services fees 79,215
------------------------------------------------------------------------
Custodian fees 13,249
------------------------------------------------------------------------
Distribution fees:
Class A 387,916
------------------------------------------------------------------------
Class A3 136,717
------------------------------------------------------------------------
Transfer agent fees (Class A & Class A3) 402,971
------------------------------------------------------------------------
Transfer agent fees (Institutional Class) 946
------------------------------------------------------------------------
Trustees' fees 8,490
------------------------------------------------------------------------
Other 139,296
========================================================================
Total expenses 1,756,219
========================================================================
Less: Fees waived and expense offset arrangements (3,227)
========================================================================
Net expenses 1,752,992
========================================================================
Net investment income 3,280,926
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 2,173,297
------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (45,608)
========================================================================
Net gain from investment securities 2,127,689
========================================================================
Net increase in net assets resulting from operations $5,408,615
________________________________________________________________________
========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-109
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
--------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,280,926 $ 13,330,583
--------------------------------------------------------------------------------------------
Net realized gain from investment securities 2,173,297 11,624,560
--------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (45,608) (9,284,613)
============================================================================================
Net increase in net assets resulting from operations 5,408,615 15,670,530
============================================================================================
Distributions to shareholders from net investment income:
Class A (2,892,689) (12,750,428)
--------------------------------------------------------------------------------------------
Class A3 (359,794) (517,649)
--------------------------------------------------------------------------------------------
Institutional Class (28,398) (62,506)
============================================================================================
Total distributions from net investment income (3,280,881) (13,330,583)
============================================================================================
Distributions to shareholders from net realized gains:
Class A (7,809,831) (7,010,203)
--------------------------------------------------------------------------------------------
Class A3 (1,227,629) (129,528)
--------------------------------------------------------------------------------------------
Institutional Class (65,668) (24,193)
============================================================================================
Total distributions from net realized gains (9,103,128) (7,163,924)
============================================================================================
Decrease in net assets resulting from distributions (12,384,009) (20,494,507)
============================================================================================
Share transactions-net:
Class A (118,578,306) (113,847,783)
--------------------------------------------------------------------------------------------
Class A3 (28,072,407) 94,792,404
--------------------------------------------------------------------------------------------
Institutional Class (76,350) 966,624
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (146,727,063) (18,088,755)
============================================================================================
Net increase (decrease) in net assets (153,702,457) (22,912,732)
============================================================================================
NET ASSETS:
Beginning of period 676,315,431 699,228,163
============================================================================================
End of period (including undistributed net investment
income of $45 and $0 for 2004 and 2003, respectively) $522,612,974 $ 676,315,431
____________________________________________________________________________________________
============================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-110
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management company consisting of nine separate series portfolios each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently consists of multiple classes of shares. Matters affecting each portfolio or class 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 of 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. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in their financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- 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 and commercial paper are valued at amortized cost which approximates market value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund are charged to the operations of such class. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses attributable to the Institutional Class are charged to such class. Transfer agency fees and expenses relating to all other classes are allocated among those classes based on relative net assets. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.20% on the first $500 million of the Fund's average daily net assets, plus 0.175% on the Fund's average daily net assets in excess of $500 million.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $79,215 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. For the Institutional Class, the transfer agent has contractually agreed to reimburse class specific transfer agent fees to the extent necessary to limit transfer agent fees to 0.10% of the average net assets. During the six months ended January 31, 2004, AISI retained $160,400 for such services and reimbursed no fees for the Institutional Class shares.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A shares, Class A3 shares and the Institutional Class shares of the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A and Class A3 shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
FS-111
Distributors compensation at the annual rate of 0.15% of the Fund's average daily net assets of Class A shares and 0.35% of the average daily net assets of Class A3 shares. Of these amounts, up to 0.15% of the average daily net assets of Class A shares and up to 0.25% of the average daily net assets of Class A3 shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plan would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A and Class A3 shares paid $387,916 and $136,717, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During six months ended January 31, 2004, AIM Distributors retained $9,817 in front-end sales commissions from the sale of Class A shares and $1,961 from Class A shares, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $3,227 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $3,227.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $3,511 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $298,857,156 and $456,640,313, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $1,271,165
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (97,696)
===========================================================
Net unrealized appreciation of investment
securities $1,173,469
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $520,959,314.
|
FS-112
NOTE 8--SHARE INFORMATION
The Fund currently consists of three different classes of shares: Class A shares, Class A3 shares and the Institutional Class shares. Class A shares are sold with a front-end sales charge. Class A3 shares and the Institutional Class shares are sold at net asset value. Under some circumstances, Class A shares are subject to CDSC. As of the close of business on October 30, 2002, Class A shares were closed to new investors.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,057,890 $ 21,486,323 25,805,338 $ 271,953,993
--------------------------------------------------------------------------------------------------------------------------
Class A3* 2,813,590 29,399,594 12,760,368 134,005,850
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 94,988 993,092 220,446 2,316,869
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 847,563 8,772,597 1,610,631 16,920,387
--------------------------------------------------------------------------------------------------------------------------
Class A3* 136,189 1,408,662 55,441 581,385
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 5,650 58,329 425 4,464
==========================================================================================================================
Reacquired:
Class A (14,248,486) (148,837,226) (38,275,556) (402,722,163)
--------------------------------------------------------------------------------------------------------------------------
Class A3* (5,643,014) (58,880,663) (3,790,101) (39,794,831)
--------------------------------------------------------------------------------------------------------------------------
Institutional Class (108,178) (1,127,771) (128,741) (1,354,709)
==========================================================================================================================
(14,043,808) $(146,727,063) (1,741,749) $ (18,088,755)
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
* Class A3 shares commenced sales on October 31, 2002.
FS-113
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY 31,
JANUARY 31, --------------------------------------------------------------
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.46 $ 10.53 $ 10.26 $ 9.96 $ 10.03 $ 10.07
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06 0.19 0.33(a) 0.52(b) 0.51 0.47
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.04 0.03 0.27 0.31 (0.07) (0.04)
=================================================================================================================================
Total from investment operations 0.10 0.22 0.60 0.83 0.44 0.43
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.06) (0.19) (0.33) (0.53) (0.51) (0.47)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.17) (0.10) -- -- -- --
=================================================================================================================================
Total distributions (0.23) (0.29) (0.33) (0.53) (0.51) (0.47)
=================================================================================================================================
Net asset value, end of period $ 10.33 $ 10.46 $ 10.53 $ 10.26 $ 9.96 $ 10.03
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.95% 2.18% 5.89% 8.53% 4.50% 4.32%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $453,431 $577,993 $696,259 $507,799 $300,058 $390,018
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.56%(d) 0.53% 0.48% 0.56% 0.54% 0.54%
=================================================================================================================================
Ratio of net investment income to average net
assets 1.12%(d) 1.85% 3.12%(a) 5.15% 5.07% 4.61%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 50% 124% 149% 137% 122% 184%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.34 and the ratio of net investment income to average net
assets would have been 3.29%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$514,402,995.
(e) Not annualized for periods less than one year.
FS-114
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS A3
----------------------------------
OCTOBER 31, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2004 2003
------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.46 $ 10.59
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.13
------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.04 (0.04)
================================================================================================
Total from investment operations 0.09 0.09
================================================================================================
Less distributions:
Dividends from net investment income (0.05) (0.12)
------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.17) (0.10)
================================================================================================
Total distributions (0.22) (0.22)
================================================================================================
Net asset value, end of period $ 10.33 $ 10.46
________________________________________________________________________________________________
================================================================================================
Total return(a) 0.85% 0.88%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $65,396 $94,409
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets 0.76%(b) 0.73%(c)
================================================================================================
Ratio of net investment income to average net assets 0.92%(b) 1.65%(c)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(d) 50% 124%
________________________________________________________________________________________________
================================================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$77,699,491.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-115
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
INSTITUTIONAL CLASS
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY 31,
JANUARY 31, --------------------------------------------------------
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.46 $10.53 $10.26 $ 9.96 $10.03 $ 10.07
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.22 0.34(a) 0.54(b) 0.54 0.49
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.04 0.03 0.27 0.31 (0.07) (0.04)
=================================================================================================================================
Total from investment operations 0.11 0.25 0.61 0.85 0.47 0.45
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.07) (0.22) (0.34) (0.55) (0.54) (0.49)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.17) (0.10) -- -- -- --
=================================================================================================================================
Total distributions (0.24) (0.32) (0.34) (0.55) (0.54) (0.49)
=================================================================================================================================
Net asset value, end of period $10.33 $10.46 $10.53 $10.26 $ 9.96 $ 10.03
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.08% 2.42% 6.05% 8.80% 4.78% 4.55%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,786 $3,913 $2,970 $1,812 $2,455 $17,131
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.32%(d) 0.30% 0.34% 0.33%(e) 0.29% 0.31%
=================================================================================================================================
Ratio of net investment income to average net assets 1.36%(d) 2.08% 3.26%(a) 5.38% 5.31% 4.84%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 50% 124% 149% 137% 122% 184%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and the Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.35, and the ratio of net investment income to average
assets would have been 3.43%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$4,148,863.
(e) Including expense reimbursement. Ratio of expenses to average net assets
excluding reimbursement is 0.41%
(f) Not annualized for periods less than one year.
NOTE 10--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
FS-116
NOTE 10--LEGAL PROCEEDINGS (CONTINUED)
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-117
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PAR
MATURITY (000) VALUE
-----------------------------------------------------------------------------
COMMERCIAL PAPER-20.86%(a)
ASSET-BACKED SECURITIES -- COMMERCIAL
LOANS/ LEASES-0.87%
Atlantis One Funding Corp. (Rabobank-ABS
Program Sponsor) (Acquired 11/25/03;
Cost $13,921,056)
1.16%(b) 05/18/04 $14,000 $ 13,951,731
=============================================================================
ASSET-BACKED SECURITIES -- CONSUMER
RECEIVABLES-0.50%
Thunder Bay Funding Inc. (Royal Bank of
Canada-ABS Program Sponsor) (Acquired
01/15/04; Cost $8,064,752)
1.03%(b) 03/08/04 8,077 8,068,681
=============================================================================
ASSET-BACKED SECURITIES -- FULLY
BACKED-4.31%
Tulip Funding Corp. (ABN AMRO Bank
N.V.-ABS Program Sponsor) (Acquired
01/08/04; Cost $68,912,824)
1.03%(b) 02/12/04 68,974 68,952,292
=============================================================================
ASSET-BACKED SECURITIES -- MULTI-
PURPOSE-4.68%
Asset Securitization Capital Co., LLC
(Canadian Imperial Bank of
Commerce-ABS Program Sponsor)
(Acquired 01/27/04; Cost $9,983,533)
1.04%(b) 03/24/04 10,000 9,984,978
-----------------------------------------------------------------------------
Barton Capital Corp. (Societe
Generale-ABS Program Sponsor)
(Acquired 01/15/04; Cost $34,943,922)
1.03%(b) 03/11/04 35,000 34,960,946
-----------------------------------------------------------------------------
Edison Asset Securitization, LLC (GE
Capital Corp.-ABS Program Sponsor)
(Acquired 01/21/04; Cost $29,919,400)
1.04%(b) 04/23/04 30,000 29,928,933
=============================================================================
74,874,857
=============================================================================
ASSET-BACKED SECURITIES -- TRADE
RECEIVABLES-3.94%
Eureka Securitization, Inc. (Citibank
N.A.-ABS Program Sponsor) (Acquired
01/09/04; Cost $24,961,722)
1.04%(b) 03/02/04 25,000 24,978,333
-----------------------------------------------------------------------------
|
-----------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
ASSET-BACKED SECURITIES -- TRADE
RECEIVABLES-(CONTINUED)
FCAR Owner Trust-Series I (Ford Motor
Credit Co.-ABS Program Sponsor)
1.09% 02/13/04 $38,000 $ 37,986,193
=============================================================================
62,964,526
=============================================================================
RAILROADS-4.69%
Network Rail CP Finance PLC (United
Kingdom) (Strategic Rail Authority-ABS
Program Sponsor) (Acquired 10/09/03;
Cost $74,712,358)
1.10%(b) 02/17/04 75,000 74,963,474
=============================================================================
REGIONAL BANKS-1.87%
Banque et Caisse d'Epargne de l'Etat
(Luxembourg)
1.18% 06/07/04 30,000 29,875,117
=============================================================================
Total Commercial Paper (Cost $333,650,678) 333,650,678
=============================================================================
CERTIFICATES OF DEPOSIT-12.07%
ABN AMRO Bank N.V. (Netherlands)
1.25% 11/02/04 10,000 10,000,000
-----------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom)
1.35% 04/19/04 15,000 15,012,176
-----------------------------------------------------------------------------
BNP Paribas (France)
1.39% 08/05/04 5,000 5,001,019
-----------------------------------------------------------------------------
HBOS Treasury Services PLC (United
Kingdom)
1.16% 03/22/04 40,000 40,000,000
-----------------------------------------------------------------------------
Societe Generale (France)
1.06%(c) 10/01/04 23,000 22,994,602
-----------------------------------------------------------------------------
Svenska Handelsbacken AB (Sweden)
1.12% 07/14/04 50,000 50,000,000
-----------------------------------------------------------------------------
UniCredito Italiano S.p.A. (Italy)
1.07% 04/13/04 50,000 50,000,000
=============================================================================
Total Certificates of Deposit (Cost $193,007,797) 193,007,797
=============================================================================
MASTER NOTE AGREEMENTS-10.32%(d)
Merrill Lynch Mortgage Capital, Inc.
(Acquired 08/25/03; Cost $85,000,000)
1.20%(b)(e) 02/23/04 85,000 85,000,000
-----------------------------------------------------------------------------
Morgan Stanley (Acquired 09/15/03; Cost
$80,000,000)
1.11%(b)(f) 06/14/04 80,000 80,000,000
=============================================================================
Total Master Note Agreements (Cost
$165,000,000) 165,000,000
=============================================================================
|
FS-118
PAR
MATURITY (000) VALUE
-----------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-10.22%
FEDERAL HOME LOAN BANK-6.76%
Unsec. Bonds,
3.75% 02/13/04 $18,000 $ 18,013,811
-----------------------------------------------------------------------------
1.12% 07/12/04 10,000 10,000,000
-----------------------------------------------------------------------------
1.03% 07/23/04 50,000 50,000,000
-----------------------------------------------------------------------------
1.46% 11/17/04 5,000 5,000,000
-----------------------------------------------------------------------------
1.20% 02/28/05 25,000 24,975,000
=============================================================================
107,988,811
=============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-3.46%
Disc. Notes,
1.03%(g) 05/03/04 25,600 25,541,404
-----------------------------------------------------------------------------
1.28%(g) 09/28/04 20,000 19,829,333
-----------------------------------------------------------------------------
Unsec. Notes,
1.36% 09/10/04 10,000 10,000,000
=============================================================================
55,370,737
=============================================================================
Total U.S. Government Agency Securities
(Cost $163,359,548) 163,359,548
=============================================================================
TIME DEPOSITS-5.63%
ING Belgium S.A./N.V.-Brussels (Belgium)
1.06% 02/02/04 25,000 25,000,000
-----------------------------------------------------------------------------
WestLB A.G.-Cayman (Germany)
1.06% 02/02/04 65,000 65,000,000
=============================================================================
Total Time Deposits (Cost $90,000,000) 90,000,000
=============================================================================
MEDIUM-TERM NOTES-3.13%
Money Market Trust LLY-Series 2002-B,
Floating Rate Notes (Acquired 12/03/02;
Cost $50,000,000)
1.17%(b)(c)(h) 12/03/04 50,000 50,000,000
=============================================================================
PROMISSORY NOTES-1.88%
Goldman Sachs Group, Inc. (The)
(Acquired 12/16/03; Cost $30,000,000)
1.25%(b)(h) 07/13/04 30,000 30,000,000
=============================================================================
VARIABLE RATE DEMAND
NOTES-1.85%(i)(j)(k)
INSURED-0.40%
Michigan (State of) Housing Development
Authority; Taxable Series 2000 C RB,
1.17%(l) 12/01/20 6,405 6,405,000
=============================================================================
|
-----------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
LETTER OF CREDIT GUARANTEED-1.45%(m)
Family Express Corp., LLC-Series A, Loan
Program Notes (LOC-First of America
Bank, N.A.),
1.08% 04/01/28 $ 9,070 $ 9,070,000
-----------------------------------------------------------------------------
Miami-Dade (County of), Florida
Industrial Development Authority
(Dolphins Stadium); Taxable Series
2000 IDR (LOC-Societe Generale),
1.05% 07/01/22 100 100,000
-----------------------------------------------------------------------------
Mississippi (State of) Business Finance
Corp. (Viking Range Corp. Project);
Taxable Series 2000 IDR (LOC-Bank of
America N.A),
1.17% 06/01/15 14,095 14,095,000
=============================================================================
23,265,000
=============================================================================
Total Variable Rate Demand Notes
(Cost $29,670,000) 29,670,000
=============================================================================
FUNDING AGREEMENTS-1.06%
New York Life Insurance Co. (Acquired
04/03/03; Cost $17,000,000)
1.21%(b)(c)(h) 04/07/04 17,000 17,000,000
=============================================================================
ASSET-BACKED SECURITIES-0.83%
CONSUMER RECEIVABLES-0.20%
Honda Auto Receivables 2003-2 Owner
Trust, Class A-1 Notes,
1.23% 06/11/04 367 367,363
-----------------------------------------------------------------------------
Nissan Auto Receivables 2003-B Owner
Trust, Class A1 Notes,
1.17% 06/15/04 2,883 2,883,198
=============================================================================
3,250,561
=============================================================================
STRUCTURED-0.63%
Holmes Financing (No. 7) PLC (United
Kingdom)-Series 1, Class A, Floating
Rate Bonds,
1.06%(c) 04/15/04 10,000 10,000,000
=============================================================================
Total Asset-Backed Securities (Cost
$13,250,561) 13,250,561
=============================================================================
Total Investments (excluding
Repurchase Agreements) (Cost
$1,084,938,584) 1,084,938,584
=============================================================================
REPURCHASE AGREEMENTS-35.29%
Banc of America Securities LLC
1.12%(n) 02/02/04 60,000 60,000,000
-----------------------------------------------------------------------------
Banc One Capital Markets Group
1.02%(o) 02/02/04 34,323 34,322,844
-----------------------------------------------------------------------------
BNP Paribas Securities Corp.-New York
Branch (France)
1.13%(p) 02/02/04 65,000 65,000,000
-----------------------------------------------------------------------------
|
FS-119
PAR
MATURITY (000) VALUE
-----------------------------------------------------------------------------
REPURCHASE AGREEMENTS-(CONTINUED)
Citigroup Global Markets Inc.
1.03%(q) 02/02/04 $65,000 $ 65,000,000
-----------------------------------------------------------------------------
Deutsche Bank Securities Inc.-New York
Branch (Germany)
1.12%(r) 02/02/04 70,000 70,000,000
-----------------------------------------------------------------------------
Greenwich Capital Markets, Inc.-New York
Branch (United Kingdom)
1.04%(s) 02/02/04 65,000 65,000,000
-----------------------------------------------------------------------------
Morgan Stanley & Co. Inc.
1.04%(t) 02/02/04 65,000 65,000,000
-----------------------------------------------------------------------------
UBS Warburg LLC-New York Branch
(Switzerland)
1.04%(u) 02/02/04 65,000 65,000,000
-----------------------------------------------------------------------------
|
-----------------------------------------------------------------------------
PAR
MATURITY (000) VALUE
REPURCHASE AGREEMENTS-(CONTINUED)
Wachovia Securities, Inc.
1.13%(v) 02/02/04 $75,000 $ 75,000,000
=============================================================================
Total Repurchase Agreements (Cost
$564,322,844) 564,322,844
=============================================================================
TOTAL INVESTMENTS-103.14% (Cost
$1,649,261,428)(w) 1,649,261,428
=============================================================================
OTHER ASSETS LESS LIABILITIES-(3.14%) (50,236,863)
=============================================================================
NET ASSETS-100.00% $1,599,024,565
_____________________________________________________________________________
=============================================================================
|
Investment Abbreviations:
ABS - Asset Backed Security Ctfs. - Certificates Disc. - Discounted IDR - Industrial Development Revenue Bonds LOC - Letter of Credit RB - Revenue Bonds Unsec. - Unsecured |
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) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/04 was $527,789,368,
which represented 33.01% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(c) Interest rates are redetermined monthly. Rates shown are rates in effect on
01/31/04.
(d) 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.
(e) 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 daily. Rate shown is the rate in effect on 1/31/04.
(f) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one business day's oral notice for up to 10% of
outstanding amount, otherwise, upon seven business day's written notice for
more than 10% of outstanding balance. Interest rates are redetermined daily.
Rate is shown is the rate in effect on 01/31/04.
(g) Security is traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of the purchase
by the Fund.
(h) Security considered to be illiquid. The aggregate market value of these
securities considered to be illiquid at 01/31/04 was $97,000,000 which
represented 6.07% of the Fund's net assets.
(i) Demand security; payable upon demand by the Fund with usually no more than
seven calendar days' notice.
(j) Interest on these securities is taxable income to the Fund.
(k) Interest rates are redetermined weekly. Rates shown are rates in effect on
01/31/04.
(l) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp. or MBIA Insurance
Corp.
(m) Principal and interest payments are guaranteed by the letter of credit
agreement.
(n) Repurchase agreement entered into 01/30/04 with a maturing value of
$60,005,600. Collateralized by $56,952,676 corporate obligations, 0% to
8.40% due 05/15/06 to 03/01/33 with a market value at 01/31/04 of
$63,000,001.
(o) Joint repurchase agreement entered into 01/30/04 with a maturing value of
$500,042,500. Collateralized by $502,515,000 U.S. Government obligations, 0%
to 7.60% due 02/02/04 to 11/15/13 with an aggregate market value at 01/31/04
of $510,003,975.
(p) Repurchase agreement entered into 01/30/04 with a maturing value of
$65,006,121. Collateralized by $58,304,934 corporate obligations, 1.84% to
9.50% due 10/20/05 to 06/01/31 with a market value at 01/31/04 of
$68,250,001.
(q) Joint repurchase agreement entered into 01/30/04 with a maturing value of
$325,027,896. Collateralized by $313,414,000 U.S. Government obligations, 0%
to 6.75% due 10/01/08 to 03/15/31 with an aggregate market value at 01/31/04
of $331,500,320.
(r) Repurchase agreement entered into 01/30/04 with a maturing value of
$70,006,533. Collateralized by $73,427,689 corporate obligations, 1.27% to
1.62% due 02/17/09 to 12/12/38 with a market value at 01/31/04 of
$73,500,000.
(s) Joint repurchase agreement entered into 01/30/04 with a maturing value of
$250,021,667. Collateralized by $447,514,000 U.S. Government obligations, 0%
to 9.38% due 04/15/04 to 04/15/30 with an aggregate market value at 01/31/04
of $255,001,895.
(t) Joint repurchase agreement entered into 01/30/04 with a maturing value of
$250,021,667. Collateralized by $245,132,143 U.S. Government obligations,
4.50% to 7.00% due 02/01/18 to 01/01/34 with an aggregate market value at
01/31/04 of $255,637,501.
(u) Joint repurchase agreement entered into 01/30/04 with a maturing value of
$250,021,667. Collateralized by $238,210,933 U.S. Government obligations,
4.50% to 9.00% due 05/01/06 to 01/01/34 with an aggregate market value at
01/31/04 of $255,003,852.
(v) Repurchase agreement entered into 01/30/04 with a maturing value of
$75,007,063. Collateralized by $260,221,221 corporate obligations, 0.28% to
7.80% due 07/26/04 to 10/01/40 with a market value at 01/31/04 of
$78,750,001.
(w) Also represents cost for federal income tax purposes.
See accompanying notes which are an integral part of the financial statements.
FS-120
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, excluding repurchase
agreements, at value (amortized cost) $1,084,938,584
------------------------------------------------------------
Repurchase agreements (amortized cost) 564,322,844
============================================================
Total investments 1,649,261,428
============================================================
Receivables for:
Fund shares sold 16,508,138
------------------------------------------------------------
Interest 1,217,460
------------------------------------------------------------
Amount due from advisor 136,072
------------------------------------------------------------
Investment for deferred compensation and
retirement plans 236,809
------------------------------------------------------------
Other assets 242,057
============================================================
Total assets 1,667,601,964
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 60,516,404
------------------------------------------------------------
Fund shares reacquired 7,118,738
------------------------------------------------------------
Deferred compensation and retirement plans 319,218
------------------------------------------------------------
Amount due custodian bank 77,881
------------------------------------------------------------
Dividends 10,326
------------------------------------------------------------
Accrued distribution fees 442,909
------------------------------------------------------------
Accrued trustees' fees 1,398
------------------------------------------------------------
Accrued transfer agent fees 31,561
------------------------------------------------------------
Accrued operating expenses 58,964
============================================================
Total liabilities 68,577,399
============================================================
Net assets applicable to shares outstanding $1,599,024,565
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,599,027,580
------------------------------------------------------------
Undistributed net investment income 50,777
------------------------------------------------------------
Undistributed net realized gain (loss)
from investment securities (53,792)
============================================================
$1,599,024,565
____________________________________________________________
============================================================
NET ASSETS:
AIM Cash Reserve Shares $ 731,948,051
____________________________________________________________
============================================================
Class B $ 380,029,860
____________________________________________________________
============================================================
Class C $ 88,204,217
____________________________________________________________
============================================================
Class R $ 3,964,454
____________________________________________________________
============================================================
Investor Class $ 394,877,983
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
AIM Cash Reserve Shares 732,011,741
____________________________________________________________
============================================================
Class B 380,057,316
____________________________________________________________
============================================================
Class C 88,212,095
____________________________________________________________
============================================================
Class R 3,964,729
____________________________________________________________
============================================================
Investor Class 395,220,601
____________________________________________________________
============================================================
Net asset value and offering price per share
for each class $ 1.00
____________________________________________________________
============================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-121
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest $ 9,357,058
=========================================================================
EXPENSES:
Advisory fees 4,450,449
-------------------------------------------------------------------------
Administrative services fees 203,589
-------------------------------------------------------------------------
Custodian fees 24,158
-------------------------------------------------------------------------
Distribution fees:
AIM Cash Reserve Shares 1,114,805
-------------------------------------------------------------------------
Class B 2,363,898
-------------------------------------------------------------------------
Class C 503,310
-------------------------------------------------------------------------
Class R 11,202
-------------------------------------------------------------------------
Transfer agent fees 1,671,770
-------------------------------------------------------------------------
Trustees' fees 15,127
-------------------------------------------------------------------------
Other 179,147
=========================================================================
Total expenses 10,537,455
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (4,651,782)
=========================================================================
Net expenses 5,885,673
=========================================================================
Net investment income 3,471,385
=========================================================================
Net realized gain (loss) from investment securities (1,521)
=========================================================================
Net increase in net assets resulting from operations $ 3,469,864
_________________________________________________________________________
=========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-122
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,471,385 $ 7,842,936
----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (1,521) 44,022
==============================================================================================
Net increase in net assets resulting from operations 3,469,864 7,886,958
==============================================================================================
Distributions to shareholders from net investment income:
AIM Cash Reserve Shares (2,470,125) (7,299,075)
----------------------------------------------------------------------------------------------
Class B (112,741) (432,412)
----------------------------------------------------------------------------------------------
Class C (151,871) (100,719)
----------------------------------------------------------------------------------------------
Class R (6,618) (10,730)
----------------------------------------------------------------------------------------------
Investor Class (839,162) --
==============================================================================================
Total distributions from net investment income (3,580,517) (7,842,936)
==============================================================================================
Distributions to shareholders from net realized gains:
AIM Cash Reserve Shares (23,647) (35,590)
----------------------------------------------------------------------------------------------
Class B (12,702) (20,898)
----------------------------------------------------------------------------------------------
Class C (2,805) (3,549)
----------------------------------------------------------------------------------------------
Class R (122) (38)
----------------------------------------------------------------------------------------------
Investor Class (12,995) --
==============================================================================================
Total distributions from net realized gains (52,271) (60,075)
==============================================================================================
Decrease in net assets resulting from distributions (3,632,788) (7,903,011)
==============================================================================================
Share transactions-net:
AIM Cash Reserve Shares (456,849,181) 67,004,557
----------------------------------------------------------------------------------------------
Class B (163,744,502) (174,148,217)
----------------------------------------------------------------------------------------------
Class C (25,093,104) (5,640,712)
----------------------------------------------------------------------------------------------
Class R (2,315,541) 6,270,260
----------------------------------------------------------------------------------------------
Investor Class 394,916,540 --
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (253,085,788) (106,514,112)
==============================================================================================
Net increase (decrease) in net assets (253,248,712) (106,530,165)
==============================================================================================
NET ASSETS:
Beginning of period 1,852,273,277 1,958,803,442
==============================================================================================
End of period (including undistributed net investment
income of $50,777 and $159,909 for 2004 and 2003,
respectively) $1,599,024,565 $1,852,273,277
______________________________________________________________________________________________
==============================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-123
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Money Market Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to provide as high a level of current income as is consistent with the preservation of capital and liquidity. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value repeated in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- The Fund's securities are valued on the basis of amortized cost which approximates market value as permitted under Rule 2a-7 of the 1940 Act. This method values a security at its cost on the date of purchase and, thereafter, assumes a constant amortization to maturity of any premiums or accretion of any discounts.
B. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements. 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. Eligible securities for collateral are U.S. Government Securities, U.S. Government Agency Securities and/or Investment Grade Debt Securities. Collateral consisting of U.S. Government Securities and U.S. Government Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. Collateral consisting of Investment Grade Debt Securities is marked to market daily to ensure its market value is at least 105% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates ("Joint repurchase agreements"). 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.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income, adjusted for amortization of premiums and accretion of discounts on investments, is recorded on the accrual basis from settlement date.
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.55% on the first $1 billion of the Fund's average daily net assets, plus 0.50% on the Fund's average daily net assets in excess of $1 billion. AIM and/or A I M Distributors, Inc. ("AIM Distributors") voluntarily waived fees and/or reimbursed expenses in order to increase the Fund's yield. Waivers and/or reimbursements may be changed from time to time. During the six months ended January 31, 2004, AIM waived fees of $3,800,504.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $203,589 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $926,628 for such services.
FS-124
The Trust has entered into master distribution agreements with AIM Distributors to serve as the distributor for the AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of AIM Cash Reserve shares, 1.00% of the average daily net assets of Class B and Class C shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, up to 0.25% of the average daily net assets of the AIM Cash Reserve Shares, Class B, Class C and Class R shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes.
Effective July 1, 2003, in order to maintain a minimum yield, AIM Distributors reduced broker service fees on AIM Cash Reserve Shares, Class B, Class C and Class R shares. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the six months ended January 31, 2004, the AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class shares paid $1,114,805, $1,772,923, $251,655, $11,202 and $0, respectively, after AIM Distributors waived and/or reimbursed plan fees of $590,975 and $251,655 for Class B and Class C shares, respectively.
Contingent deferred sales charges ("CDSC") are not recorded as expenses of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During six months ended January 31, 2004, AIM Distributors retained $619,454, $7,717, $189,976 and $0 from AIM Cash Reserve Shares, Class B, Class C and Class R shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $8,648 under an expense offset arrangement, which resulted in a reduction of the Fund's total expenses of $8,648.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $5,414 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund did not borrow or lend under the facility during the six months ended January 31, 2004.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
FS-125
NOTE 7--SHARE INFORMATION
The Fund currently offers five different classes of shares: AIM Cash Reserve Shares, Class B shares, Class C shares, Class R shares and Investor Class shares. Class B shares and Class C shares are sold with CDSC. AIM Cash Reserve Shares, Class R shares and Investor Class shares are sold at net asset value. Under some circumstances, Class R shares are subject to CDSC. Generally, Class B shares will automatically convert to AIM Cash Reserve Shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JULY 31,
2004 2003
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------------------------
Sold:
AIM Cash Reserve Shares 1,136,435,829 $1,136,431,580 5,372,980,834 $5,372,980,834
---------------------------------------------------------------------------------------------------------------------------------
Class B 99,819,965 99,820,085 485,890,867 485,890,867
---------------------------------------------------------------------------------------------------------------------------------
Class C 129,701,911 129,706,614 570,319,822 570,319,822
---------------------------------------------------------------------------------------------------------------------------------
Class R 6,432,496 6,432,496 24,594,921 24,594,921
---------------------------------------------------------------------------------------------------------------------------------
Investor Class* 152,825,091 152,827,344 -- --
=================================================================================================================================
Issued as reinvestment of dividends:
AIM Cash Reserve Shares 2,241,526 2,241,526 6,288,154 6,288,154
---------------------------------------------------------------------------------------------------------------------------------
Class B 115,205 115,205 408,246 408,246
---------------------------------------------------------------------------------------------------------------------------------
Class C 138,634 138,634 89,880 89,880
---------------------------------------------------------------------------------------------------------------------------------
Class R 5,767 5,767 9,756 9,756
---------------------------------------------------------------------------------------------------------------------------------
Investor Class* 819,366 819,366 -- --
=================================================================================================================================
Issued in connection with acquisitions:**
AIM Cash Reserve Shares 669,132 669,697 -- --
---------------------------------------------------------------------------------------------------------------------------------
Class B 253,059 252,879 -- --
---------------------------------------------------------------------------------------------------------------------------------
Class C 8,223,808 8,218,055 -- --
---------------------------------------------------------------------------------------------------------------------------------
Investor Class* 433,127,527 432,821,214 -- --
=================================================================================================================================
Automatic conversion of Class B shares to Class A shares:
AIM Cash Reserve Shares 16,094,332 16,094,333 25,073,560 25,073,560
---------------------------------------------------------------------------------------------------------------------------------
Class B (16,094,332) (16,094,333) (25,073,560) (25,073,560)
=================================================================================================================================
Reacquired:
AIM Cash Reserve Shares (1,612,286,316) (1,612,286,317) (5,337,337,991) (5,337,337,991)
---------------------------------------------------------------------------------------------------------------------------------
Class B (247,838,339) (247,838,338) (635,373,770) (635,373,770)
---------------------------------------------------------------------------------------------------------------------------------
Class C (163,156,406) (163,156,407) (576,050,414) (576,050,414)
---------------------------------------------------------------------------------------------------------------------------------
Class R (8,753,804) (8,753,804) (18,334,417) (18,334,417)
---------------------------------------------------------------------------------------------------------------------------------
Investor Class* (191,551,383) (191,551,384) -- --
=================================================================================================================================
(252,776,932) $ (253,085,788) (106,514,112) $ (106,514,112)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
* Investor Class shares commenced sales on September 30, 2003. ** As of the open of business on November 3, 2003, the Fund acquired all of the net assets of INVESCO Cash Reserves Fund pursuant to a plan of reorganization approved by the INVESCO Cash Reserves Fund shareholders on October 21, 2003. The acquisition was accomplished by a tax-free exchange of 442,273,526 shares of the Fund for 442,273,526 shares of INVESCO Cash Reserves Fund outstanding as of the close of business October 31, 2003. INVESCO Cash Reserves Fund's net assets at that date of $441,961,845 were combined with those of the Fund. On the acquisition date, INVESCO Cash Reserves Fund had undistributed net investment income (loss) of $(309,618). The aggregate net assets of the Fund immediately before the acquisition were $1,395,903,235.
FS-126
NOTE 8--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CASH RESERVE
--------------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
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 0.0027 0.0064 0.0141 0.0467 0.0300(a) 0.0414
---------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (realized) 0.0001 0.0000 -- -- -- --
=================================================================================================================================
Total from investment operations 0.0028 0.0064 0.0141 0.0467 0.0300 0.0414
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.0028) (0.0064) (0.0141) (0.0467) (0.0300) (0.0414)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.0000) (0.0000) -- -- -- --
=================================================================================================================================
Total distributions (0.0028) (0.0064) (0.0141) (0.0467) (0.0300) (0.0414)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.28% 0.64% 1.42% 4.77% 3.03% 4.22%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $731,948 $1,188,876 $1,121,879 $937,532 $912,042 $989,478
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets(c) 0.58%(d) 0.88% 1.01% 1.06% 1.07%(e) 1.04%
=================================================================================================================================
Ratio of net investment income to average
net assets 0.53%(d) 0.64% 1.40% 4.61% 5.15%(e) 4.16%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.03% for the six months ended January 31, 2004 and for the year
ended July 31, 2003, respectively.
(d) Ratios are annualized and based on average net assets of $886,996,828.
(e) Annualized.
CLASS B
----------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, -------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
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 0.0002 0.0007 0.0065 0.0392 0.0256(a) 0.0339
-------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (realized) 0.0001 0.0000 - - - -
===============================================================================================================================
Total from investment operations 0.0003 0.0007 0.0065 0.0392 0.0256 0.0339
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.0003) (0.0007) (0.0065) (0.0392) (0.0256) (0.0339)
-------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.0000) (0.0000) -- -- -- --
===============================================================================================================================
Total distributions (0.0003) (0.0007) (0.0065) (0.0392) (0.0256) (0.0339)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 0.03% 0.07% 0.66% 3.99% 2.59% 3.45%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $380,030 $543,811 $717,967 $439,445 $289,327 $404,911
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets(c) 1.08%(d) 1.46% 1.76% 1.81% 1.82%(e) 1.79%
===============================================================================================================================
Ratio of net investment income to average
net assets 0.03%(d) 0.06% 0.65% 3.86% 4.40%(e) 3.41%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.78% and 1.76% for the six months ended January 31, 2004 and the
year ended July 31, 2003, respectively.
(d) Ratios are annualized and based on average net assets of $470,210,191.
(e) Annualized.
FS-127
NOTE 8--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
----------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, -------------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
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 0.0014 0.0008 0.0065 0.0393 0.0256(a) 0.0339
-------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (realized) 0.0001 0.0000 - - - -
===============================================================================================================================
Total from investment operations 0.0015 0.0008 0.0065 0.0393 0.0256 0.0339
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.0015) (0.0008) (0.0065) (0.0393) (0.0256) (0.0339)
-------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.0000) (0.0000) -- -- -- --
===============================================================================================================================
Total distributions (0.0015) (0.0008) (0.0065) (0.0393) (0.0256) (0.0339)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 0.15% 0.09% 0.66% 4.00% 2.59% 3.44%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $88,204 $113,306 $118,947 $ 86,884 $ 45,457 $ 56,636
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets(c) 0.83%(d) 1.44% 1.76% 1.81% 1.82%(e) 1.79%
===============================================================================================================================
Ratio of net investment income to average
net assets 0.28%(d) 0.08% 0.65% 3.86% 4.40%(e) 3.41%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.78% and 1.74% for the six months ended January 31, 2004 and the
year ended July 31, 2003, respectively.
(d) Ratios are annualized and based on average net assets of $100,114,917.
(e) Annualized.
CLASS R
---------------------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
-----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
-----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0015 0.0038 0.0010
-----------------------------------------------------------------------------------------------------------
Net gains on securities (realized) 0.0000 0.0000 --
===========================================================================================================
Total from investment operations 0.0015 0.0038 0.0010
===========================================================================================================
Less distributions:
Dividends from net investment income (0.0015) (0.0038) (0.0010)
-----------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.0000) (0.0000) --
===========================================================================================================
Total distributions (0.0015) (0.0038) (0.0010)
___________________________________________________________________________________________________________
===========================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
___________________________________________________________________________________________________________
===========================================================================================================
Total return(a) 0.15% 0.38% 0.10%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 3,964 $ 6,280 $ 10
===========================================================================================================
Ratio of expenses to average net assets(b) 0.83%(c) 1.13% 1.26%(d)
===========================================================================================================
Ratio of net investment income to average net assets 0.28%(c) 0.39% 1.15%(d)
___________________________________________________________________________________________________________
===========================================================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.28% and 1.27% for the six months ended January 31, 2004 and the
year ended July 31, 2003, respectively.
(c) Ratios are annualized and based on average net assets of $4,456,609.
(d) Annualized.
FS-128
NOTE 8--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR CLASS
------------------
SEPTEMBER 30, 2003
(DATE SALES
COMMENCED) TO
JANUARY 31,
2004
----------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0027
----------------------------------------------------------------------------------
Net gains on securities (realized) 0.0000
==================================================================================
Total from investment operations 0.0027
==================================================================================
Less distributions:
Dividends from net investment income (0.0027)
----------------------------------------------------------------------------------
Distributions from net realized gains (0.0000)
==================================================================================
Total distributions (0.0027)
__________________________________________________________________________________
==================================================================================
Net asset value, end of period $ 1.00
__________________________________________________________________________________
==================================================================================
Total return(a) 0.27%
==================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $394,878
==================================================================================
Ratio of expenses to average net assets(b) 0.33%(c)
==================================================================================
Ratio of net investment income to average net assets 0.78%(c)
__________________________________________________________________________________
==================================================================================
|
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.78% for the six months ended January 31, 2004.
(c) Ratios are annualized and based on average net assets of $312,240,828.
NOTE 9--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has
FS-129
NOTE 9--LEGAL PROCEEDINGS (CONTINUED)
also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-130
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
MARKET
SHARES VALUE
------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS, COMMON STOCKS
& OTHER EQUITY INTERESTS-91.46%
APARTMENTS-11.60%
Archstone-Smith Trust 383,817 $ 10,528,100
------------------------------------------------------------------------
Avalonbay Communities, Inc. 211,300 10,374,830
------------------------------------------------------------------------
BRE Properties, Inc.-Class A 170,700 5,643,342
------------------------------------------------------------------------
Camden Property Trust 119,300 5,189,550
------------------------------------------------------------------------
Canadian Apartment Properties Real Estate
Investment Trust (Canada) 183,200 2,108,608
------------------------------------------------------------------------
Essex Property Trust, Inc. 277,900 17,271,485
------------------------------------------------------------------------
Residential Equities Real Estate Investment
Trust (Canada) 180,200 2,101,279
------------------------------------------------------------------------
United Dominion Realty Trust, Inc. 914,700 16,921,950
========================================================================
70,139,144
========================================================================
DIVERSIFIED-5.66%
AEW Real Estate Income Fund 59,200 1,057,904
------------------------------------------------------------------------
British Land Co. PLC (United Kingdom) 109,200 1,155,945
------------------------------------------------------------------------
Canadian Real Estate Investment Trust
(Canada) 53,400 683,143
------------------------------------------------------------------------
Cominar Real Estate Investment Trust (Canada) 92,700 1,066,965
------------------------------------------------------------------------
H&R Real Estate Investment Trust (Canada) 82,800 1,041,757
------------------------------------------------------------------------
Klepierre (France) 26,800 1,622,020
------------------------------------------------------------------------
Morguard Corp. (Canada) 38,300 679,309
------------------------------------------------------------------------
Societe Fonciere Lyonnaise (France) 21,100 893,927
------------------------------------------------------------------------
Sophia (France) 10,800 543,271
------------------------------------------------------------------------
Unibail (France) 11,600 1,103,044
------------------------------------------------------------------------
Vornado Realty Trust 435,600 24,371,820
========================================================================
34,219,105
========================================================================
HEALTHCARE-3.60%
Health Care Property Investors, Inc. 105,700 5,943,511
------------------------------------------------------------------------
Health Care REIT, Inc. 160,400 6,207,480
------------------------------------------------------------------------
Nationwide Health Properties, Inc. 275,900 6,014,620
------------------------------------------------------------------------
Retirement Residences Real Estate Investment
Trust (Canada) 80,800 804,981
------------------------------------------------------------------------
Ventas, Inc. 112,800 2,820,000
========================================================================
21,790,592
========================================================================
INDUSTRIAL PROPERTIES-10.93%
Catellus Development Corp. 258,396 6,759,639
------------------------------------------------------------------------
CenterPoint Properties Trust 284,300 22,772,430
------------------------------------------------------------------------
ProLogis 1,119,470 36,539,501
========================================================================
66,071,570
========================================================================
|
------------------------------------------------------------------------
MARKET
SHARES VALUE
INDUSTRIAL/OFFICE MIXED-2.06%
Kilroy Realty Corp. 183,100 $ 5,996,525
------------------------------------------------------------------------
Kilroy Realty Corp.-Series E, 7.80% Pfd. 27,100 692,405
------------------------------------------------------------------------
Liberty Property Trust 150,350 5,800,503
========================================================================
12,489,433
========================================================================
LODGING-RESORTS-5.76%
Extended Stay America, Inc. 71,900 1,100,070
------------------------------------------------------------------------
Fairmont Hotels & Resorts Inc. (Canada) 229,300 5,881,545
------------------------------------------------------------------------
Hilton Hotels Corp. 476,600 7,625,600
------------------------------------------------------------------------
Host Marriott Corp.(a) 451,500 5,720,505
------------------------------------------------------------------------
LaSalle Hotel Properties 174,600 3,448,350
------------------------------------------------------------------------
LaSalle Hotel Properties-Series B, 8.38% Pfd. 35,800 950,490
------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 271,800 9,605,412
------------------------------------------------------------------------
Winston Hotels, Inc.-Series B, 8.00% Pfd.(a) 19,000 480,938
========================================================================
34,812,910
========================================================================
OFFICE PROPERTIES-12.49%
Alexandria Real Estate Equities, Inc. 260,200 16,093,370
------------------------------------------------------------------------
Arden Realty, Inc. 150,800 4,674,800
------------------------------------------------------------------------
Boston Properties, Inc. 475,500 23,789,265
------------------------------------------------------------------------
Brookfield Properties Corp. (Canada) 70,200 2,023,866
------------------------------------------------------------------------
Mack-Cali Realty Corp. 181,600 7,367,512
------------------------------------------------------------------------
Maguire Properties, Inc.-Series A, 7.63%
Pfd.(a) 57,000 1,431,840
------------------------------------------------------------------------
SL Green Realty Corp. 468,400 20,127,148
========================================================================
75,507,801
========================================================================
REGIONAL MALLS-22.06%
Borealis Retail Real Estate Investment Trust
(Canada)(b)(c) (Acquired 07/10/03;
Cost $1,740,799) 239,400 2,186,301
------------------------------------------------------------------------
Borealis Retail Real Estate Investment Trust
(Canada) 29,000 264,840
------------------------------------------------------------------------
CBL & Associates Properties, Inc. 303,300 18,334,485
------------------------------------------------------------------------
General Growth Properties, Inc. 1,426,200 42,786,000
------------------------------------------------------------------------
Macerich Co. (The) 440,700 21,210,891
------------------------------------------------------------------------
Mills Corp. (The) 139,800 6,576,192
------------------------------------------------------------------------
Rouse Co. (The) 41,800 2,058,232
------------------------------------------------------------------------
Simon Property Group, Inc. 767,900 39,969,195
========================================================================
133,386,136
========================================================================
SELF STORAGE FACILITIES-0.68%
Public Storage, Inc. 25,000 1,187,750
------------------------------------------------------------------------
Shurgard Storage Centers, Inc.-Class A 77,500 2,945,775
========================================================================
4,133,525
========================================================================
|
FS-131
MARKET
SHARES VALUE
------------------------------------------------------------------------
SHOPPING CENTERS-12.97%
Capital & Regional PLC (United Kingdom) 117,400 $ 945,988
------------------------------------------------------------------------
Chelsea Property Group, Inc. 444,900 24,700,848
------------------------------------------------------------------------
Developers Diversified Realty Corp. 579,100 19,909,458
------------------------------------------------------------------------
Eurocommercial Properties N.V. (Netherlands) 51,200 1,354,521
------------------------------------------------------------------------
Federal Realty Investment Trust 277,300 11,449,717
------------------------------------------------------------------------
New Plan Excel Realty Trust 26,500 668,065
------------------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 168,600 8,617,146
------------------------------------------------------------------------
Regency Centers Corp. 159,400 6,646,980
------------------------------------------------------------------------
Urstadt Biddle Properties-Class A 281,100 4,160,280
========================================================================
78,453,003
========================================================================
SPECIALTY PROPERTIES-3.65%
American Financial Realty Trust 230,500 4,176,660
------------------------------------------------------------------------
Capital Automotive REIT 104,000 3,670,160
------------------------------------------------------------------------
Capital Automotive REIT-Series A, 7.50% Pfd. 95,500 2,459,125
------------------------------------------------------------------------
|
------------------------------------------------------------------------
MARKET
SHARES VALUE
SPECIALTY PROPERTIES-(CONTINUED)
Entertainment Properties Trust 130,400 $ 4,616,160
------------------------------------------------------------------------
Plum Creek Timber Co., Inc. 236,200 7,133,240
========================================================================
22,055,345
========================================================================
Total Real Estate Investment Trusts,
Common Stocks & Other Equity Interests
(Cost $410,785,815) 553,058,564
========================================================================
MONEY MARKET FUNDS-8.80%
Liquid Assets Portfolio(d) 26,591,699 26,591,699
------------------------------------------------------------------------
STIC Prime Portfolio(d) 26,591,699 26,591,699
========================================================================
Total Money Market Funds (Cost
$53,183,398) 53,183,398
========================================================================
TOTAL INVESTMENTS-100.26% (Cost $463,969,213) 606,241,962
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.26%) (1,563,506)
========================================================================
NET ASSETS-100.00% $604,678,456
________________________________________________________________________
========================================================================
|
Investment Abbreviations:
Pfd. - Preferred |
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of this security. The
aggregate market value of this security at 01/31/04 represented 0.36% of the
Fund's net assets. This security is not considered to be illiquid.
(c) Security fair valued in accordance with procedures established by the Board
of Trustees.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-132
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$410,785,815) $553,058,564
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $53,183,398) 53,183,398
===========================================================
Total investments (Cost $463,969,213) 606,241,962
___________________________________________________________
===========================================================
Receivables for:
Investments sold 1,930,163
-----------------------------------------------------------
Fund shares sold 4,447,222
-----------------------------------------------------------
Dividends 1,221,715
-----------------------------------------------------------
Investment for deferred compensation and
retirement plans 43,656
-----------------------------------------------------------
Other assets 111,878
===========================================================
Total assets 613,996,596
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 6,259,470
-----------------------------------------------------------
Fund shares reacquired 2,499,301
-----------------------------------------------------------
Deferred compensation and retirement plans 48,760
-----------------------------------------------------------
Accrued distribution fees 297,724
-----------------------------------------------------------
Accrued trustee fees 729
-----------------------------------------------------------
Accrued transfer agent fees 199,292
-----------------------------------------------------------
Accrued operating expenses 12,864
===========================================================
Total liabilities 9,318,140
===========================================================
Net assets applicable to shares outstanding $604,678,456
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $469,924,799
-----------------------------------------------------------
Undistributed net investment income (62,960)
-----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and foreign currency contracts (7,455,305)
-----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 142,271,922
===========================================================
$604,678,456
___________________________________________________________
===========================================================
NET ASSETS:
Class A $313,618,957
___________________________________________________________
===========================================================
Class B $166,645,994
___________________________________________________________
===========================================================
Class C $ 95,790,858
___________________________________________________________
===========================================================
Investor Class $ 28,622,647
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 15,176,882
___________________________________________________________
===========================================================
Class B 8,038,325
___________________________________________________________
===========================================================
Class C 4,629,435
___________________________________________________________
===========================================================
Investor Class 1,385,201
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 20.66
-----------------------------------------------------------
Offering price per share:
(Net asset value of $20.66 divided by
95.25%) $ 21.69
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 20.73
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 20.69
___________________________________________________________
===========================================================
Investor Class:
Net asset value and offering price per
share $ 20.66
___________________________________________________________
===========================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-133
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $64,692) $ 9,728,311
-------------------------------------------------------------------------
Dividends from affiliated money market funds 156,356
=========================================================================
Total investment income 9,884,667
=========================================================================
EXPENSES:
Advisory fees 2,098,154
-------------------------------------------------------------------------
Administrative services fees 67,223
-------------------------------------------------------------------------
Custodian fees 38,769
-------------------------------------------------------------------------
Distribution fees:
Class A 405,405
-------------------------------------------------------------------------
Class B 713,205
-------------------------------------------------------------------------
Class C 389,242
-------------------------------------------------------------------------
Investor Class 11,991
-------------------------------------------------------------------------
Transfer agent fees 609,057
-------------------------------------------------------------------------
Trustees' fees 7,281
-------------------------------------------------------------------------
Other 200,750
=========================================================================
Total expenses 4,541,077
=========================================================================
Less: Fees waived and expense offset arrangements (4,527)
=========================================================================
Net expenses 4,536,550
=========================================================================
Net investment income 5,348,117
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FOREIGN CURRENCY
CONTRACTS:
Net realized gain (loss) from:
Investment securities 8,226,955
-------------------------------------------------------------------------
Foreign currencies (31,344)
=========================================================================
8,195,611
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 72,867,149
-------------------------------------------------------------------------
Foreign currencies (3,096)
=========================================================================
72,864,053
=========================================================================
Net gain from investment securities, foreign currencies and
foreign currency contracts 81,059,664
=========================================================================
Net increase in net assets resulting from operations $86,407,781
_________________________________________________________________________
=========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-134
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 5,348,117 $ 6,774,304
------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and foreign currency contracts 8,195,611 (4,106,860)
------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, and foreign currencies 72,864,053 48,777,546
==========================================================================================
Net increase in net assets resulting from operations 86,407,781 51,444,990
==========================================================================================
Distributions to shareholders from net investment income:
Class A (3,349,486) (3,329,708)
------------------------------------------------------------------------------------------
Class B (1,571,834) (2,034,884)
------------------------------------------------------------------------------------------
Class C (857,573) (1,070,734)
------------------------------------------------------------------------------------------
Investor Class (206,336) --
==========================================================================================
Decrease in net assets resulting from distributions (5,985,229) (6,435,326)
==========================================================================================
Share transactions-net:
Class A 95,836,538 70,728,483
------------------------------------------------------------------------------------------
Class B 19,478,875 37,706,329
------------------------------------------------------------------------------------------
Class C 17,899,645 18,496,500
------------------------------------------------------------------------------------------
Investor Class 25,399,064 --
==========================================================================================
Net increase in net assets resulting from share
transactions 158,614,122 126,931,312
==========================================================================================
Net increase in net assets 239,036,674 171,940,976
==========================================================================================
NET ASSETS:
Beginning of period 365,641,782 193,700,806
==========================================================================================
End of period (including undistributed net investment
income of $(62,960) and $574,152 for 2004 and 2003,
respectively) $604,678,456 $365,641,782
__________________________________________________________________________________________
==========================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-135
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Real Estate Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve high total return. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures and exchange-traded funds..
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.
The Fund recharacterizes distributions received from REIT investments based on information provided by the REIT into the following categories; ordinary income, long-term and short-term capital gains, and return of capital. If information is not available timely from the REIT, the recharacterization will be based on available information which may include the previous year's allocation. If new or additional information becomes available from the REIT at a later date, a recharacterization will be made in the following year. The Fund records as dividend income the amount recharacterized as ordinary income and as realized gain the amount recharacterized as capital gain in the Statement of Operations, and the amount recharacterized as return of capital in the Statement of Changes in Net Assets. These recharacterizations are reflected in the accompanying financial statements.
FS-136
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly and are recorded on ex-dividend date. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from, (i) sales of foreign currencies, (ii) currency gains or losses realized between the trade and settlement dates on securities transactions, and (iii) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
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.
G. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.90% of the Fund's average daily net assets. AIM has entered into a sub-advisory agreement with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM pays INVESCO 40% of the fee paid by the Fund to AIM. AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the six months ended January 31, 2004, AIM waived fees of $1,955.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $67,223 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $247,933 for such services.
The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B, Class C Investor Class shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B, Class C and Investor Class shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the average daily net assets of Class B and Class C and 0.25% of the average daily net assets of Investor Class shares. Of these amounts, 0.25% of the average daily net assets of the Class A, Class B, or Class C shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A, Class B, Class C and Investor Class shares paid $405,405, $713,205, $389,242 and $17,634, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the six months ended January 31, 2004, AIM Distributors retained $158,106.19 in front-end sales commissions from the sale of Class A shares and $20,999, $0 and $8,051 from Class A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
FS-137
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order by the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees to invest daily available cash balances in affiliated money market funds. Each day the prior day's balance invested in the affiliated money market fund is redeemed in full and a new purchase amount is submitted to invest the current day's available cash. The table below shows the transactions in and earnings from investments in affiliated money market funds for the period ended January 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/2003 AT COST FROM SALES (DEPRECIATION) 01/31/2004 INCOME GAIN (LOSS)
-------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $ 9,094,930 $ 51,249,262 $(33,752,493) $ -- $26,591,699 $78,338 $ --
-------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio 9,094,930 51,249,262 (33,752,493) -- 26,591,699 78,018 --
=========================================================================================================================
Total $18,189,860 $102,498,524 $(67,504,986) $ -- $53,183,398 $156,356 $ --
_________________________________________________________________________________________________________________________
=========================================================================================================================
|
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts and custodian credits resulting from periodic overnight cash balances at the custodian. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $2,216 and reductions in custodian fees of $356 under expense offset arrangements, which resulted in a reduction of the Fund's total expenses of $2,572.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $2,956 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan.
NOTE 6--BORROWINGS (CONTINUED)
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2007 $ 9,612,829
----------------------------------------------------------
July 31, 2008 1,275,744
----------------------------------------------------------
July 31, 2011 2,462,074
==========================================================
Total capital loss carryforward $13,350,647
__________________________________________________________
==========================================================
|
FS-138
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $172,429,382 and $55,838,043, respectively.
UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $140,334,029
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (41,764)
==========================================================================
Net unrealized appreciation of investment securities $140,292,265
__________________________________________________________________________
==========================================================================
Cost of investments for tax purposes is $465,949,697.
|
NOTE 9--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares, Class B shares, Class C shares and Investor Class shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC.. Investor Class shares are sold at net asset value. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,351,245 $121,093,099 10,040,616 $153,310,327
----------------------------------------------------------------------------------------------------------------------
Class B 1,792,657 33,954,276 4,612,513 69,835,946
----------------------------------------------------------------------------------------------------------------------
Class C 1,304,961 24,839,548 2,144,150 32,601,275
----------------------------------------------------------------------------------------------------------------------
Investor Class* 252,896 4,865,886 -- --
======================================================================================================================
Issued as reinvestment of dividends:
Class A 165,056 3,116,673 199,768 3,041,849
----------------------------------------------------------------------------------------------------------------------
Class B 73,749 1,394,459 118,414 1,804,757
----------------------------------------------------------------------------------------------------------------------
Class C 40,231 759,695 60,550 921,382
----------------------------------------------------------------------------------------------------------------------
Investor Class 10,116 198,352 -- --
======================================================================================================================
Issued in connection with acquisitions:**
Class A 601,377 11,125,322 -- --
----------------------------------------------------------------------------------------------------------------------
Class B 14,428 267,736 -- --
----------------------------------------------------------------------------------------------------------------------
Class C 122,102 2,261,014 -- --
----------------------------------------------------------------------------------------------------------------------
Investor Class* 1,476,425 27,304,798 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 161,611 3,066,862 158,310 2,459,992
----------------------------------------------------------------------------------------------------------------------
Class B (161,104) (3,066,862) (157,917) (2,459,992)
======================================================================================================================
Reacquired:
Class A (2,266,349) (42,565,418) (5,900,039) (88,083,685)
----------------------------------------------------------------------------------------------------------------------
Class B (694,663) (13,070,734) (2,108,225) (31,474,382)
----------------------------------------------------------------------------------------------------------------------
Class C (528,249) (9,960,612) (986,180) (15,026,157)
----------------------------------------------------------------------------------------------------------------------
Investor Class* (354,236) (6,969,972) -- --
======================================================================================================================
8,362,253 $158,614,122 8,181,960 $126,931,312
______________________________________________________________________________________________________________________
======================================================================================================================
|
* Investor Class shares commenced sales on September 30, 2003. ** As of the open of business on November 24, 2003, the Fund acquired all of the net assets of INVESCO Real Estate Opportunity Fund pursuant to a plan of reorganization approved by INVESCO Real Estate Opportunity Fund shareholders on October 28, 2003. The acquisition was accomplished by a tax-free exchange of 2,214,332 shares of the Fund for 4,386,619 shares of INVESCO Real Estate Opportunity Fund outstanding as of the close of business November 21, 2003. INVESCO Real Estate Opportunity Fund's net assets at that date of $40,958,870 including $5,430,748 of unrealized appreciation, were combined with those of the Fund. On the acquisition date, INVESCO Real Estate Opportunity Fund had undistributed net investment income (loss) of $(91,313) and undistributed net realized gain (loss) of $(6,684,043). The aggregate net assets of the Fund immediately before the acquisition were $427,505,213.
FS-139
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
-------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS
ENDED YEAR ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.50 $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.25(a) 0.45(a) 0.47(a) 0.50 0.30(a) 0.42
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.19 2.24 1.68 0.54 2.38 (0.75)
=================================================================================================================================
Total from investment operations 3.44 2.69 2.15 1.04 2.68 (0.33)
=================================================================================================================================
Less dividends from net investment income (0.28) (0.44) (0.46) (0.52) (0.25) (0.52)
=================================================================================================================================
Net asset value, end of period $ 20.66 $ 17.50 $ 15.25 $ 13.56 $ 13.04 $ 10.61
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 19.87% 18.12% 16.10% 8.23% 25.61% (2.88)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $313,619 $177,901 $86,411 $28,400 $23,187 $16,279
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.65%(c) 1.72% 1.77% 1.63% 1.62%(d) 1.61%
---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.65%(c) 1.72% 1.77% 1.79% 2.05%(d) 1.73%
=================================================================================================================================
Ratio of net investment income to average net
assets 2.59%(c) 2.97% 3.25% 3.88% 4.49%(d) 3.70%
=================================================================================================================================
Portfolio turnover rate(e) 13% 87% 77% 85% 39% 52%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$230,400,839.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-140
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS
ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ------------------------------ JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.55 $ 15.29 $ 13.59 $ 13.07 $ 10.64 $11.48
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.36(a) 0.38(a) 0.41 0.25(a) 0.32
---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.20 2.24 1.68 0.53 2.39 (0.72)
=================================================================================================================================
Total from investment operations 3.39 2.60 2.06 0.94 2.64 (0.40)
=================================================================================================================================
Less dividends from net investment income (0.21) (0.34) (0.36) (0.42) (0.21) (0.44)
=================================================================================================================================
Net asset value, end of period $ 20.73 $ 17.55 $ 15.29 $ 13.59 $ 13.07 $10.64
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 19.43% 17.37% 15.40% 7.42% 25.08% (3.53)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $166,646 $123,093 $69,557 $16,917 $12,722 $9,839
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.30%(c) 2.37% 2.41% 2.36% 2.37%(d) 2.35%
---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.30%(c) 2.37% 2.41% 2.43% 2.70%(d) 2.37%
=================================================================================================================================
Ratio of net investment income to average net
assets 1.94%(c) 2.32% 2.61% 3.15% 3.73%(d) 2.96%
=================================================================================================================================
Portfolio turnover rate(e) 13% 87% 77% 85% 39% 52%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$141,865,770.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-141
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS
ENDED JULY 31, ENDED YEAR ENDED
JANUARY 31, ----------------------------- JULY 31, DECEMBER 31,
2004 2003 2002 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.52 $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46
--------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.36(a) 0.38(a) 0.41 0.25(a) 0.33(a)
--------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.19 2.24 1.67 0.53 2.39 (0.73)
================================================================================================================================
Total from investment operations 3.38 2.60 2.05 0.94 2.64 (0.40)
================================================================================================================================
Less dividends from net investment income (0.21) (0.34) (0.36) (0.42) (0.21) (0.44)
================================================================================================================================
Net asset value, end of period $ 20.69 $ 17.52 $ 15.26 $ 13.57 $ 13.05 $ 10.62
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 19.41% 17.41% 15.35% 7.43% 25.13% (3.54)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $95,791 $64,648 $37,733 $22,722 $20,306 $19,992
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.30%(c) 2.37% 2.41% 2.36% 2.37%(d) 2.35%
--------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.30%(c) 2.37% 2.41% 2.43% 2.70%(d) 2.37%
================================================================================================================================
Ratio of net investment income to average net
assets 1.94%(c) 2.32% 2.61% 3.15% 3.73%(d) 2.96%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 13% 87% 77% 85% 39% 52%
________________________________________________________________________________________________________________________________
================================================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$77,425,325.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-142
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR CLASS
--------------
SEPTEMBER 30,
2003
(DATE SALES
COMMENCED) TO
JANUARY 31,
2004
----------------------------------------------------------------------------
Net asset value, beginning of period $ 18.18
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a)
----------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.48
============================================================================
Total from investment operations 2.66
============================================================================
Less dividends from net investment income (0.18)
============================================================================
Net asset value, end of period $ 20.66
____________________________________________________________________________
============================================================================
Total return(b) 14.69%
____________________________________________________________________________
============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $28,623
____________________________________________________________________________
============================================================================
Ratio of expenses to average net assets:
With fee waivers 1.55%(c)
----------------------------------------------------------------------------
Without fee waivers 1.55%(c)
============================================================================
Ratio of net investment income to average net assets 2.69%(c)
____________________________________________________________________________
============================================================================
Portfolio turnover rate(d) 13%
____________________________________________________________________________
============================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$20,988,865.
(d) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida
FS-143
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-144
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
BONDS & NOTES-53.25%
AEROSPACE & DEFENSE-0.16%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06 $ 495,000 $ 565,889
=========================================================================
ALTERNATIVE CARRIERS-0.25%
Intelsat, Ltd, (Bermuda) Sr. Notes, 5.25%,
11/01/08 (Acquired 10/31/03; Cost
$849,788)(a) 850,000 884,442
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.47%
Bank of New York Institutional Capital Trust-
Series A, Bonds, 7.78%, 12/01/26 (Acquired
06/12/03; Cost $1,789,065)(a) 1,500,000 1,669,920
=========================================================================
AUTOMOBILE MANUFACTURERS-0.58%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 2,025,000 2,054,140
=========================================================================
BROADCASTING & CABLE TV-6.36%
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06 1,000,000 1,110,550
-------------------------------------------------------------------------
Comcast Corp., Sr. Unsec. Notes, 8.88%,
04/01/07 900,000 921,204
-------------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 4,900,000 5,671,064
-------------------------------------------------------------------------
Cox Communications, Inc.-Class A, Unsec.
Notes, 7.50%, 08/15/04 2,495,000 2,574,890
-------------------------------------------------------------------------
Cox Radio, Inc.-Class A, Sr. Unsec. Notes,
6.63%, 02/15/06 2,000,000 2,155,640
-------------------------------------------------------------------------
Liberty Media Corp., Global Notes, 3.50%,
09/25/06 1,500,000 1,510,275
-------------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 1,000,000 1,234,660
-------------------------------------------------------------------------
TCI Communications, Inc.,
Medium Term Notes, 8.35%, 02/15/05 822,000 873,794
-------------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 08/01/05 575,000 623,932
-------------------------------------------------------------------------
Time Warner Cos. Inc., Unsec. Notes, 7.75%,
06/15/05 5,495,000 5,924,214
=========================================================================
22,600,223
=========================================================================
CONSUMER FINANCE-6.30%
Capital One Bank., Sr. Global Notes, 8.25%,
06/15/05 3,900,000 4,202,406
-------------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Unsec. Notes,
7.25%, 05/01/06 3,000,000 3,248,370
-------------------------------------------------------------------------
8.75%, 02/01/07 1,100,000 1,249,457
-------------------------------------------------------------------------
Ford Motor Credit Co.,
Unsec. Global Notes,
6.70%, 07/16/04 2,000,000 2,044,640
-------------------------------------------------------------------------
6.88%, 02/01/06 400,000 426,712
-------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
7.50%, 03/15/05 $ 800,000 $ 844,480
-------------------------------------------------------------------------
Unsec. Notes, 7.75%, 03/15/05 550,000 581,894
-------------------------------------------------------------------------
General Motors Acceptance Corp.,
Floating Rate Global Notes,
1.40%, 04/05/04(b) 2,000,000 2,001,320
-------------------------------------------------------------------------
Floating Rate Medium Term Notes,
1.88%, 05/17/04(b) 450,000 450,225
-------------------------------------------------------------------------
3.18%, 03/04/05(b) 1,800,000 1,799,244
-------------------------------------------------------------------------
Global Notes, 4.50%, 07/15/06 1,600,000 1,643,648
-------------------------------------------------------------------------
Medium Term Notes,
4.38%, 05/15/04 850,000 853,646
-------------------------------------------------------------------------
5.25%, 05/16/05 1,200,000 1,243,524
-------------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%, 01/15/06 750,000 802,657
-------------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$1,046,330)(a) 1,000,000 1,021,150
=========================================================================
22,413,373
=========================================================================
DIVERSIFIED BANKS-1.68%
Abbey National PLC (United Kingdom), Sub.
Yankee Notes, 7.35%,(c) 800,000 890,664
-------------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $776,335)(a) 700,000 748,685
-------------------------------------------------------------------------
Bankers Trust Corp., Unsec. Sub. Notes,
8.25%, 05/01/05 1,200,000 1,294,992
-------------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$1,191,550)(a) 1,000,000 1,151,460
-------------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Notes, 6.38%,
06/15/08 (Acquired 08/30/02; Cost
$53,673)(a) 50,000 52,652
-------------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27 650,000 763,002
-------------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 900,000 1,067,031
=========================================================================
5,968,486
=========================================================================
DIVERSIFIED CAPITAL MARKETS-0.43%
Chase Manhattan Corp., Sub. Debs., 7.88%,
07/15/06 400,000 449,592
-------------------------------------------------------------------------
JPMorgan Chase Bank, Sub. Notes, 7.00%,
06/01/05 1,000,000 1,066,860
=========================================================================
1,516,452
=========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.31%
International Lease Finance Corp., Global
Notes, 2.95%, 05/23/06 1,110,000 1,120,600
=========================================================================
|
FS-145
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
ELECTRIC UTILITIES-5.99%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 $ 1,430,000 $ 1,561,775
-------------------------------------------------------------------------
CenterPoint Energy, Inc.-Series B, Sr. Global
Notes, 5.88%, 06/01/08 500,000 519,310
-------------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 2,015,000 2,065,032
-------------------------------------------------------------------------
Consolidated Edison Co. of New York, Unsec.
Deb., 7.75%, 06/01/26(d) 2,000,000 2,229,980
-------------------------------------------------------------------------
Dominion Resources, Inc., Notes, 2.80%,
02/15/05 4,300,000 4,352,202
-------------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 1,740,000 1,889,309
-------------------------------------------------------------------------
Niagara Mohawk Power Corp.,
First Mortgage Bonds, 8.00%, 06/01/04(d) 100,000 101,938
-------------------------------------------------------------------------
Series F, Sr. Unsec. Notes, 7.63%, 10/01/05 756,098 825,674
-------------------------------------------------------------------------
Public Service Electric & Gas Co.-Series TT,
Refunding First Mortgage Bonds, 7.38%,
03/01/14(d) 3,200,000 3,287,808
-------------------------------------------------------------------------
Wisconsin Energy Corp., Sr. Unsec. Unsub.
Notes, 5.50%, 12/01/08 250,000 267,653
-------------------------------------------------------------------------
WPD Holdings UK (United Kingdom), Unsec.
Unsub. Notes, 6.75%, 12/15/04 (Acquired
01/08/04; Cost $2,077,500)(a) 2,000,000 2,057,700
-------------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series B, Sr. Unsec. Gtd. Unsub. Global
Notes, 6.50%, 02/25/08 2,000,000 2,135,740
=========================================================================
21,294,121
=========================================================================
FOOD RETAIL-1.28%
Kroger Co., Sr. Unsec. Gtd. Notes, 7.38%,
03/01/05 3,150,000 3,347,474
-------------------------------------------------------------------------
Safeway Inc., Notes, 2.50%, 11/01/05 1,200,000 1,200,636
=========================================================================
4,548,110
=========================================================================
GAS UTILITIES-0.44%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 1,000,000 1,070,550
-------------------------------------------------------------------------
Kinder Morgan Energy Partners, L.P., Sr.
Unsec. Sub. Notes, 8.00%, 03/15/05 450,000 479,759
=========================================================================
1,550,309
=========================================================================
HEALTH CARE FACILITIES-0.99%
HCA Inc.,
Notes, 7.00%, 07/01/07 1,000,000 1,096,270
-------------------------------------------------------------------------
Sr. Sub. Notes, 6.91%, 06/15/05 2,300,000 2,428,386
=========================================================================
3,524,656
=========================================================================
HOMEBUILDING-1.01%
Lennar Corp.-Series B, Class A, Sr. Unsec.
Gtd. Global Notes, 9.95%, 05/01/10 3,150,000 3,598,875
=========================================================================
HYPERMARKETS & SUPER CENTERS-0.18%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 600,000 647,778
=========================================================================
INDUSTRIAL CONGLOMERATES-0.55%
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$1,981,473)(a) 1,750,000 1,947,348
=========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
INTEGRATED OIL & GAS-0.21%
Occidental Petroleum Corp., Sr. Unsec. Notes,
6.50%, 04/01/05 $ 700,000 $ 738,815
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-6.63%
AT&T Corp., Unsec. Unsub. Notes, 7.00%,
05/15/05 1,825,000 1,931,233
-------------------------------------------------------------------------
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 3,027,000 3,330,790
-------------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 7.75%, 06/15/05 1,750,000 1,893,815
-------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 300,000 326,589
-------------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 700,000 795,886
-------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 3,940,000 4,236,012
-------------------------------------------------------------------------
7.13%, 01/30/06 3,500,000 3,800,090
-------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 7.90%, 03/15/05 3,650,000 3,906,303
-------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07 2,500,000 2,806,825
-------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
6.36%, 04/15/06 500,000 540,665
=========================================================================
23,568,208
=========================================================================
INVESTMENT BANKING & BROKERAGE-1.18%
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03; Cost
$2,008,062)(a) 1,800,000 1,945,782
-------------------------------------------------------------------------
Lehman Brothers Inc., Sr. Sub. Deb., 11.63%,
05/15/05 125,000 138,710
-------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 700,000 782,362
-------------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes,
4.54%, 03/08/05 250,000 257,513
-------------------------------------------------------------------------
7.08%, 10/03/05 690,000 745,462
-------------------------------------------------------------------------
Morgan Stanley, Unsec. Notes, 6.30%, 01/15/06 300,000 321,270
=========================================================================
4,191,099
=========================================================================
LIFE & HEALTH INSURANCE-0.89%
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 500,000 541,780
-------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 2,340,000 2,620,777
=========================================================================
3,162,557
=========================================================================
MOVIES & ENTERTAINMENT-0.85%
Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06 750,000 805,890
-------------------------------------------------------------------------
Viacom Inc., Sr. Unsec. Gtd. Notes, 7.15%,
05/20/05 2,060,000 2,201,955
=========================================================================
3,007,845
=========================================================================
|
FS-146
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER-0.39%
Westar Energy, Inc., Sec. First Mortgage
Global Bonds, 7.88%, 05/01/07 $ 1,200,000 $ 1,376,256
=========================================================================
OIL & GAS DRILLING-0.61%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05 2,070,000 2,180,000
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.21%
Kerr-McGee Corp., Unsec. Gtd. Global Notes,
5.38%, 04/15/05 1,630,000 1,698,330
-------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Sr. Sub.
Notes, 9.25%, 06/15/04 1,850,000 1,896,028
-------------------------------------------------------------------------
Nexen Inc. (Canada), Unsec. Unsub. Yankee
Notes, 7.13%, 02/04/04 700,000 700,966
=========================================================================
4,295,324
=========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.50%
Petroleos Mexicanos (Mexico), Unsec. Gtd.
Unsub. Global Notes, 6.50%, 02/01/05 1,700,000 1,774,375
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.65%
CIT Group Inc.,
Sr. Unsec. Notes, 6.63%, 06/15/05 1,465,000 1,558,203
-------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 2,000,000 2,168,020
-------------------------------------------------------------------------
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%, 01/30/06 1,430,000 1,450,363
-------------------------------------------------------------------------
Household Finance Corp.,
Medium Term Notes, 3.38%, 02/21/06 1,400,000 1,432,970
-------------------------------------------------------------------------
Sr. Unsec. Global Notes, 6.50%, 01/24/06 100,000 108,112
-------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Sr. Unsec. Global Notes, 8.02%, 05/15/07 1,000,000 1,105,110
-------------------------------------------------------------------------
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09 1,350,000 1,587,087
=========================================================================
9,409,865
=========================================================================
PACKAGED FOODS & MEATS-0.59%
Nabisco Inc., Putable Notes, 6.38%, 02/01/05 2,000,000 2,095,240
=========================================================================
REAL ESTATE-0.55%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 1,750,000 1,958,950
=========================================================================
REGIONAL BANKS-0.71%
Popular, Inc., Unsec. Sub. Notes, 6.75%,
12/15/05 1,000,000 1,077,550
-------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Island), Sec. Sub. Euro Floating Rate
Notes, 2.19%(c)(e)(f) 1,500,000 1,443,750
=========================================================================
2,521,300
=========================================================================
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
RESTAURANTS-0.83%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 $ 2,700,000 $ 2,953,800
=========================================================================
SOVEREIGN DEBT-1.55%
Export-Import Bank of Korea (The) (South
Korea), Unsec. Putable Global Notes, 6.50%,
11/15/06 2,000,000 2,159,000
-------------------------------------------------------------------------
Hydro-Quebec (Canada)-Series B, Gtd. Medium
Term Yankee Notes, 6.52%, 02/23/06(d) 1,150,000 1,239,988
-------------------------------------------------------------------------
Japan Bank for International Cooperation.
(Japan), Unsec. Gtd. Euro Bonds, 6.50%,
10/06/05 75,000 80,554
-------------------------------------------------------------------------
United Mexican States (Mexico), Global Notes,
4.63%, 10/08/08 2,000,000 2,017,500
=========================================================================
5,497,042
=========================================================================
THRIFTS & MORTGAGE FINANCE-1.41%
Countrywide Home Loans, Inc.-
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 1,175,000 1,255,794
-------------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 1,000,000 1,026,180
-------------------------------------------------------------------------
Washington Mutual Finance Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 2,500,000 2,715,225
=========================================================================
4,997,199
=========================================================================
TOBACCO-0.79%
Altria Group, Inc.,
Notes,
7.13%, 10/01/04 480,000 496,200
-------------------------------------------------------------------------
7.50%, 04/01/04 700,000 706,629
-------------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06 1,500,000 1,588,815
=========================================================================
2,791,644
=========================================================================
TRUCKING-1.49%
Hertz Corp. (The)-Class A, Floating Rate
Global Notes, 1.71%, 08/13/04(b) 2,535,000 2,535,000
-------------------------------------------------------------------------
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 2,400,000 2,766,360
=========================================================================
5,301,360
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.23%
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 6,445,000 7,653,438
-------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 3,180,000 3,835,875
=========================================================================
11,489,313
=========================================================================
Total Bonds & Notes (Cost $187,910,299) 189,214,914
=========================================================================
|
FS-147
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
ASSET-BACKED SECURITIES-2.03%
ELECTRIC UTILITIES-0.89%
Yorkshire Power Finance (Cayman Islands)-
Series 2000-1, Pass Through Ctfs., 8.25%,
02/15/05 (Acquired 06/19/03-11/12/03; Cost
$3,240,065)(a) $ 3,000,000 $ 3,172,920
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.14%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
10/03/02-09/23/03; Cost $2,032,068)(a) 1,885,041 2,013,375
-------------------------------------------------------------------------
First Industrial Realty Trust, Inc., Putable
PATS, 7.38%, 05/15/04 (Acquired 02/06/03;
Cost $2,097,000)(a) 2,000,000 2,029,720
=========================================================================
4,043,095
=========================================================================
Total Asset-Backed Securities (Cost
$7,178,792) 7,216,015
=========================================================================
U.S. MORTGAGE-BACKED SECURITIES-36.28%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-8.31%
Pass Through Ctfs.,
8.00%, 11/20/12 1,384,457 1,493,535
-------------------------------------------------------------------------
9.00%, 05/01/15 1,169,999 1,297,638
-------------------------------------------------------------------------
7.50%, 06/01/16 to 09/01/29 6,532,079 7,020,063
-------------------------------------------------------------------------
7.00%, 12/01/16 to 01/01/33 6,264,848 6,682,724
-------------------------------------------------------------------------
6.00%, 02/01/17 to 03/01/23 7,302,014 7,628,717
-------------------------------------------------------------------------
8.50%, 02/01/19 to 08/17/26 4,914,849 5,407,352
=========================================================================
29,530,029
=========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-17.30%
Pass Through Ctfs.,
7.50%, 02/01/15 to 02/01/31 6,586,661 7,060,600
-------------------------------------------------------------------------
7.00%, 04/01/15 to 02/01/33 29,307,926 31,293,295
-------------------------------------------------------------------------
|
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-(CONTINUED)
6.50%, 11/01/16 to 07/01/31 $ 5,063,734 $ 5,374,401
-------------------------------------------------------------------------
8.00%, 09/01/17 to 12/01/32 13,918,597 15,093,009
-------------------------------------------------------------------------
8.50%, 11/01/24 to 07/01/30 1,497,364 1,647,890
-------------------------------------------------------------------------
Unsec. Global Notes,
1.88%, 09/15/05 1,000,000 1,001,930
=========================================================================
61,471,125
=========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-10.67%
Pass Through Ctfs.,
7.00%, 05/15/17 to 06/15/32 11,102,534 11,919,327
-------------------------------------------------------------------------
6.00%, 06/15/18 to 07/15/33 7,705,527 8,077,367
-------------------------------------------------------------------------
7.50%, 06/15/23 to 01/15/32 6,154,703 6,647,565
-------------------------------------------------------------------------
6.50%, 07/15/23 to 04/15/33 10,636,634 11,268,407
=========================================================================
37,912,666
=========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $127,016,610) 128,913,820
=========================================================================
U.S. TREASURY NOTES-4.90%
1.50%, 02/28/05(g) 13,375,000 13,410,578
-------------------------------------------------------------------------
1.25%, 05/31/05 4,000,000 3,991,880
=========================================================================
Total U.S. Treasury Notes (Cost
$17,388,748) 17,402,458
=========================================================================
SHARES
MONEY MARKET FUNDS-1.90%
Liquid Assets Portfolio(h) 3,373,534 3,373,534
-------------------------------------------------------------------------
STIC Prime Portfolio(h) 3,373,534 3,373,534
=========================================================================
Total Money Market Funds (Cost
$6,747,068) 6,747,068
=========================================================================
TOTAL INVESTMENTS-98.36% (Cost $346,241,517) 349,494,275
=========================================================================
OTHER ASSETS LESS LIABILITIES-1.64% 5,835,415
=========================================================================
NET ASSETS-100.00% $355,329,690
_________________________________________________________________________
=========================================================================
|
Investment Abbreviations:
Ctfs - Certificates Deb. - Debentures Gtd. - Guaranteed PATS - Pass Through Asset Trust Securities Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated |
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/04 was $18,695,154,
which represented 5.26% of the Fund's net assets. These securities are
considered to be illiquid.
(b) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 01/31/04.
(c) Perpetual bond with no specified maturity date.
(d) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., Financial Security
Assurance Inc., or MBIA Insurance Corp.
(e) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 01/31/04.
(f) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(g) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1 section E and Note 7.
(h) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-148
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$339,494,449) $342,747,207
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $6,747,068) 6,747,068
===========================================================
Total investments (cost $346,241,517) 349,494,275
===========================================================
Receivables for:
Investments sold 461,700
-----------------------------------------------------------
Fund shares sold 6,231,100
-----------------------------------------------------------
Dividends and interest 3,880,080
-----------------------------------------------------------
Amount due from advisor 2,662
-----------------------------------------------------------
Investment for deferred compensation and
retirement plans 10,406
-----------------------------------------------------------
Other assets 37,280
===========================================================
Total assets 360,117,503
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 874,730
-----------------------------------------------------------
Fund shares reacquired 3,638,278
-----------------------------------------------------------
Dividends 106,894
-----------------------------------------------------------
Deferred compensation and retirement plans 12,174
-----------------------------------------------------------
Variation margin 41,406
-----------------------------------------------------------
Accrued distribution fees 75,347
-----------------------------------------------------------
Accrued trustees' fees 588
-----------------------------------------------------------
Accrued transfer agent fees 27,005
-----------------------------------------------------------
Accrued operating expenses 11,391
===========================================================
Total liabilities 4,787,813
===========================================================
Net assets applicable to shares outstanding $355,329,690
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $354,388,084
-----------------------------------------------------------
Undistributed net investment income (2,092,122)
-----------------------------------------------------------
Undistributed net realized gain from
investment securities and futures contracts 113,655
-----------------------------------------------------------
Unrealized appreciation of investment
securities and futures contracts 2,920,073
===========================================================
$355,329,690
___________________________________________________________
===========================================================
CLASS C:
Shares outstanding, $0.01 par value per
share, unlimited number of shares
authorized 35,211,921
===========================================================
Net asset value and offering price per share $ 10.09
___________________________________________________________
===========================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-149
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest $ 4,372,806
-------------------------------------------------------------------------
Dividends 31
-------------------------------------------------------------------------
Dividends from affiliated money market funds 15,530
=========================================================================
Total investment income 4,388,367
=========================================================================
EXPENSES:
Advisory fees 673,741
-------------------------------------------------------------------------
Administrative services fees 38,846
-------------------------------------------------------------------------
Custodian fees 29,395
-------------------------------------------------------------------------
Distribution fees 1,684,351
-------------------------------------------------------------------------
Transfer agent fees 143,669
-------------------------------------------------------------------------
Trustees' fees 6,787
-------------------------------------------------------------------------
Other 122,591
=========================================================================
Total expenses 2,699,380
=========================================================================
Less: Fees waived and expense offset arrangements (676,394)
=========================================================================
Net expenses 2,022,986
=========================================================================
Net investment income 2,365,381
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 863,235
-------------------------------------------------------------------------
Futures contracts 255,269
=========================================================================
1,118,504
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 3,669,361
-------------------------------------------------------------------------
Futures contracts (332,685)
=========================================================================
3,336,676
=========================================================================
Net gain from investment securities and futures contracts 4,455,180
=========================================================================
Net increase in net assets resulting from operations $ 6,820,561
_________________________________________________________________________
=========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-150
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the period August 30, 2002 (date
operations commenced) through July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
--------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,365,381 $ 1,922,542
--------------------------------------------------------------------------------------------
Net realized gain from investment securities and futures
contracts 1,118,504 722,466
--------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and futures contracts 3,336,676 (416,603)
============================================================================================
Net increase in net assets resulting from operations 6,820,561 2,228,405
============================================================================================
Distributions to shareholders from net investment income (4,453,065) (3,757,098)
--------------------------------------------------------------------------------------------
Return of capital -- (68,668)
--------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (4,453,065) (3,825,766)
--------------------------------------------------------------------------------------------
Share transactions-net: 15,482,212 339,077,343
============================================================================================
Net increase in net assets 17,849,708 337,479,982
============================================================================================
NET ASSETS:
Beginning of year 337,479,982 --
============================================================================================
End of year (including undistributed net investment income
of $(2,092,122) and $(4,438) for 2004 and 2003,
respectively) $355,329,690 $337,479,982
____________________________________________________________________________________________
============================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-151
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Short Term Bond Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers one class of shares. Matters affecting each portfolio will be voted on exclusively by the shareholders of such portfolio. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current income consistent with the preservation of capital. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures and exchange-traded funds.
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. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
FS-152
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
E. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.40% of the Fund's average daily net assets. AIM has contractually agreed to waive fees and/or reimburse expenses (excluding interest, taxes, fund merger and reorganization expenses, extraordinary items, including other items designated as such by the Board of Trustees and increases in expenses due to expense offset arrangements, if any) of Class C shares to the extent necessary to limit the total annual fund operating expenses of Class C shares to 1.20% committed until July 31, 2004. To the extent that the annualized expense ratio does not exceed the contractual expense limitation, AIM will retain the ability to be reimbursed for such fee waivers or reimbursements prior to the end of the committed period. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the six months ended January 31, 2004, AIM waived fees of $501.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $38,846 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES (CONTINUED)
and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $60,147 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class C shares (the "Plan"). The Fund, pursuant to the Plan, pays AIM Distributors compensation at the annual rate of 1.00% of the Fund's average daily net assets of Class C shares. Of this amount, up to 0.25% of the average daily net assets of the Class C shares may be paid to furnish continuing personal shareholder services to customers who purchase and own Class C shares of the Fund. Any amounts not paid as a service fee under the Plan would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the Fund. AIM Distributors has contractually agreed to waive 0.40% of the Rule 12b-1 plan fees on Class C shares. Pursuant to the Plans, for the six months ended January 31, 2004, the Class C shares paid $1,010,611 after AIM Distributors waived plan fees of $673,740.
Contingent deferred sales charges ("CDSC") are not recorded as an expense of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the six months ended January 31, 2004, AIM Distributors retained $2,589 from Class C shares for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees to invest daily available cash balances in affiliated money market funds. Each day the prior day's balance invested in the affiliated money market fund is redeemed in full and a new purchase amount is submitted to invest the current day's available cash. The table below shows the transactions in and earnings from investments in affiliated money market funds for the period ended January 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/2003 AT COST FROM SALES (DEPRECIATION) 01/31/2004 INCOME GAIN (LOSS)
------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $322,088 $ 45,158,037 $(42,106,591) -- $3,373,534 $ 7,643 --
------------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portoflio 322,088 45,158,037 (42,106,591) -- 3,373,534 7,887 --
====================================================================================================================================
Total $644,176 $ 90,316,074 $(84,213,182) $ -- $6,747,068 $15,530 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
|
FS-153
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts and custodian credits resulting from periodic overnight cash balances at the custodian. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $1,696 and reductions in custodian fees of $457 under expense offset arrangements, which resulted in a reduction of the Fund's total expenses of $2,153.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $2,871 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 7--FUTURES CONTRACTS
On January 31, 2004, $300,000 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts.
OPEN FUTURES CONTRACTS AT PERIOD END
-------------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ MARKET APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
-------------------------------------------------------------------------------
U.S. Treasury 2 Year
Notes 27 Mar.-04/Short $ 5,791,500 $ (47,017)
-------------------------------------------------------------------------------
U.S. Treasury 5 Year
Notes 140 Mar.-04/Short 15,725,938 (285,668)
===============================================================================
$21,517,438 $(332,685)
_______________________________________________________________________________
===============================================================================
|
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------------------------------------------------
July 31, 2011 $20,292
__________________________________________________________
==========================================================
|
FS-154
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004, was $183,841,122 and $180,655,602, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $3,924,342
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (671,584)
==========================================================================
Net unrealized appreciation of investment securities $3,252,758
__________________________________________________________________________
==========================================================================
Investments have the same cost for tax and financial statement purposes.
|
NOTE 10--SHARE INFORMATION
The Fund currently offers Class C shares. Class C shares are sold at net asset value. Under some circumstances, Class C shares are subject to CDSC.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
SIX MONTHS ENDED COMMENCED) TO
JANUARY 31, 2004 JULY 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold 19,365,296 $ 194,710,860 50,609,851 $ 509,493,749
--------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 373,080 3,754,119 317,302 3,197,003
--------------------------------------------------------------------------------------------------------------------------
Reacquired (18,214,376) (182,982,767) (17,239,232) (173,613,409)
==========================================================================================================================
1,524,000 $ 15,482,212 33,687,921 $ 339,077,343
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
FS-155
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS C
----------------------------------
AUGUST 30,
2002
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2004 2003
------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.02 $ 10.01
------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.12(a)
------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.13 0.14
================================================================================================
Total from investment operations 0.20 0.26
================================================================================================
Less distributions:
Dividends from net investment income (0.13) (0.25)
------------------------------------------------------------------------------------------------
Return of capital -- (0.00)
================================================================================================
Total distributions (0.13) (0.25)
================================================================================================
Net asset value, end of period $ 10.09 $ 10.02
________________________________________________________________________________________________
================================================================================================
Total return(b) 2.05% 2.58%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $355,330 $337,480
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.20%(c) 1.20%(d)
------------------------------------------------------------------------------------------------
Without fee waivers 1.60%(c) 1.60%(d)
================================================================================================
Ratio of net investment income to average net assets 1.40%(c) 1.28%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 54% 88%
________________________________________________________________________________________________
================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does 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
$335,039,476.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
FS-156
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-157
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2004
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
BONDS & NOTES-48.53%
AEROSPACE & DEFENSE-0.30%
Lockheed Martin Corp.-Series A,
Medium Term Notes, 8.66%, 11/30/06 $ 225,000 $ 257,222
=======================================================================
ALTERNATIVE CARRIERS-0.31%
Intelsat Ltd. (Bermuda),
Sr. Notes, 6.50%, 11/01/13
(Acquired 10/31/03; Cost $124,618)(a) 125,000 133,411
-----------------------------------------------------------------------
Sr. Notes, 5.25%, 11/01/08
(Acquired 10/31/03; Cost $124,969)(a) 125,000 130,065
=======================================================================
263,476
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.26%
Bank of New York Institutional Capital Trust-
Series A, Bonds, 7.78%, 12/01/26 (Acquired
06/12/03; Cost $238,542)(a) 200,000 222,656
=======================================================================
AUTOMOBILE MANUFACTURERS-0.66%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 550,000 557,914
=======================================================================
BROADCASTING & CABLE TV-4.64%
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06 200,000 222,110
-----------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Notes, 8.88%, 04/01/07 150,000 153,534
-----------------------------------------------------------------------
Class A, Sr. Sub. Deb., 10.63%, 07/15/12 200,000 267,624
-----------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 1,000,000 1,157,360
-----------------------------------------------------------------------
Cox Radio, Inc.-Class A, Sr. Unsec. Notes,
6.63%, 02/15/06 125,000 134,727
-----------------------------------------------------------------------
Liberty Media Corp., Global Notes, 3.50%,
09/25/06 200,000 201,370
-----------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 600,000 740,796
-----------------------------------------------------------------------
TCI Communications, Inc., Medium Term Notes,
8.35%, 02/15/05 350,000 372,053
-----------------------------------------------------------------------
Time Warner Cos. Inc.,
Sr. Unsec. Gtd. Deb.,
6.88%, 06/15/18 125,000 139,265
-----------------------------------------------------------------------
7.25%, 10/15/17 75,000 86,178
-----------------------------------------------------------------------
7.57%, 02/01/24 200,000 227,300
-----------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 225,000 242,575
=======================================================================
3,944,892
=======================================================================
CONSUMER FINANCE-5.47%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18 100,000 117,296
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
CONSUMER FINANCE-(CONTINUED)
Associates Corp. of North America, Sub. Deb.,
8.15%, 08/01/09 $ 375,000 $ 454,706
-----------------------------------------------------------------------
Capital One Bank, Sr. Global Notes, 8.25%,
06/15/05 200,000 215,508
-----------------------------------------------------------------------
Capital One Financial Corp., Sr. Unsec.
Notes,
7.25%, 05/01/06 675,000 730,883
-----------------------------------------------------------------------
8.75%, 02/01/07 350,000 397,554
-----------------------------------------------------------------------
Ford Motor Credit Co.,
Unsec. Global Notes,
6.70%, 07/16/04 50,000 51,116
-----------------------------------------------------------------------
6.88%, 02/01/06 360,000 384,041
-----------------------------------------------------------------------
7.50%, 03/15/05 200,000 211,120
-----------------------------------------------------------------------
Unsec. Notes, 7.75%, 03/15/05 100,000 105,799
-----------------------------------------------------------------------
General Motors Acceptance Corp.,
Floating Rate Medium Term Notes,
1.88%, 05/17/04(b) 150,000 150,075
-----------------------------------------------------------------------
3.18%, 03/04/05(b) 200,000 199,916
-----------------------------------------------------------------------
Global Notes, 4.50%, 07/15/06 175,000 179,774
-----------------------------------------------------------------------
Medium Term Notes,
4.38%, 05/15/04 150,000 150,643
-----------------------------------------------------------------------
5.25%, 05/16/05 175,000 181,347
-----------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%, 01/15/06 550,000 588,615
-----------------------------------------------------------------------
Household Finance Corp., Sr. Unsec. Global
Notes, 7.63%, 05/17/32 345,000 423,615
-----------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$104,633)(a) 100,000 102,115
=======================================================================
4,644,123
=======================================================================
DIVERSIFIED BANKS-4.96%
Abbey National PLC (United Kingdom),
Sub. Yankee Notes, 7.35%(c) 100,000 111,333
-----------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $83,179)(a) 75,000 80,216
-----------------------------------------------------------------------
Bank of America Corp.,
Unsec. Sub. Notes, 7.13%, 03/01/09 125,000 144,071
-----------------------------------------------------------------------
Series B, Putable Sub. Medium Term Notes,
8.57%, 11/15/04 150,000 198,409
-----------------------------------------------------------------------
BankBoston Corp., Gtd. Floating Rate Notes,
1.78%, 06/08/28(b) 400,000 382,020
-----------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Bonds,
8.55% (Acquired 11/05/03; Cost
$209,209)(a)(c) 170,000 210,497
-----------------------------------------------------------------------
Barnett Capital I, Gtd. Bonds, 8.06%,
12/01/26 175,000 205,105
-----------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 400,000 452,876
-----------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$379,629)(a) 300,000 367,281
-----------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$178,733)(a) 150,000 172,719
-----------------------------------------------------------------------
|
FS-158
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Corporacion Andina de Fomento (Venezuela),
Global Notes, 5.20%, 05/21/13 $ 350,000 $ 349,461
-----------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Notes, 6.38%,
06/15/08 (Acquired 08/30/02; Cost
$107,346)(a) 100,000 105,305
-----------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27 160,000 187,816
-----------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 250,000 296,397
-----------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61% (Acquired 11/05/03; Cost
$74,602)(a)(c) 80,000 76,032
-----------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
1.50%(c)(d) 300,000 254,319
-----------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)- Series B, Unsec. Sub. Euro Notes,
1.44%(c)(d) 100,000 84,245
-----------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 250,000 322,157
-----------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate
Notes, 1.74%, 06/01/28(b) 150,000 140,788
-----------------------------------------------------------------------
RBS Capital Trust I, Bonds, 4.71%(c) 75,000 72,091
=======================================================================
4,213,138
=======================================================================
DIVERSIFIED CAPITAL MARKETS-0.79%
Chase Manhattan Corp., Sub. Debs., 7.88%,
07/15/06 100,000 112,398
-----------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%(c) 450,000 561,321
=======================================================================
673,719
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.12%
International Lease Finance Corp., Global
Notes, 2.95%, 05/23/06 100,000 100,955
=======================================================================
ELECTRIC UTILITIES-4.16%
AmerenEnergy Generating Co.-Series C,
Sr. Unsec. Global Notes, 7.75%, 11/01/05 50,000 54,607
-----------------------------------------------------------------------
American Electric Power Co., Inc.,
Sr. Unsec. Unsub. Notes, 5.25%, 06/01/15 150,000 149,467
-----------------------------------------------------------------------
CenterPoint Energy, Inc.-Series B, Sr. Global
Notes, 5.88%, 06/01/08 50,000 51,931
-----------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 100,000 102,483
-----------------------------------------------------------------------
Consolidated Edison Co. of New York, Unsec.
Deb., 7.75%, 06/01/26(e) 250,000 278,747
-----------------------------------------------------------------------
Consumers Energy Co., First Mortgage Bonds,
6.00%, 02/15/14 (Acquired 10/03/03; Cost
$255,575)(a) 250,000 264,385
-----------------------------------------------------------------------
Dominion Resources, Inc., Notes, 2.80%,
02/15/05 200,000 202,428
-----------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 650,000 705,776
-----------------------------------------------------------------------
Niagara Mohawk Power Corp., First Mortgage
Bonds, 8.00%, 06/01/04(e) 210,000 214,070
-----------------------------------------------------------------------
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-(CONTINUED)
Public Service Electric & Gas Co.-Series TT,
Refunding First Mortgage Bonds,
7.38%, 03/01/14(e) $ 250,000 $ 256,860
-----------------------------------------------------------------------
Southern Power Co.-Series D,
Sr. Unsec. Global Notes, 4.88%, 07/15/15 75,000 71,690
-----------------------------------------------------------------------
United Energy Distribution Holdings
Proprietary Ltd. (Australia), Sr. Unsec.
Unsub. Notes,
4.70%, 04/15/11 (Acquired 11/12/03; Cost
$119,879)(a) 120,000 122,396
-----------------------------------------------------------------------
WPD Holdings UK (United Kingdom),
Jr. Unsec. Unsub. Notes, 6.75%, 12/15/04
(Acquired 01/08/04; Cost $259,688)(a) 250,000 257,212
-----------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series B, Sr. Unsec. Gtd. Unsub. Global
Notes,
6.50%, 02/25/08 750,000 800,902
=======================================================================
3,532,954
=======================================================================
ENVIRONMENTAL SERVICES-0.41%
Waste Management, Inc., Sr. Unsec. Unsub.
Notes, 7.38%, 08/01/10 300,000 348,759
=======================================================================
FOOD RETAIL-0.21%
Kroger Co., Sr. Unsec. Gtd. Notes, 7.38%,
03/01/05 50,000 53,134
-----------------------------------------------------------------------
Safeway Inc., Notes, 2.50%, 11/01/05 125,000 125,066
=======================================================================
178,200
=======================================================================
GAS UTILITIES-0.70%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 200,000 214,110
-----------------------------------------------------------------------
Kinder Morgan Energy Partners, L.P.,
Sr. Unsec. Sub. Notes, 8.00%, 03/15/05 100,000 106,613
-----------------------------------------------------------------------
Kinder Morgan, Inc., Sr. Unsec. Notes, 6.80%,
03/01/08 250,000 276,777
=======================================================================
597,500
=======================================================================
HEALTH CARE FACILITIES-0.76%
HCA Inc.,
Notes,
6.25%, 02/15/13 100,000 105,270
-----------------------------------------------------------------------
7.00%, 07/01/07 300,000 328,881
-----------------------------------------------------------------------
Sr. Sub. Notes, 6.91%, 06/15/05 200,000 211,164
=======================================================================
645,315
=======================================================================
HOMEBUILDING-0.95%
Lennar Corp.-Series B, Class A,
Sr. Unsec. Gtd. Global Notes, 9.95%,
05/01/10 350,000 399,875
-----------------------------------------------------------------------
M.D.C. Holdings, Inc., Sr. Unsec. Gtd. Notes,
5.50%, 05/15/13 400,000 403,976
=======================================================================
803,851
=======================================================================
HOUSEWARES & SPECIALTIES-0.43%
American Greetings Corp., Unsec. Putable
Notes, 6.10%, 08/01/08 350,000 362,687
=======================================================================
|
FS-159
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-0.16%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 $ 125,000 $ 134,954
=======================================================================
INDUSTRIAL CONGLOMERATES-0.13%
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$113,227)(a) 100,000 111,277
=======================================================================
INTEGRATED OIL & GAS-0.35%
Occidental Petroleum Corp., Sr. Unsec. Notes,
6.50%, 04/01/05 250,000 263,863
-----------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 30,000 32,335
=======================================================================
296,198
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-5.55%
AT&T Corp., Unsec. Unsub. Notes, 7.00%,
05/15/05 150,000 158,732
-----------------------------------------------------------------------
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 200,000 220,072
-----------------------------------------------------------------------
Citizens Communications Co., Sr. Unsec.
Notes, 9.25%, 05/15/11 230,000 273,576
-----------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 7.75%, 06/15/05 125,000 135,273
-----------------------------------------------------------------------
France Telecom S.A. (France),
Sr. Unsec. Global Notes, 8.50%, 03/01/31 250,000 330,295
-----------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 75,000 81,647
-----------------------------------------------------------------------
New England Telephone & Telegraph Co.,
Sr. Unsec. Notes, 7.65%, 06/15/07 150,000 170,547
-----------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 410,000 440,803
-----------------------------------------------------------------------
7.13%, 01/30/06 550,000 597,157
-----------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes,
6.13%, 11/15/08 250,000 268,663
-----------------------------------------------------------------------
Unsec. Gtd. Global Notes,
7.90%, 03/15/05 450,000 481,599
-----------------------------------------------------------------------
8.75%, 03/15/32 120,000 145,841
-----------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07 850,000 954,321
-----------------------------------------------------------------------
8.00%, 06/01/11 75,000 88,688
-----------------------------------------------------------------------
Verizon Communications, Inc., Unsec. Deb.,
6.94%, 04/15/28 50,000 53,004
-----------------------------------------------------------------------
8.75%, 11/01/21 125,000 157,495
-----------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 150,000 159,014
=======================================================================
4,716,727
=======================================================================
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
INVESTMENT BANKING & BROKERAGE-1.27%
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03; Cost
$167,339)(a) $ 150,000 $ 162,149
-----------------------------------------------------------------------
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 250,000 277,420
-----------------------------------------------------------------------
Unsec. Sub. Notes, 7.63%, 06/01/06 150,000 167,649
-----------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B,
Medium Term Notes, 4.54%, 03/08/05 250,000 257,513
-----------------------------------------------------------------------
Morgan Stanley, Unsec. Notes, 6.30%, 01/15/06 200,000 214,180
=======================================================================
1,078,911
=======================================================================
LIFE & HEALTH INSURANCE-0.70%
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 120,000 130,027
-----------------------------------------------------------------------
Prudential Holdings, LLC-Series B, Bonds,
7.25%, 12/18/23 (Acquired 01/22/04; Cost
$355,113)(a)(e) 300,000 352,173
-----------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 100,000 111,999
=======================================================================
594,199
=======================================================================
MOVIES & ENTERTAINMENT-0.51%
Time Warner Inc.,
Sr. Unsec. Gtd. Unsub. Global Notes,
6.13%, 04/15/06 400,000 429,808
=======================================================================
MULTI-LINE INSURANCE-0.12%
MassMutual Global Funding II, Notes, 3.80%,
04/15/09 (Acquired 10/07/03; Cost
$99,867)(a) 100,000 100,244
=======================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.59%
Duke Energy Corp., First Mortgage Bonds,
3.75%, 03/05/08 100,000 101,079
-----------------------------------------------------------------------
Westar Energy, Inc.,
Sec. First Mortgage Global Bonds, 7.88%,
05/01/07 350,000 401,408
=======================================================================
502,487
=======================================================================
MUNICIPALITIES-0.87%
California (State of) Industry Urban
Development Agency; Project 3 Tax
Allocation, Series 2003B 6.10%,
05/01/24(e)(f) 450,000 460,490
-----------------------------------------------------------------------
Illinois (State of);
Unlimited Tax Pension Series 2003 GO,
5.10%, 06/01/33(f) 300,000 281,634
=======================================================================
742,124
=======================================================================
OIL & GAS DRILLING-0.30%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05 100,000 105,314
-----------------------------------------------------------------------
Transocean Inc.(Cayman Islands),
Sr. Unsec. Unsub. Global Deb., 8.00%,
04/15/27 125,000 152,163
=======================================================================
257,477
=======================================================================
|
FS-160
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-1.21%
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired 05/20/03; Cost
151,044)(a) $ 145,725 $ 145,638
-----------------------------------------------------------------------
Kerr-McGee Corp., Unsec. Gtd. Global Notes,
5.38%, 04/15/05 150,000 156,288
-----------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Sr. Sub.
Notes, 9.25%, 06/15/04 125,000 128,110
-----------------------------------------------------------------------
Pemex Project Funding Master Trust,
Unsec. Gtd. Unsub. Global Notes,
7.38%, 12/15/14 550,000 593,472
=======================================================================
1,023,508
=======================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.25%
Petroleos Mexicanos (Mexico),
Unsec. Gtd. Unsub. Global Notes, 6.50%,
02/01/05 150,000 156,563
-----------------------------------------------------------------------
Plains All American Pipeline L.P., Sr. Notes,
5.63%, 12/15/13 (Acquired 12/03/03; Cost
$49,867)(a) 50,000 51,412
=======================================================================
207,975
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.36%
CIT Group Inc.,
Sr. Unsec. Notes, 6.63%, 06/15/05 200,000 212,724
-----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 175,000 189,702
-----------------------------------------------------------------------
Citigroup Inc., Unsec. Sub. Global Bonds,
6.00%, 10/31/33 100,000 101,924
-----------------------------------------------------------------------
General Electric Capital Corp.,
Gtd. Sub. Notes, 8.13%, 05/15/12 215,000 261,584
-----------------------------------------------------------------------
Series A, Sr. Medium Term Global Notes,
4.25%, 12/01/10 50,000 49,987
-----------------------------------------------------------------------
Series A, Medium Term Global Notes,
2.85%, 01/30/06 25,000 25,356
-----------------------------------------------------------------------
5.88%, 02/15/12 75,000 81,219
-----------------------------------------------------------------------
6.00%, 06/15/12 100,000 109,064
-----------------------------------------------------------------------
Heller Financial, Inc.-Class A,
Sr. Unsec. Global Notes, 8.00%, 06/15/05 400,000 433,428
-----------------------------------------------------------------------
Household Finance Corp.,
Medium Term Notes, 3.38%, 02/21/06 50,000 51,178
-----------------------------------------------------------------------
Sr. Unsec. Global Notes, 6.50%, 01/24/06 100,000 108,112
-----------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(c) 75,000 92,185
-----------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands)- Series
1999-2, Class A1, Global Bonds, 9.69%,
08/15/09 100,000 117,562
-----------------------------------------------------------------------
Regional Diversified Funding, Sr. Notes,
9.25%, 03/15/30 (Acquired 01/10/03; Cost
$163,526)(a) 145,740 171,063
=======================================================================
2,005,088
=======================================================================
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
PROPERTY & CASUALTY INSURANCE-0.36%
Oil Insurance Ltd. (Bermuda), Unsec. Sub.
Deb., 5.15%, 08/15/33 (Acquired 01/21/04;
Cost $311,037)(a) $ 300,000 $ 303,786
=======================================================================
PUBLISHING-0.35%
News America Holdings,
Unsec. Gtd. Deb., 7.75%, 01/20/24 50,000 59,151
-----------------------------------------------------------------------
Sr. Unsec. Gtd. Deb., 7.70%, 10/30/25 200,000 235,876
=======================================================================
295,027
=======================================================================
REAL ESTATE-0.66%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 500,000 559,700
=======================================================================
REGIONAL BANKS-1.26%
Greater Bay Bancorp.-Series B, Sr. Notes,
5.25%, 03/31/08 500,000 506,775
-----------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands),
Sec. Sub. Notes, 2.19%(c)(d)(g) 500,000 481,250
-----------------------------------------------------------------------
Union Planters Corp., Notes, 4.38%, 12/01/10 85,000 85,703
=======================================================================
1,073,728
=======================================================================
REINSURANCE-0.23%
GE Global Insurance Holding Corp., Unsec.
Notes,
7.00%, 02/15/26 100,000 110,108
-----------------------------------------------------------------------
7.50%, 06/15/10 75,000 87,220
=======================================================================
197,328
=======================================================================
RESTAURANTS-0.10%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 75,000 82,051
=======================================================================
SOVEREIGN DEBT-1.53%
Japan Bank for International Cooperation
(Japan),
Unsec. Gtd. Euro Bonds, 6.50%, 10/06/05 100,000 107,406
-----------------------------------------------------------------------
United Mexican States (Mexico), Global Notes,
4.63%, 10/08/08 300,000 302,625
-----------------------------------------------------------------------
6.63%, 03/03/15 150,000 155,963
-----------------------------------------------------------------------
7.50%, 04/08/33 700,000 730,625
=======================================================================
1,296,619
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.86%
Bank United-Series A, Medium Term Notes,
8.00%, 03/15/09 50,000 58,803
-----------------------------------------------------------------------
Countrywide Home Loans, Inc.,
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 125,000 133,595
-----------------------------------------------------------------------
Series K, Medium Term Global Notes,
3.50%, 12/19/05 100,000 102,618
-----------------------------------------------------------------------
Washington Mutual Finance Corp.,
Sr. Unsec. Notes, 8.25%, 06/15/05 400,000 434,436
=======================================================================
729,452
=======================================================================
|
FS-161
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
TOBACCO-0.31%
Altria Group, Inc.,
Notes, 7.00%, 11/04/13 $ 75,000 $ 81,602
-----------------------------------------------------------------------
Altria Group, Inc.,
Notes, 7.13%, 10/01/04 100,000 103,375
-----------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06 75,000 79,441
=======================================================================
264,418
=======================================================================
TRUCKING-1.12%
Hertz Corp. (The)-Class A,
Floating Rate Global Notes, 1.71%,
08/13/04(b) 350,000 350,000
-----------------------------------------------------------------------
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 525,000 605,141
=======================================================================
955,141
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.25%
TeleCorp PCS, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
10.63%, 07/15/10 800,000 950,000
-----------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 800,000 965,000
=======================================================================
1,915,000
=======================================================================
Total Bonds & Notes (Cost $40,760,082) 41,220,588
=======================================================================
ASSET-BACKED SECURITIES-1.40%
ELECTRIC UTILITIES-0.50%
Yorkshire Power Finance (Cayman Islands)-
Series 2000-1, Pass Through Ctfs., 8.25%,
02/15/05 (Acquired 06/19/03-09/22/03; Cost
$434,413)(a) 400,000 423,056
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.90%
Citicorp Lease-Series 1999-1, Class A1,
Pass Through Ctfs., 7.22%, 06/15/05
(Acquired 05/08/02-09/23/03; Cost
$486,338)(a) 455,010 485,987
-----------------------------------------------------------------------
Citicorp Lease-Series 1999-1, Class A2,
Pass Through Ctfs., 8.04%, 12/15/19
(Acquired 08/20/02; Cost $166,614)(a) 150,000 177,853
-----------------------------------------------------------------------
First Industrial Realty Trust, Inc., Putable
PATS, 7.38%, 05/15/04 (Acquired 02/06/03;
Cost $104,850)(a) 100,000 101,486
=======================================================================
765,326
=======================================================================
Total Asset-Backed Securities (Cost
$1,164,491) 1,188,382
=======================================================================
U.S. MORTGAGE-BACKED SECURITIES-37.42%
FEDERAL HOME LOAN BANK-1.45%
Unsec. Bonds,
4.88%, 04/16/04 to 05/15/07 650,000 684,245
-----------------------------------------------------------------------
5.70%, 03/03/09 500,000 549,185
=======================================================================
1,233,430
=======================================================================
|
-----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-7.84%
Pass Through Ctfs.,
6.00%, 08/01/14 to 10/01/32 $2,738,413 $ 2,863,341
-----------------------------------------------------------------------
5.50%, 05/01/16 to 2/01/17 239,064 248,535
-----------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32 1,130,482 1,194,804
-----------------------------------------------------------------------
7.00%, 06/01/16 to 06/01/32 348,827 370,541
-----------------------------------------------------------------------
7.50%, 04/01/17 to 03/01/32 432,444 464,486
-----------------------------------------------------------------------
Unsec. Global Notes,
2.75%, 03/15/08 1,000,000 985,200
-----------------------------------------------------------------------
Unsec. Notes,
4.88%, 03/15/07 500,000 532,685
=======================================================================
6,659,592
=======================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-20.60%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 88,303 94,490
-----------------------------------------------------------------------
7.00%, 12/01/15 to 02/01/33 2,011,752 2,135,988
-----------------------------------------------------------------------
6.50%, 05/01/16 to 10/01/32 3,702,564 3,890,827
-----------------------------------------------------------------------
5.50%, 12/01/16 to 12/01/33 4,617,587 4,726,049
-----------------------------------------------------------------------
6.00%, 01/01/17 to 12/01/33 3,735,423 3,888,251
-----------------------------------------------------------------------
5.00%, 03/01/18 to 10/01/18 1,529,786 1,566,889
-----------------------------------------------------------------------
8.00%, 08/01/21 to 04/01/32 689,735 745,380
-----------------------------------------------------------------------
Unsec. Global Notes,
4.38%, 09/15/12 75,000 74,880
-----------------------------------------------------------------------
Unsec. Notes,
5.25%, 06/15/06 300,000 320,646
-----------------------------------------------------------------------
Unsec. Sub. Notes,
5.25%, 08/01/12 50,000 51,915
=======================================================================
17,495,315
=======================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-6.85%
Pass Through Ctfs.,
7.50%, 06/15/23 to 05/15/32 486,707 525,222
-----------------------------------------------------------------------
8.50%, 02/15/25 47,023 51,644
-----------------------------------------------------------------------
8.00%, 08/15/25 17,798 19,449
-----------------------------------------------------------------------
7.00%, 04/15/28 to 03/15/33 588,137 627,546
-----------------------------------------------------------------------
6.00%, 11/15/28 to 02/15/33 1,649,476 1,722,634
-----------------------------------------------------------------------
6.50%, 01/15/29 to 12/15/33 2,235,086 2,360,512
-----------------------------------------------------------------------
5.50%, 12/15/33 499,502 510,656
=======================================================================
5,817,663
=======================================================================
TENNESSEE VALLEY AUTHORITY-0.68%
Unsec. Bonds, 7.14%, 01/15/08 500,000 582,045
=======================================================================
Total U.S. Mortgage-Backed Securities
(Cost $31,252,200) 31,788,045
=======================================================================
|
FS-162
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------
U.S. TREASURY SECURITIES-11.34%
U.S. TREASURY NOTES-6.69%
3.13%, 10/15/08 $ 400,000 $ 400,936
-----------------------------------------------------------------------
4.75%, 11/15/08 1,700,000 1,826,701
-----------------------------------------------------------------------
5.00%, 02/15/11 to 08/15/11(h) 3,200,000 3,452,624
=======================================================================
5,680,261
=======================================================================
U.S. TREASURY BONDS-4.65%
7.25%, 05/15/16 to 08/15/22 1,600,000 2,024,872
-----------------------------------------------------------------------
7.50%, 11/15/16 1,500,000 1,929,135
=======================================================================
3,954,007
=======================================================================
Total U.S. Treasury Securities (Cost
$9,584,527) 9,634,268
=======================================================================
|
-----------------------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------------------
MONEY MARKET FUNDS-0.05%
Liquid Assets Portfolio(i) 20,765 $ 20,765
-----------------------------------------------------------------------
STIC Prime Portfolio(i) 20,765 20,765
=======================================================================
Total Money Market Funds (Cost $41,530) 41,530
=======================================================================
TOTAL INVESTMENTS-98.74% (Cost $82,802,830) 83,872,813
=======================================================================
OTHER ASSETS LESS LIABILITIES-1.26% 1,069,816
=======================================================================
NET ASSETS-100.00% $84,942,629
_______________________________________________________________________
=======================================================================
|
Investment Abbreviations:
Ctfs - Certificates Deb. - Debentures GO - General Obligation Bonds Gtd. - Guaranteed Jr. - Junior PATS - Pass Through Asset Trust Securities Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated |
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The aggregate market value of these securities at 01/31/04 was
$4,830,414, which represented 5.69% of the Fund's net assets. These
securities are considered to be illiquid.
(b) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 01/31/04.
(c) Perpetual bond with no specified maturity date.
(d) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 01/31/04.
(e) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., Financial Security
Assurance Inc., or MBIA Insurance Corp.
(f) Interest on this security is taxable income to the Fund.
(g) Security fair valued in accordance with procedures established by the Board
of Trustees.
(h) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1 section G and Note 7.
(i) The money market fund and the Fund are affiliated by having the same
advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-163
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2004
(Unaudited)
ASSETS:
Investments, at market value (cost
$82,761,300) $83,831,283
-----------------------------------------------------------
Investments in affiliated money market funds
(cost $41,530) 41,530
-----------------------------------------------------------
Total Investments (cost $82,802,830) 83,872,813
===========================================================
Cash 479,218
-----------------------------------------------------------
Receivables for:
-----------------------------------------------------------
Investments sold 384,676
-----------------------------------------------------------
Fund shares sold 211,081
-----------------------------------------------------------
Dividends and interest 1,001,035
-----------------------------------------------------------
Amount due from advisor 25,472
-----------------------------------------------------------
Investment for deferred compensation and
retirement plans 7,982
-----------------------------------------------------------
Other assets 28,952
===========================================================
Total assets 86,011,229
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 605,034
-----------------------------------------------------------
Fund shares reacquired 325,138
-----------------------------------------------------------
Deferred compensation and retirement plans 8,251
-----------------------------------------------------------
Variation margin 4,766
-----------------------------------------------------------
Accrued distribution fees 52,022
-----------------------------------------------------------
Accrued trustees' fees 612
-----------------------------------------------------------
Accrued transfer agent fees 47,320
-----------------------------------------------------------
Accrued operating expenses 25,457
===========================================================
Total liabilities 1,068,600
===========================================================
Net assets applicable to shares outstanding $84,942,629
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $83,459,022
-----------------------------------------------------------
Undistributed net investment income (299,760)
-----------------------------------------------------------
Undistributed net realized gain from
investment securities 749,852
-----------------------------------------------------------
Unrealized appreciation of investment
securities and futures contracts 1,033,515
===========================================================
$84,942,629
___________________________________________________________
===========================================================
NET ASSETS:
Class A $30,565,076
___________________________________________________________
===========================================================
Class B $46,001,100
___________________________________________________________
===========================================================
Class C $ 8,376,453
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 2,897,046
___________________________________________________________
===========================================================
Class B 4,359,812
___________________________________________________________
===========================================================
Class C 793,826
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.55
-----------------------------------------------------------
Offering price per share:
(Net asset value of $10.55 divided by
95.25%) $ 11.08
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.55
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.55
___________________________________________________________
===========================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-164
STATEMENT OF OPERATIONS
For the six months ended January 31, 2004
(Unaudited)
INVESTMENT INCOME:
Interest 1,692,275
------------------------------------------------------------------------
Dividends from affiliated money market funds 6,633
========================================================================
Total investment income 1,698,908
========================================================================
EXPENSES:
Advisory fees 215,673
------------------------------------------------------------------------
Administrative services fees 25,137
------------------------------------------------------------------------
Custodian fees 17,350
------------------------------------------------------------------------
Distribution fees
Class A 53,967
------------------------------------------------------------------------
Class B 234,687
------------------------------------------------------------------------
Class C 42,469
------------------------------------------------------------------------
Transfer agent fees 153,291
------------------------------------------------------------------------
Trustees' fees 5,303
------------------------------------------------------------------------
Other 93,110
========================================================================
Total expenses 840,987
========================================================================
Less: Fees waived and expense offset arrangements (201,728)
========================================================================
Net expenses 639,259
========================================================================
Net investment income 1,059,649
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain from investment securities 751,202
------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 1,949,804
------------------------------------------------------------------------
Futures contracts (36,468)
========================================================================
1,913,336
========================================================================
Net gain from investment securities and futures contracts 2,664,538
========================================================================
Net increase in net assets resulting from operations $3,724,187
________________________________________________________________________
========================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-165
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2004 and the year ended July 31, 2003
(Unaudited)
JANUARY 31, JULY 31,
2004 2003
----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $1,059,649 $ 1,582,068
----------------------------------------------------------------------------------------
Net realized gain from investment securities and futures
contracts 751,202 1,445,148
----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and futures contracts 1,913,336 (1,022,343)
========================================================================================
Net increase in net assets resulting from operations 3,724,187 2,004,873
========================================================================================
Distributions to shareholders from net investment income:
Class A (558,382) (797,837)
----------------------------------------------------------------------------------------
Class B (673,301) (1,033,094)
----------------------------------------------------------------------------------------
Class C (122,253) (208,766)
========================================================================================
Total distributions from net investment income (1,353,936) (2,039,697)
========================================================================================
Distributions to shareholders from net realized gains:
Class A (275,860) (29,369)
----------------------------------------------------------------------------------------
Class B (409,961) (47,717)
----------------------------------------------------------------------------------------
Class C (73,758) (8,496)
========================================================================================
Total distributions from net realized gains (759,579) (85,582)
========================================================================================
Decrease in net assets resulting from distributions (2,113,515) (2,125,279)
========================================================================================
Share transactions-net:
Class A (344,839) 21,104,305
----------------------------------------------------------------------------------------
Class B (2,530,668) 33,005,431
----------------------------------------------------------------------------------------
Class C (967,814) 6,138,256
========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (3,843,321) 60,247,992
========================================================================================
Net increase (decrease) in net assets (2,232,649) 60,127,586
========================================================================================
NET ASSETS:
Beginning of period 87,175,278 27,047,692
========================================================================================
End of period (including undistributed net investment
income of $(299,760) and $(5,473) for 2004 and 2003,
respectively) $84,942,629 $87,175,278
________________________________________________________________________________________
========================================================================================
|
See accompanying notes which are an integral part of the financial statements.
FS-166
NOTES TO FINANCIAL STATEMENTS
January 31, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Total Return Bond Fund (the "Fund") is a series portfolio of AIM Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of nine separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Fund currently offers multiple classes of shares. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve maximum total return consistent with preservation of capital. Each company listed in the Schedule of Investments is organized in the United States of America unless otherwise noted.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end, and as such, the net asset value for shareholder transactions may be different than the net asset value reported in these financial statements. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If a development/event is so significant such that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. Adjustments to closing prices to reflect fair value on affected foreign securities may be provided by an independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures and exchange-traded funds.
B. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements. 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. Eligible securities for collateral are U.S. Government Securities, U.S. Government Agency Securities and/or Investment Grade Debt Securities. Collateral consisting of U.S. Government Securities and U.S. Government Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. Collateral consisting of Investment Grade Debt Securities is marked to market daily to ensure its market value is at least 105% of the sales price of the repurchase agreement. The investments in some repurchase
FS-167
agreements are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates ("Joint repurchase agreements"). 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.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
D. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to repurchase a substantially similar security (same type, coupon and maturity) from the institution at an agreed upon price. The mortgage-backed securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on securities sold. Proceeds of the sale may be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. The difference between the selling price and the future repurchase price is recorded as realized gain (loss). At the time the Fund enters into the dollar roll, it will segregate liquid assets having a dollar value equal to the repurchase price.
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed transaction costs.
E. DISTRIBUTIONS -- Distributions from income are declared daily and paid monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes.
F. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code.
G. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts.
H. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first $500 million of the Fund's average daily net assets, plus 0.45% on the next $500 million of the Fund's average daily net assets, plus 0.40% on the Fund's average daily net assets in excess of $1 billion. AIM has contractually agreed to waive advisory fees and/or reimburse expenses (excluding interest, taxes, fund merger and reorganization expenses, extraordinary items, including other items designated as such by the Board of Trustees 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 total annual operating expenses of Class A shares to 1.25% and has voluntarily agreed to waive advisory fees and/or reimburse expenses (excluding interest, taxes, fund merger and reorganization expenses, extraordinary items, including other items designated as such by the Board of Trustees and increases in expenses due to expense offset arrangements, if any) of Class A, Class B and Class C shares to the extent necessary to limit total annual operating expenses of Class A shares to 1.00%. Voluntary fee waivers or reimbursements may be modified or discontinued at any time without further notice to investors. During periods of fee waivers and reimbursements, to the extent that the annualized expense ratio does not
FS-168
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES (CONTINUED)
TOTAL RETURN BOND FUND
exceed the limit, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. For the six months ended January 31, 2004, AIM waived fees of $185,849.
The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the six months ended January 31, 2004, AIM was paid $25,137 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the six months ended January 31, 2004, AISI retained $76,236 for such services.
The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the average daily net assets of the Class A, Class B or Class C shares may be paid to furnish continuing personal shareholder services to customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. AIM Distributors has contractually agreed to waive up to 0.10% of Rule 12b-1 plan fees on Class A shares. Pursuant to the Plans, for the six months ended January 31, 2004, the Class A, Class B and Class C shares paid AIM Distributors $38,548, $234,687 and $42,469, respectively after AIM Distributors waived Class A plan fees of $15,419.
Front-end sales commissions and contingent deferred sales charges ("CDSC") (collectively the "sales charges") are not recorded as expenses of the Fund. Front-end sales commissions are deducted from proceeds from the sales of Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted from redemption proceeds prior to remittance to the shareholder. During the six months ended January 31, 2004, AIM Distributors retained $23,827 in front-end sales commissions from the sale of Class A shares and $54, $0 and $1,818 from Class A, Class B shares and Class C shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees to invest daily available cash balances in affiliated money market funds. Each day the prior day's balance invested in the affiliated money market fund is redeemed in full and a new purchase amount is submitted to invest the current day's available cash. The table below shows the transactions in and earnings from investments in affiliated money market funds for the period ended January 31, 2004.
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/2003 AT COST SALES (DEPRECIATION) 01/31/2004 INCOME GAIN (LOSS)
------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 750,113 $13,933,411 $(14,662,759) $-- $20,765 $ 3,290 $ --
------------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 750,113 13,933,411 (14,662,759) -- $20,765 3,343 --
====================================================================================================================================
$1,500,226 $27,866,822 $(29,325,518) $-- $41,530 $ 6,633 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
|
FS-169
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer agency credits resulting from Demand Deposit Account (DDA) balances in transfer agency clearing accounts and custodian credits resulting from periodic overnight cash balances at the custodian. For the six months ended January 31, 2004, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $460 under an expense offset arrangement, which resulted in a reduction of the Fund's total expenses of $460.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM and INVESCO Funds in which their deferral accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees that also participate in a retirement plan and receive benefits under such plan.
During the six months ended January 31, 2004, the Fund paid legal fees of $2,473 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds and the INVESCO Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. The Fund did not borrow or lend under the facility during the six months ended January 31, 2004.
The Fund is a participant in an uncommitted unsecured revolving credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the credit facility can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan.
During the six months ended January 31, 2004, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points.
NOTE 7--FUTURES CONTRACTS
On January 31, 2004, $100,000 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts.
OPEN FUTURES CONTRACTS AT PERIOD END
-----------------------------------------------------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ MARKET APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 5 Mar-04/Short $1,072,500 $ (8,707)
-----------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 15 Mar-04/Short 1,684,922 (27,761)
=======================================================================================================================
$2,757,422 $(36,468)
_______________________________________________________________________________________________________________________
=======================================================================================================================
|
FS-170
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be updated at the Fund's fiscal year-end.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended January 31, 2004 was $152,045,037 and $156,208,525, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $1,293,588
-----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (223,605)
===========================================================
Net unrealized appreciation of investment
securities $1,069,983
___________________________________________________________
===========================================================
Investments have same cost for tax and financial statement
purposes.
|
NOTE 10--SHARE INFORMATION
The Fund currently offers three classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
------------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 744,170 $ 7,795,463 3,675,553 $ 38,439,296
--------------------------------------------------------------------------------------------------------------------------
Class B 906,558 9,502,449 4,564,339 47,687,420
--------------------------------------------------------------------------------------------------------------------------
Class C 243,131 2,551,178 1,230,567 12,857,366
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 71,965 754,928 72,052 755,569
--------------------------------------------------------------------------------------------------------------------------
Class B 89,214 935,747 88,787 931,209
--------------------------------------------------------------------------------------------------------------------------
Class C 17,159 179,968 18,930 198,523
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 119,748 1,257,676 79,038 832,366
--------------------------------------------------------------------------------------------------------------------------
Class B (119,748) (1,257,676) (79,022) (832,366)
==========================================================================================================================
Reacquired:
Class A (969,004) (10,152,906) (1,811,444) (18,922,926)
--------------------------------------------------------------------------------------------------------------------------
Class B (1,119,194) (11,711,188) (1,411,242) (14,780,832)
--------------------------------------------------------------------------------------------------------------------------
Class C (353,550) (3,698,960) (661,171) (6,917,633)
==========================================================================================================================
(369,551) $ (3,843,321) 5,766,387 $ 60,247,992
__________________________________________________________________________________________________________________________
==========================================================================================================================
|
FS-171
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A
-------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.35 $ 10.19 $10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.32(a) 0.18(a)
===============================================================================================================
Net gains on securities (both realized and unrealized) 0.33 0.26 0.23
===============================================================================================================
Total from investment operations 0.48 0.58 0.41
===============================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.40) (0.22)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.09) (0.02) --
===============================================================================================================
Total distributions (0.28) (0.42) (0.22)
===============================================================================================================
Net asset value, end of period $ 10.55 $ 10.35 $10.19
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 4.72% 5.77% 4.09%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,565 $30,336 $9,325
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.00%(c) 1.00% 1.00%(d)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 1.53%(c) 1.54% 3.21%(d)
===============================================================================================================
Ratio of net investment income to average net assets 2.94%(c) 3.07% 3.10%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 181% 284% 215%
_______________________________________________________________________________________________________________
===============================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$30,670,406.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-172
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.35 $ 10.19 $ 10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11 0.24(a) 0.14(a)
===============================================================================================================
Net gains on securities (both realized and unrealized) 0.33 0.27 0.22
===============================================================================================================
Total from investment operations 0.44 0.51 0.36
===============================================================================================================
Less distributions:
Dividends from net investment income (0.15) (0.33) (0.17)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.09) (0.02) --
===============================================================================================================
Total distributions (0.24) (0.35) (0.17)
===============================================================================================================
Net asset value, end of period $ 10.55 $ 10.35 $ 10.19
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 4.34% 4.98% 3.65%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,001 $47,655 $14,678
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c) 1.75% 1.75%(d)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 2.18%(c) 2.19% 3.86%(d)
===============================================================================================================
Ratio of net investment income to average net assets 2.19%(c) 2.32% 2.35%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 181% 284% 215%
_______________________________________________________________________________________________________________
===============================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$46,682,387.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-173
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
-------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, JULY 31, JULY 31,
2004 2003 2002
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.35 $ 10.19 $ 10.00
---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11 0.24(a) 0.14(a)
---------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.33 0.27 0.22
===============================================================================================================
Total from investment operations 0.44 0.51 0.36
===============================================================================================================
Less distributions:
Dividends from net investment income (0.15) (0.33) (0.17)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.09) (0.02) --
===============================================================================================================
Total distributions (0.24) (0.35) (0.17)
===============================================================================================================
Net asset value, end of period $ 10.55 $ 10.35 $ 10.19
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 4.34% 4.98% 3.65%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 8,376 $ 9,185 $ 3,045
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.75%(c) 1.75% 1.75%(d)
---------------------------------------------------------------------------------------------------------------
Without fee waivers 2.18%(c) 2.19% 3.86%(d)
===============================================================================================================
Ratio of net investment income to average net assets 2.19%(c) 2.32% 2.35%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 181% 284% 215%
_______________________________________________________________________________________________________________
===============================================================================================================
|
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$8,447,585.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly the investment advisor to the INVESCO Funds. IFG continues to serve as the investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of inquiries and litigation related to a wide range of issues, including issues of "market timing" and "late trading." Both AIM and IFG are the subject of a number of such inquiries, as described below.
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against IFG and Raymond R. Cunningham, in his capacity as the chief executive officer of IFG. Mr. Cunningham also currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group Inc. (the parent of AIM) and the position of Senior Vice President of AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against IFG. Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that IFG had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all
FS-174
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief, civil monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing and other related issues concerning the INVESCO Funds. These regulators include the Florida Department of Financial Services, the Commissioner of Securities for the State of Georgia, the Office of the State Auditor for the State of West Virginia, the Office of the Secretary of State for West Virginia, the Department of Banking for the State of Connecticut and the Colorado Securities Division. IFG has also received more limited inquiries concerning related matters from the United States Department of Labor, NASD Inc. and the SEC, none of which directly bears upon the Fund. IFG is providing full cooperation with respect to these inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or written requests for information from various regulators concerning market timing activity, late trading, fair value pricing, and related issues concerning the AIM Funds. AIM has received requests for information and documents concerning these and related matters from the SEC, the Massachusetts Secretary of the Commonwealth, the Office of the State Auditor for the State of West Virginia and the Department of Banking for the State of Connecticut. In addition, AIM has received subpoenas concerning these and related matters from the NYAG, the United States Attorney's Office for the District of Massachusetts, the Commissioner of Securities for the State of Georgia and the Office of the Secretary of State for West Virginia. AIM has also received more limited inquiries from the SEC and NASD, Inc. concerning specific funds, entities and/or individuals, none of which directly bears upon the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against IFG alleging market timing and the ongoing market timing investigations with respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these matters, that shareholders were not always effectively protected from the potential adverse impact of market timing and illegal late trading through intermediaries. These findings were based, in part, on an extensive economic analysis by outside experts who have been retained by AMVESCAP to examine the impact of these activities. In light of these findings, AMVESCAP has publicly stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities will receive full restitution. AMVESCAP has informed regulators of these findings. In addition, AMVESCAP has retained outside counsel to undertake a comprehensive review of AIM's and IFG's policies, procedures and practices, with the objective that they rank among the most effective in the fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory settlement with the regulators, or that any such settlement will not include terms which would have the effect of barring either or both of IFG and AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company including the Fund. The Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as the Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. Any settlement with the regulators could also include terms which would bar Mr. Cunningham from serving as an officer or director of any registered investment company.
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., AMVESCAP, certain
related entities and certain of their officers, including Mr. Cunningham). The
allegations in the majority of the lawsuits are substantially similar to the
allegations in the regulatory complaints against IFG described above. Certain
other lawsuits allege that certain AIM and INVESCO Funds inadequately employed
fair value pricing. Such lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and
(iv) breach of contract. The lawsuits have been filed in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements with AIM; declaration that the
advisory agreement is unenforceable or void; refund of advisory fees; interest;
and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that all actions alleging market timing throughout the mutual fund industry should be transferred to the United States District Court for the District of Maryland for coordinated pre-trial proceedings. Twelve actions filed against IFG have been conditionally transferred to the Panel in Maryland, and IFG and AIM anticipate that all other market timing actions that may be filed or that are already pending against IFG and/or AIM will be transferred to the Panel as well.
Additional lawsuits or regulatory actions arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds might react by redeeming their investments. This might require the Funds to sell investments to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of the matters described above may have on the Fund or AIM.
FS-175
PART C
OTHER INFORMATION
Item 23. Exhibits
a (1) - (a) Amended and Restated Agreement and Declaration of Trust of
Registrant, dated May 15, 2002.(14)
- (b) Amendment No. 1, dated June 11, 2002, to the Amended and
Restated Agreement and Declaration of Trust, dated
May 15, 2002.(15)
- (c) Amendment No. 2, dated August 8, 2002, to the Amended and
Restated Agreement and Declaration of Trust, dated
May 15, 2002.(16)
- (d) Amendment No. 3, dated May 14, 2003, to the Amended and
Restated Agreement and Declaration of Trust, dated
May 15, 2002.(18)
- (e) Amendment No. 4, dated June 23, 2003, to the Amended and
Restated Agreement and Declaration of Trust, dated
May 15, 2002.(18)
- (f) Amendment No. 5, dated June 11, 2003, to the Amended and
Restated Agreement and Declaration of Trust, dated
May 15, 2002.(19)
- (g) Amendment No. 6, dated July 30, 2003, to the Amended and
Restated Agreement and Declaration of Trust, dated
May 15, 2002.(19)
- (h) Amendment No. 7, dated November 24, 2003, to the Amended and
Restated Agreement and Declaration of Trust, dated
May 15, 2002.(21)
- (i) Amendment No. 8, dated December 10, 2003, to the Amended and
Restated Agreement and Declaration of Trust, dated
May 15, 2002.(21)
- (j) Amendment No. 9, dated February 19, 2004, to the Amended and
Restated Agreement and Declaration of Trust, dated
May 15, 2002.(21)
b - Amended and Restated Bylaws of Registrant, adopted effective
May 15, 2002.(14)
c - Articles II, VI, VII, VIII and IX of the Amended and Restated
Agreement and Declaration of Trust, as amended, and Articles IV, V
and VI of the Amended and Restated Bylaws 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 the Master
Investment Advisory Agreement, dated June 1, 2000.(13)
- (c) Amendment No. 2, dated August 29, 2002, to the Master
Investment Advisory Agreement, dated June 1, 2000.(18)
- (d) Amendment No. 3, dated June 23, 2003, to the Master Investment
Advisory Agreement, dated June 1, 2000.(18)
- (e) Amendment No. 4, dated October 29, 2003, to the Master
Investment Advisory Agreement, dated June 1, 2000.(21)
|
(2) - Master Intergroup Sub-Advisory contract for Mutual Funds, dated
October 29, 2003, between A I M Advisors, Inc. and INVESCO
Institutional (N.A.), Inc. on behalf of AIM Real Estate Fund.(21)
e (1) - (a) Amended and Restated Master Distribution Agreement (all
Classes of Shares except Class B shares), dated August 18, 2003,
between Registrant and A I M Distributors, Inc.(20)
- (b) Amendment No. 1, dated October 29, 2003, to the Amended and
Restated Master Distribution Agreement (all Classes of Shares
except Class B shares), dated August 18, 2003, between Registrant
and A I M Distributors, Inc.(21)
- (c) Amendment No. 2, dated November 4, 2003, to the Amended and
Restated Master Distribution Agreement (all Classes of Shares
except Class B shares), dated August 18, 2003, between Registrant
and A I M Distributors, Inc.(21)
- (d) Amendment No. 3, dated November 20, 2003, to the Amended and
Restated Master Distribution Agreement (all Classes of Shares
except Class B shares), dated August 18, 2003, between Registrant
and A I M Distributors, Inc.(21)
|
- (e) Amendment No. 4, dated November 24, 2003, to the Amended and Restated Master Distribution Agreement (all Classes of Shares except Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(21)
- (f) Amendment No. 5, dated November 25, 2003, to the Amended and Restated Master Distribution Agreement (all Classes of Shares except Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(21)
- (g) Amendment No. 6, dated January 6, 2004, to the Amended and Restated Master Distribution Agreement (all Classes of Shares except Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(22)
- (h) Amendment No. 7, dated March 31, 2004, to the Amended and Restated Master Distribution Agreement (all Classes of Shares except Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc. (22)
(i) Amendment No. 8, dated April 30, 2004, to the Amended and Restated Master Distribution Agreement (all Classes of Shares except Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(22)
(2) - (a) Amended and Restated Master Distribution Agreement (Class B
shares) dated August 18, 2003, between Registrant and A I M
Distributors, Inc.(20)
- (b) Amendment No. 1, dated October 1, 2003, to the Amended and
Restated Master Distribution Agreement (Class B shares), dated
August 18, 2003, between Registrant and A I M Distributors,
Inc.(21)
- (c) Amendment No. 2, dated October 29, 2003, to the Amended and
Restated Master Distribution Agreement (Class B shares), dated
August 18, 2003, between Registrant and A I M Distributors,
Inc.(21)
|
- (d) Amendment No. 3, dated November 3, 2003, to the Amended and Restated Master Distribution Agreement (Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(21)
- (e) Amendment No. 4, dated November 4, 2003, to the Amended and Restated Master Distribution Agreement (Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(21)
- (f) Amendment No. 5, dated November 20, 2003, to the Amended and Restated Master Distribution Agreement (Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(21)
- (g) Amendment No. 6, dated November 24, 2003, to the Amended and Restated Master Distribution Agreement (Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(21)
- (h) Amendment No. 7, dated November 25, 2003, to the Amended and Restated Master Distribution Agreement (Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(21)
(i) Amendment No. 8, dated March 31, 2004, to the Amended and Restated Master Distribution Agreement (Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(22)
(j) Amendment No. 9, dated April 30, 2004, to the Amended and Restated Master Distribution Agreement (Class B shares), dated August 18, 2003, between Registrant and A I M Distributors, Inc.(22)
(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 March 7, 2000, September 28, 2001 and September 26,
2002.(18)
g (1) - (a) Second Amended and Restated Custody Agreement, dated June 16,
1987, between Short-Term Investments Co. (on behalf of its Limited
Maturity Treasury Portfolio) and The Bank of New York.(3)
- (b) Amendment, dated May 17, 1993, to Second Amended and Restated
Custody Agreement, dated June 16, 1987, between Short-Term
Investments Co. (on behalf of its Limited Maturity Treasury
Portfolio) and The Bank of New York.(3)
- (c) Assignment and Acceptance of Assignment of Custody Agreement,
dated October 15, 1993, between Registrant (on behalf of its
Limited Maturity Treasury Portfolio) and Short-Term Investments
Co. (on behalf of its Limited Maturity Treasury Portfolio).(3)
- (d) Letter Agreement, dated June 1, 2000, between Registrant (on
behalf of its AIM Municipal Bond Fund) and The Bank of New
York.(10)
- (e) Letter Agreement, dated August 30, 2000, between Registrant
(on behalf of its AIM Money Market Fund) and The Bank of New
York.(10)
|
(2) - (a) Master Custodian Contract, dated May 1, 2000, between
Registrant (on behalf of AIM High Yield Fund, AIM Income Fund, AIM
Intermediate Government Fund, AIM Short Term Bond Fund and AIM
Total Return Bond Fund) and State Street Bank and Trust
Company.(10)
- (b) Amendment, dated May 1, 2000, to Custodian Contract, dated
May 1, 2000, between Registrant (on behalf of its AIM High Yield
Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Short
Term Bond Fund and AIM Total Return Bond Fund) and State Street
Bank and Trust Company.(10)
- (c) Amendment, dated June 29, 2001, to the Custodian Contract,
dated May 1, 2000, between Registrant (on behalf of its AIM High
Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM
Short Term Bond Fund and AIM Total Return Bond Fund) and State
Street Bank and Trust Company.(12)
- (d) Amendment dated April 2, 2002, to the Custodian Contract,
dated May 1, 2000, between Registrant (on behalf of AIM High Yield
Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Short
Term Bond Fund and AIM Total Return Bond Fund) and State Street
Bank and Trust Company.(15)
(3) - (a) 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)
- (b) Amendment No. 1, dated October 2, 1998, to the Subcustodian
Agreement with Texas Commerce Bank, dated September 9, 1994, among
Chase Bank of Texas, N.A. (formerly Texas Commerce Bank) , State
Street Bank and Trust Company, A I M Fund Services, Inc. and
Registrant.(8)
- (c) Amendment No. 2, dated March 15, 2002, to the Subcustodian
Agreement with Texas Commerce Bank National Association, dated
September 9, 1994, among J P Morgan Chase Bank (formerly known as
The Chase Manhattan Bank, successor-in-interest by merger to Chase
Bank of Texas, N.A.), State Street Bank and Trust Company, A I M
Fund Services, Inc. and Registrant.(17 )
(4) - Foreign Assets Delegation Agreement, dated May 31, 2002, between A
I M Advisors, Inc. and Registrant.(12)
h (1) - (a) Amended and Restated Transfer Agency and Service Agreement,
dated December 29, 1997, between Registrant and A I M Fund
Services, Inc., now known as AIM Investment Services, Inc.(5)
|
- (b) 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., now known as AIM Investment Services, Inc.(7)
- (c) 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., now known as AIM Investment Services, Inc.(7)
- (d) 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., now known as AIM Investment Services, Inc.(10)
- (e) Amendment No. 4, dated January 1, 2002, to the Amended and Restated Transfer Agency and Service Agreement, dated December 29, 1997, between Registrant and A I M Fund Services, Inc., now known as AIM Investment Services, Inc.(14)
- (f) Amendment No. 5, dated March 4, 2002, to the Amended and Restated Transfer Agency and Service Agreement, dated December 29, 1997, between Registrant and A I M Fund Services, Inc., now known as AIM Investment Services, Inc.(14)
- (g) Amendment No. 6, dated October 31, 2002, to the Amended and Restated Transfer Agency and Service Agreement, dated December 29, 1997, between Registrant and A I M Fund Services, Inc., now known as AIM Investment Services, Inc.(17)
- (h) Amendment No. 7, dated May 14, 2003, to the Amended and Restated Transfer Agency and Service Agreement, dated December 29, 1997, between Registrant and A I M Fund Services, Inc., now known as AIM Investment Services, Inc.(18)
- (i) Amendment No. 8, dated June 11, 2003, to the Amended and Restated Transfer Agency and Service Agreement, dated December 29, 1997, between Registrant and A I M Fund Services, Inc., now known as AIM Investment Services, Inc.(18)
(2) - (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 the Master
Administrative Services Agreement, dated June 1, 2000.(11)
- (c) Amendment No. 2, dated December 28, 2001, to the Master
Administrative Services Agreement, dated June 1, 2000.(13)
- (d) Amendment No. 3, dated August 29, 2002, to the Master
Administrative Services Agreement, dated June 1, 2000.(18)
- (e) Amendment No. 4, dated June 23, 2003, to the Master
Administrative Services Agreement, dated June 1, 2000.(18)
- (f) Amendment No. 5, dated October 29, 2003, to the Master
Administrative Services Agreement, dated June 1, 2000.(21)
(3) - Memorandum of Agreement, dated June 1, 2000, regarding securities
lending, between Registrant, with respect to all Funds, and A I M
Advisors, Inc.(10)
(4) - Memorandum of Agreement, dated July 1, 2003, regarding fee
waivers, between Registrant and A I M Advisors, Inc. (on behalf of
AIM Short Term Bond Fund and AIM Total Return Bond Fund).(18)
(5) - Memorandum of Agreement, dated July 1, 2003, between Registrant
and A I M Distributors, Inc. (on behalf of AIM Short Term Bond
Fund and AIM Total Return Bond Fund).(18)
(6) - Memorandum of Agreement, dated July 1, 2003, between Registrant
(on behalf of each Fund's Institutional Class) and A I M Fund
Services, Inc.(18)
(7) - Interfund Loan Agreement, dated September 18, 2001, between
Registrant and A I M Advisors, Inc.(11)
(8) - Agreement and Plan of Reorganization, dated July 30, 2003, between
Registrant and AIM Advisor Funds previously filed with the Proxy
Statement of AIM Advisor Funds on August 1, 2003 is hereby
incorporated by reference.
|
(9) - Expense Reimbursement Agreement Related to DST Transfer Agent
System Conversion dated June 30, 2003.(22)
i - None
j (1) - Consent of Ballard Spahr Andrews & Ingersoll, LLP(22)
(2) - Consent of Dechert LLP.(20)
(3) - Consent of Ernst & Young.(22)
k - Omitted Financial Statements - None.
l (1) - Initial Capitalization Agreement for Registrant's AIM Total Return
Bond Fund.(13)
(2) - Initial Capitalization Agreement for Registrant's AIM Short Term
Bond Fund.(17)
m (1) - (a) Amended and Restated Master Distribution Plan (Class A
Shares), effective as of August 18, 2003.(20)
- (b) Amendment No. 1, dated October 29, 2003, to Registrant's
Amended and Restated Master Distribution Plan (Class A
Shares).(21)
- (c) Amendment No. 2, dated November 4, 2003, to Registrant's
Amended and Restated Master Distribution Plan (Class A
Shares).(21)
- (d) Amendment No. 3, dated November 20, 2003, to Registrant's
Amended and Restated Master Distribution Plan (Class A
Shares).(21)
- (e) Amendment No. 4, dated November 24, 2003, to Registrant's
Amended and Restated Master Distribution Plan (Class A
Shares).(21)
- (f) Amendment No. 5, dated November 25, 2003, to Registrant's
Amended and Restated Master Distribution Plan (Class A
Shares).(21)
|
- (g) Amendment No. 6, dated March 31,, 2004, to the Amended and Restated Master Distribution Plan (Class A Shares). (22)
(h) Amendment No. 7, dated April 30, 2004, to the Amended and Restated Master Distribution Plan (Class A Shares).(22)
(2) - Amended and Restated Master Distribution Plan (AIM Cash Reserves
Shares), effective August 18, 2003.(20)
(3) - Amended and Restated Master Distribution Plan (Class A3 Shares),
effective August 18, 2003.(20)
(4) - (a) Amended and Restated Master Distribution Plan (Class B Shares)
(Securitization Feature), effective as of August 18, 2003.(20)
- (b) Amendment No. 1, dated October 29, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class B Shares)
(Securitization Feature).(21)
(c) Amendment No. 2, dated November 4, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class B Shares)
(Securitization Feature).(21)
|
- (d) Amendment No. 3, dated November 20, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class B Shares)
(Securitization Feature).(21)
- (e) Amendment No. 4, dated November 24, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class B Shares)
(Securitization Feature).(21)
(f) Amendment No. 5, dated November 25, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class B Shares)
(Securitization Feature).(21)
(g) Amendment No. 6, dated March 31, 2004, to the Registrant's
Amended and Restated Master Distribution Plan (Class B Shares)
(Securitization Feature).(22)
(i) Amendment No. 7, dated April 30, 2004, to the Registrant's
Amended and Restated Master Distribution Plan (Class B Shares)
(Securitization Feature).(22)
(5) - (a) Amended and Restated Master Distribution Plan (Class C
Shares), effective as of August 18, 2003.(20)
- (b) Amendment No. 1, dated October 29, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class C
Shares).(21)
- (c) Amendment No. 2, dated November 4, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class C
Shares).(21)
- (d) Amendment No. 3, dated November 20, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class C
Shares).(21)
- (e) Amendment No. 4, dated November 24, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class C
Shares).(21)
- (f) Amendment No. 5, dated November 25, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class C
Shares).(21)
- (g) Amendment No. 6, dated March 31, 2004, to the Amended and
Restated Master Distribution Plan (Class C Shares). (22)
|
(h) Amendment No. 7, dated April 30, 2004, to the Amended and Restated Master Distribution Plan (Class C Shares).(22)
(6) - (a) Amended and Restated Master Distribution Plan (Class R
shares), effective as of August 18, 2003.(20)
- (b) Amendment No. 1, dated November 4, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class R
Shares).(21)
- (c) Amendment No. 2, dated November 24, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class R
Shares).(21)
- (d) Amendment No. 3, dated November 25, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Class R
Shares).(21)
- (e) Amendment No. 4, dated April 30, 2004, to the Amended and
Restated Master Distribution Plan (Class R Shares). (22)
|
(7) - (a) Amended and Restated Master Distribution Plan (Investor Class
Shares), effective as of August 18, 2003. (20)
- (b) Amendment No. 1, dated October 29, 2003 to the Registrant's
Amended and Restated Master Distribution Plan (Investor Class
Shares).(21)
- (c) Amendment No. 2, dated November 25, 2003, to the Registrant's
Amended and Restated Master Distribution Plan (Investor Class
Shares).(21)
(8) - Form of Master Related Agreement to Amended and Restated Master
Distribution Plan (Class A Shares).(19)
(9) - Form of Master Related Agreement to Amended and Restated Master
Distribution Plan (AIM Cash Reserve Shares).(19)
(10) - Form of Master Related Agreement to Amended and Restated Master
Distribution Plan (Class A3 Shares).(19)
(11) - Form of Master Related Agreement to Amended and Restated Master
Distribution Plan (Class C Shares).(19)
(12) - Form of Master Related Agreement to Amended and Restated Master
Distribution Plan (Class R Shares).(19)
(13) - Form of Master Related Agreement to Amended and Restated Master
Distribution Plan (Investor Class Shares).(19)
n - Fourth Amended and Restated Multiple Class Plan of The AIM Family
of Funds--Registered Trademark-- effective December 12, 2001, as
amended and restated March 4, 2002, as amended and restated
October 31, 2002, as further amended and restated July 21, 2003
and as further amended and restated effective August 18, 2003.(19)
o - Reserved.
p (1) - The A I M Management Group Inc. Code of Ethics adopted May 1,
1981, as last amended June 10, 2003, relating to A I M Management
Group Inc. and A I M Advisors, Inc. and its wholly owned and
indirect subsidiaries.(18)
(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) Incorporated herein by reference to Post-Effective Amendment No. 17, filed electronically on December 21, 2001.
(14) Incorporated herein by reference to Post-Effective Amendment No. 18, filed electronically on May 22, 2002.
(15) Incorporated herein by reference to Post-Effective Amendment No. 19, filed electronically on June 13, 2002.
(16) Incorporated herein by reference to Post-Effective Amendment No. 20, filed electronically on August 28, 2002.
(17) Incorporated herein by reference to Post-Effective Amendment No. 21, filed electronically on November 20, 2002.
(18) Incorporated herein by reference to Post-Effective Amendment No. 22, filed electronically on July 7, 2003.
(19) Incorporated herein by reference to Post-Effective Amendment No. 23, filed electronically on August 28, 2003.
(20) Incorporated herein by reference to Post-Effective Amendment No. 24, filed electronically on October 28, 2003.
(21) Incorporated herein by reference to Post Effective Amendment No. 25, filed electronically on March 1, 2004.
(22) Filed herewith electronically.
Item 24. Persons Controlled by or Under Common Control With the Fund
None.
Item 25. Indemnification
The Registrant's Amended and Restated Agreement and Declaration of Trust, dated May 15, 2002, as amended, provides, among other things (i) that trustees and officers of the Registrant, when acting as such, shall not be personally liable for any act, omission or obligation of the Registrant or any trustee or officer (except for liabilities to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of duty); (ii) for the indemnification by the Registrant of the trustees, officers, employees and agents of the Registrant to the fullest extent permitted by the Delaware Statutory Trust Act and Bylaws and other applicable law; (iii) that shareholders of the Registrant shall not be personally liable for the debts, liabilities, obligations or expenses of the Registrant or any portfolio or class; and (iv) for the indemnification by the Registrant, out of the assets belonging to the applicable portfolio, of shareholders and former shareholders of the Registrant in case they are held personally liable solely by reason of being or having been shareholders of the Registrant or any portfolio or class and not because of their acts or omissions or for some other reason.
A I M Advisors, Inc. ("AIM"), the Registrant and other investment companies managed by AIM, their respective officers, trustees, directors and employees (the "Insured Parties") are insured under a joint Mutual Fund and Investment Advisory Professional and Directors and Officers Liability Policy, issued by ICI Mutual Insurance Company, with a $35,000,000 limit of liability.
Section 16 of the Master Investment Advisory Agreement between the Registrant and AIM provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of AIM or any of its officers, directors or employees, that AIM shall not be subject to liability to the Registrant or to any series of the Registrant, or to any shareholder of any series of the Registrant for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. Any liability of AIM to any series of the Registrant shall not automatically impart liability on the part of AIM to any other series of the Registrant. No series of the Registrant shall be liable for the obligations of any other series of the Registrant.
Section 7 of the Master Intergroup Sub-Advisory Contract For Mutual Funds between AIM and INVESCO Institutional (N.A.), Inc. (the "Sub-Advisory Contract") provides that the Sub-advisor shall not be liable for any costs or liabilities arising from any error of judgment or mistake of law or any loss suffered by any series of the Registrant or the Registrant in connection with the matters to which the Sub-Advisory Contract relates except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Sub-advisor in the performance by the Sub-advisor of its duties or from reckless disregard by the Sub-advisor of its obligations and duties under the Sub-Advisory Contract.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in connection with the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the shares being registered hereby, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Advisor
The only employment of a substantial nature of the Advisor's directors and officers is with the Advisor and its affiliated companies. For information as to the business, profession, vocation or employment of a substantial nature of the officers and directors of INVESCO Institutional (N.A.), Inc., reference is made to Form ADV filed under the Investment Advisers Act of 1940 by INVESCO Institutional (N.A.), Inc., herein incorporated by reference. Reference is also made to the caption "Fund Management - The Advisor" in the Prospectus which comprises Part A of the Registration Statement, and to the caption "Investment Advisory and Other Services" of the Statements of Additional Information which comprise Part B of the Registration Statement, and to Item 27(b) of this Part C.
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 Combination Stock & Bond Funds AIM Investment Funds AIM Counselor Series Trust AIM Sector Funds AIM Equity Funds AIM Special Opportunities Funds AIM Floating Rate Fund AIM Stock Funds AIM Funds Group AIM Summit Fund AIM Growth Series AIM Tax-Exempt Funds AIM International Mutual 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 Positions and Offices with Positions and Offices
Business Address* Underwriter with Registrant
---------------------- ---------------------------------- -----------------------------------
Gene L. Needles Chairman, Director, President & None
Chief Executive Officer
Mark H. Williamson Director Trustee & Executive Vice President
John S. Cooper Executive Vice President None
Marilyn M. Miller Executive Vice President None
James L. Salners Executive Vice President None
James E. Stueve Executive Vice President None
Raymond R. Cunningham Senior Vice President None
Glenda A. Dayton Senior Vice President None
Gary K. Wendler Senior Vice President None
Stephen H. Bitteker First Vice President None
Kevin M. Carome Vice President Senior Vice President & Chief Legal
Officer
Mary A. Corcoran Vice President None
Sidney M. Dilgren Vice President Vice President & Treasurer
Dawn M. Hawley Vice President & Treasurer None
Ofelia M. Mayo Vice President, General Counsel & Assistant Secretary
Assistant Secretary
Kim T. McAuliffe Vice President None
Linda L. Warriner Vice President None
Rebecca Starling-Klatt Assistant Vice President & Chief None
Compliance Officer
Kathleen J. Pflueger Secretary Assistant Secretary
|
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
(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 Income Fund, AIM Intermediate Government Fund, AIM Short Term Bond Fund and AIM Total Return Bond Fund and the Registrant's Transfer Agent and Dividend Paying Agent, AIM Investment Services, Inc. (formerly, A I M Fund Services, Inc.), P.O. Box 4739, Houston, Texas 77210-4739.
Item 29. Management Services
None.
Item 30. Undertakings
Not applicable.
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 26th day of April, 2004.
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 April 27, 2004
----------------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ Bob R. Baker* Trustee April 27, 2004
-----------------------------------
(Bob R. Baker)
/s/ Frank S. Bayley* Trustee April 27, 2004
-----------------------------------
(Frank S. Bayley)
/s/ James T. Bunch* Trustee April 27, 2004
-----------------------------------
(James T. Bunch)
/s/ Bruce L. Crockett* Trustee April 27, 2004
-----------------------------------
(Bruce L. Crockett)
/s/ Albert R. Dowden* Trustee April 27, 2004
-----------------------------------
(Albert R. Dowden)
/s/ Edward K. Dunn, Jr.* Trustee April 27, 2004
-----------------------------------
(Edward K. Dunn, Jr.)
/s/ Jack M. Fields* Trustee April 27, 2004
-----------------------------------
(Jack M. Fields)
/s/ Carl Frischling* Trustee April 27, 2004
-----------------------------------
(Carl Frischling)
/s/ Gerald J. Lewis* Trustee April 27, 2004
-----------------------------------
(Gerald J. Lewis)
/s/ Prema Mathai-Davis* Trustee April 27, 2004
-----------------------------------
(Prema Mathai-Davis)
/s/ Lewis F. Pennock* Trustee April 27, 2004
-----------------------------------
(Lewis F. Pennock)
/s/ Ruth H. Quigley* Trustee April 27, 2004
-----------------------------------
(Ruth H. Quigley)
|
/s/ Louis S. Sklar* Trustee April 27, 2004
-----------------------------------
(Louis S. Sklar)
/s/ Larry Soll* Trustee April 27, 2004
-----------------------------------
(Larry Soll)
/s/ Mark H. Williamson* Trustee & April 27, 2004
----------------------------------- Executive Vice President
(Mark H. Williamson)
/s/ Sidney M. Dilgren Vice President & Treasurer April 27, 2004
----------------------------------- (Principal Financial and
(Sidney M. Dilgren) Accounting Officer)
*By /s/ Robert H. Graham
-------------------------------
Robert H. Graham
Attorney-in-Fact
|
* Original Powers of Attorney authorizing Robert H. Graham and Kevin M. Carome, and each of them, to execute this Registration Statement of the Registrant on behalf of the above-named trustees and officers of the Registrant (with the exception of Bob R. Baker, James T. Bunch, Gerald J. Lewis and Larry Soll) have been filed with the Securities and Exchange Commission with the Registration Statement of AIM Variable Insurance Funds on Form N-14 on December 31, 2003 and original Powers of Attorney for Bob R. Baker, James T. Bunch, Gerald J. Lewis and Larry Soll have been filed with the Securities and Exchange Commission with the Registration Statement of INVESCO Variable Investment Funds, Inc. on Form N-14 on December 31, 2003 and hereby are incorporated by reference.
INDEX
Exhibit
Number Description
------- -----------------------------------------------------------------
e(1)(g) Amendment No. 6, dated January 6, 2004, to the Amended and
Restated Master Distribution Agreement (all classes of shares
except Class B shares), dated August 18, 2003, between Registrant
and A I M Distributors, Inc.
e(1)(h) Amendment No. 7, dated March 31, 2004, to the Amended and
Restated Master Distribution Agreement (all classes of shares
except Class B shares), dated August 18, 2003, between Registrant
and A I M Distributors, Inc.
e(1)(i) Amendment No. 8, dated April 30, 2004, to the Amended and
Restated Master Distribution Agreement (all classes of shares
except Class B shares), dated August 18, 2003, between Registrant
and A I M Distributors, Inc.
e(2)(i) Amendment No. 8, dated March 31, 2004, to the Amended and
Restated Master Distribution Agreement (Class B shares), dated
August 18, 2003, between Registrant and A I M Distributors, Inc.
e(2)(j) Amendment No. 9, dated April 30, 2004, to the Amended and
Restated Master Distribution Agreement (Class B shares), dated
August 18, 2003, between Registrant and A I M Distributors, Inc.
h(9) Expense Reimbursement Agreement Related to DST Transfer Agent
System Conversion dated June 30, 2003.
j(1) Consent of Ballard Spahr Andrews & Ingersoll, LLP
j(3) Consent of Ernst & Young LLP
|
m(1)(g) Amendment No. 6, dated March 31, 2004, to the Amended and
Restated Master Distribution Plan (Class A Shares)
m(1)(h) Amendment No. 7, dated April 30, 2004, to the Amended and
Restated Master Distribution Plan (Class A Shares)
m(4)(g) Amendment No. 6, dated March 31, 2004, to the Registrant's
Amended and Restated Master Distribution Plan (Class B Shares)
(Securitization Feature)
m(4)(i) Amendment No. 7, dated April 30, 2004, to the Registrant's
Amended and Restated Master Distribution Plan (Class B Shares)
(Securitization Feature)
m(5)(g) Amendment No. 6, dated March 31, 2004, to the Amended and
Restated Master Distribution Plan (Class C Shares)
m(5)(h) Amendment No. 7, dated April 30, 2004, to the Amended and
Restated Master Distribution Plan (Class C Shares)
m(6)(e) Amendment No. 4, dated April 30, 2004, to the Amended and
Restated Master Distribution Plan (Class R Shares)
|
AMENDMENT NO. 6
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(ALL CLASSES OF SHARES EXCEPT CLASS B SHARES)
The Amended and Restated Master Distribution Agreement (all Classes of shares except Class B Shares) (the "Agreement") made as of the 18th day of August, 2003, by and between each registered investment company set forth on Schedule A to the Agreement (each individually referred to as "Fund", or collectively, "Funds"), severally, on behalf of each of its series of common stock or beneficial interest, as the case may be, set forth on Schedule A to the Agreement, (each, a "Portfolio"), with respect to each class of shares except Class B Shares (the "Shares") of each Portfolio, and A I M DISTRIBUTORS, INC., a Delaware corporation (the "Distributor") is hereby amended as follows:
The Agreement is amended (1) effective August 18, 2003, with respect to the Portfolios of AIM Growth Series, AIM Investment Funds, AIM Investment Securities Funds and AIM Special Opportunities Funds and (2) effective January 6, 2004, with respect to the Portfolios of AIM Combination Stock & Bond Funds, AIM Counselor Series Trust, AIM Equity Funds, AIM Funds Group, AIM International Mutual Funds, AIM Sector Funds, AIM Stock Funds and AIM Tax-Exempt Funds and AIM Treasurer's Series Trust (AIM Stable Value Fund only) by adding the following sentence as the last sentence of Section FIFTH of the Agreement:
"The Distributor or such other investment dealers or financial institutions will be deemed to have performed all services required to be performed in order to be entitled to receive the asset based sales charge portion of any amounts payable with respect to Class A, Class A3, Class C, Class K, Class R and Investor Class Shares to the Distributor pursuant to a distribution plan adopted by the Fund on behalf of each Portfolio pursuant to Rule 12b-1 under the 1940 Act upon the settlement of each sale of a Class A, Class A3, Class C, Class K, Class R or Investor Class Share (or a share of another portfolio from which such Share derives)."
All other terms and provisions of the Agreement not amended herein shall remain in full force and effect.
Dated: January 6, 2004
EACH FUND (LISTED ON SCHEDULE A) ON BEHALF OF THE
SHARES OF EACH PORTFOLIO LISTED ON SCHEDULE A
By: /s/ ROBERT H. GRAHAM
--------------------------------------------
Robert H. Graham
President
|
A I M DISTRIBUTORS, INC.
By: /s/ GENE L. NEEDLES
--------------------------------------------
Gene L. Needles
President
|
AMENDMENT NO. 7
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(ALL CLASSES OF SHARES EXCEPT CLASS B SHARES)
The Amended and Restated Master Distribution Agreement (all Classes of shares except Class B Shares) (the "Agreement") made as of the 18th day of August, 2003, by and between each registered investment company set forth on Schedule A to the Agreement (each individually referred to as "Fund", or collectively, "Funds"), severally, on behalf of each of its series of common stock or beneficial interest, as the case may be, set forth on Schedule A to the Agreement, (each, a "Portfolio"), with respect to each class of shares except Class B Shares (the "Shares") of each Portfolio, and A I M DISTRIBUTORS, INC., a Delaware corporation (the "Distributor") is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced with the following:
"SCHEDULE A
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(ALL CLASSES OF SHARES EXCEPT CLASS B SHARES)
AIM COMBINATION STOCK & BOND FUNDS
INVESCO Core Equity Fund - Class A
Class C
Class K
Investor Class
INVESCO Total Return Fund - Class A
Class C
Class K
Institutional Class
Investor Class
AIM COUNSELOR SERIES TRUST
INVESCO Advantage Health Sciences Fund - Class A
Class C
INVESCO Multi-Sector Fund - Class A
Class C
AIM EQUITY FUNDS
AIM Aggressive Growth Fund - Class A
Class C
Class R
Institutional Class
AIM Basic Value II Fund - Class A
Class C
|
AIM Blue Chip Fund - Class A
Class C
Class R
Institutional Class
Investor Class
AIM Capital Development Fund - Class A
Class C
Class R
Institutional Class
AIM Charter Fund - Class A
Class C
Class R
Institutional Class
AIM Constellation Fund - Class A
Class C
Class R
Institutional Class
AIM Core Strategies Fund - Class A
Class C
AIM Dent Demographic Trends Fund - Class A
Class C
AIM Diversified Dividend Fund - Class A
Class C
AIM Emerging Growth Fund - Class A
Class C
AIM Large Cap Basic Value Fund - Class A
Class C
Class R
Investor Class
AIM Large Cap Growth Fund - Class A
Class C
Class R
Investor Class
AIM Mid Cap Growth Fund - Class A
Class C
Class R
AIM U.S. Growth Fund - Class A
Class C
|
AIM Weingarten Fund - Class A
Class C
Class R
Institutional Class
AIM FUNDS GROUP
AIM Balanced Fund - Class A
Class C
Class R
Institutional Class
AIM Basic Balanced Fund - Class A
Class C
AIM European Small Company Fund - Class A
Class C
AIM Global Value Fund - Class A
Class C
AIM International Emerging Growth Fund - Class A
Class C
AIM Mid Cap Basic Value Fund - Class A
Class C
AIM Premier Equity Fund - Class A
Class C
Class R
Institutional Class
AIM Select Equity Fund - Class A
Class C
AIM Small Cap Equity Fund - Class A
Class C
Class R
AIM GROWTH SERIES
AIM Basic Value Fund - Class A
Class C
Class R
Institutional Class
AIM Mid Cap Core Equity Fund - Class A
Class C
Class R
Institutional Class
AIM Small Cap Growth Fund - Class A
Class C
Class R
Institutional Class
3
|
AIM Global Equity Fund - Class A
Class C
AIM INTERNATIONAL MUTUAL FUNDS
AIM Asia Pacific Growth Fund - Class A
Class C
AIM European Growth Fund - Class A
Class C
Class R
Investor Class
AIM Global Aggressive Growth Fund - Class A
Class C
AIM Global Growth Fund - Class A
Class C
AIM International Growth Fund - Class A
Class C
Class R
Institutional Class
INVESCO International Core Equity Fund - Class A
Class C
Class R
Investor Class
AIM INVESTMENT FUNDS
AIM Developing Markets Fund - Class A
Class C
AIM Global Health Care Fund - Class A
Class C
AIM Libra Fund - Class A
Class C
AIM Trimark Endeavor Fund - Class A
Class C
Class R
Institutional Class
AIM Trimark Fund - Class A
Class C
Class R
Institutional Class
AIM Trimark Small Companies Fund - Class A
Class C
Class R
Institutional Class
|
AIM INVESTMENT SECURITIES FUNDS
AIM High Yield Fund - Class A
Class C
Investor Class
AIM Income Fund - Class A
Class C
Class R
Investor Class
AIM Intermediate Government Fund - Class A
Class C
Class R
Investor Class
AIM Limited Maturity Treasury Fund - Class A
Class A3
Institutional Class
AIM Money Market Fund - AIM Cash Reserve Shares
Class C
Class R
Investor Class
AIM Municipal Bond Fund - Class A
Class C
Investor Class
AIM Short Term Bond Fund - Class C
AIM Total Return Bond Fund - Class A
Class C
AIM Real Estate Fund - Class A
Class C
Investor Class
AIM SECTOR FUNDS
INVESCO Energy Fund - Class A
Class C
Class K
Investor Class
INVESCO Financial Services Fund - Class A
Class C
Class K
Investor Class
INVESCO Gold & Precious Metals Fund - Class A
Class C
Investor Class
|
INVESCO Health Science Fund - Class A
Class C
Class K
Investor Class
INVESCO Leisure Fund - Class A
Class C
Class K
Investor Class
INVESCO Technology Fund - Class A
Class C
Class K
Institutional Class
Investor Class
INVESCO Utilities Fund - Class A
Class C
Investor Class
AIM SPECIAL OPPORTUNITIES FUNDS
AIM Opportunities I Fund - Class A
Class C
AIM Opportunities II Fund - Class A
Class C
AIM Opportunities III Fund - Class A
Class C
AIM STOCK FUNDS
INVESCO Dynamics Fund - Class A
Class C
Class K
Institutional Class
Investor Class
INVESCO Mid-Cap Growth Fund - Class A
Class C
Class K
Institutional Class
Investor Class
INVESCO Small Company Growth Fund - Class A
Class C
Class K
Investor Class
INVESCO S&P 500 Index Fund - Institutional Class
Investor Class
|
AIM TAX-EXEMPT FUND
AIM High Income Municipal Fund - Class A
Class C
AIM Tax-Exempt Cash Fund - Class A
Investor Class
AIM Tax-Free Intermediate Fund - Class A
Class A3
AIM TREASURER'S SERIES TRUST
INVESCO Stable Value Fund - Class R
Institutional Class
INVESCO U.S. Government Money Fund - Investor Class
|
All other terms and provisions of the Agreement not amended herein shall remain in full force and effect.
Dated: March 31, 2004
EACH FUND (LISTED ON SCHEDULE A) ON BEHALF
OF THE SHARES OF EACH PORTFOLIO LISTED ON
SCHEDULE A
By: /s/ MARK H. WILLIAMSON
-------------------------------------
Mark H. Williamson
Executive Vice President
|
A I M DISTRIBUTORS, INC.
By: /s/ GENE L. NEEDLES
-------------------------------------
Gene L. Needles
President
|
AMENDMENT NO. 8 TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(ALL CLASSES OF SHARES EXCEPT CLASS B SHARES)
The Amended and Restated Master Distribution Agreement (all Classes of shares except Class B Shares) (the "Agreement") made as of the 18th day of August, 2003, by and between each registered investment company set forth on Schedule A to the Agreement (each individually referred to as "Fund", or collectively, "Funds"), severally, on behalf of each of its series of common stock or beneficial interest, as the case may be, set forth on Schedule A to the Agreement, (each, a "Portfolio"), with respect to each class of shares except Class B Shares (the "Shares") of each Portfolio, and A I M DISTRIBUTORS, INC., a Delaware corporation (the "Distributor") is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced with the following:
"SCHEDULE A
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(ALL CLASSES OF SHARES EXCEPT CLASS B SHARES)
AIM COMBINATION STOCK & BOND FUNDS
INVESCO Core Equity Fund - Class A
Class C
Class K
Investor Class
INVESCO Total Return Fund - Class A
Class C
Class K
Institutional Class
Investor Class
AIM COUNSELOR SERIES TRUST
INVESCO Advantage Health Sciences Fund - Class A
Class C
INVESCO Multi-Sector Fund - Class A
Class C
Institutional Class
AIM EQUITY FUNDS
AIM Aggressive Growth Fund - Class A
Class C
Class R
Institutional Class
|
AIM Basic Value II Fund - Class A
Class C
AIM Blue Chip Fund - Class A
Class C
Class R
Institutional Class
Investor Class
AIM Capital Development Fund - Class A
Class C
Class R
Institutional Class
AIM Charter Fund - Class A
Class C
Class R
Institutional Class
AIM Constellation Fund - Class A
Class C
Class R
Institutional Class
AIM Core Strategies Fund - Class A
Class C
AIM Dent Demographic Trends Fund - Class A
Class C
AIM Diversified Dividend Fund - Class A
Class C
AIM Emerging Growth Fund - Class A
Class C
AIM Large Cap Basic Value Fund - Class A
Class C
Class R
Institutional Class
Investor Class
AIM Large Cap Growth Fund - Class A
Class C
Class R
Institutional Class
Investor Class
AIM Mid Cap Growth Fund - Class A
Class C
Class R
Institutional Class
|
AIM U.S. Growth Fund - Class A Class C
AIM Weingarten Fund - Class A
Class C
Class R
Institutional Class
AIM FUNDS GROUP
AIM Balanced Fund - Class A
Class C
Class R
Institutional Class
AIM Basic Balanced Fund - Class A
Class C
Class R
Institutional Class
AIM European Small Company Fund - Class A
Class C
AIM Global Value Fund - Class A
Class C
AIM International Emerging Growth Fund - Class A
Class C
AIM Mid Cap Basic Value Fund - Class A
Class C
Class R
Institutional Class
AIM Premier Equity Fund - Class A
Class C
Class R
Institutional Class
AIM Select Equity Fund - Class A
Class C
AIM Small Cap Equity Fund - Class A
Class C
Class R
AIM GROWTH SERIES
AIM Aggressive Allocation Fund - Class A
Class C
Class R
Institutional Class
|
AIM Basic Value Fund - Class A
Class C
Class R
Institutional Class
AIM Conservative Allocation Fund - Class A
Class C
Class R
Institutional Class
AIM Global Equity Fund - Class A
Class C
Institutional Class
AIM Mid Cap Core Equity Fund - Class A
Class C
Class R
Institutional Class
AIM Moderate Allocation Fund - Class A
Class C
Class R
Institutional Class
AIM Small Cap Growth Fund - Class A
Class C
Class R
Institutional Class
AIM INTERNATIONAL MUTUAL FUNDS
AIM Asia Pacific Growth Fund - Class A
Class C
AIM European Growth Fund - Class A
Class C
Class R
Investor Class
AIM Global Aggressive Growth Fund - Class A
Class C
AIM Global Growth Fund - Class A
Class C
AIM International Growth Fund - Class A
Class C
Class R
Institutional Class
|
INVESCO International Core Equity Fund - Class A
Class C
Class R
Institutional Class
Investor Class
AIM INVESTMENT FUNDS
AIM Developing Markets Fund - Class A
Class C
AIM Global Health Care Fund - Class A
Class C
AIM Libra Fund - Class A
Class C
AIM Trimark Endeavor Fund - Class A
Class C
Class R
Institutional Class
AIM Trimark Fund - Class A
Class C
Class R
Institutional Class
AIM Trimark Small Companies Fund - Class A
Class C
Class R
Institutional Class
AIM INVESTMENT SECURITIES FUNDS
AIM High Yield Fund - Class A
Class C
Institutional Class
Investor Class
AIM Income Fund - Class A
Class C
Class R
Investor Class
AIM Intermediate Government Fund - Class A
Class C
Class R
Investor Class
AIM Limited Maturity Treasury Fund - Class A
Class A3
Institutional Class
|
AIM Money Market Fund - AIM Cash Reserve Shares
Class C
Class R
Institutional Class
Investor Class
AIM Municipal Bond Fund - Class A
Class C
Investor Class
AIM Real Estate Fund - Class A
Class C
Class R
Institutional Class
Investor Class
AIM Short Term Bond Fund - Class A
Class C
Class R
Institutional Class
AIM Total Return Bond Fund - Class A
Class C
Class R
Institutional Class
AIM SECTOR FUNDS
INVESCO Energy Fund - Class A
Class C
Class K
Investor Class
INVESCO Financial Services Fund - Class A
Class C
Class K
Investor Class
INVESCO Gold & Precious Metals Fund - Class A
Class C
Investor Class
INVESCO Health Science Fund - Class A
Class C
Class K
Investor Class
INVESCO Leisure Fund - Class A
Class C
Class K
Investor Class
|
INVESCO Technology Fund - Class A
Class C
Class K
Institutional Class
Investor Class
INVESCO Utilities Fund - Class A
Class C
Investor Class
AIM SPECIAL OPPORTUNITIES FUNDS
AIM Opportunities I Fund - Class A
Class C
AIM Opportunities II Fund - Class A
Class C
AIM Opportunities III Fund - Class A
Class C
AIM STOCK FUNDS
INVESCO Dynamics Fund - Class A
Class C
Class K
Institutional Class
Investor Class
INVESCO Mid-Cap Growth Fund - Class A
Class C
Class K
Institutional Class
Investor Class
INVESCO Small Company Growth Fund - Class A
Class C
Class K
Investor Class
INVESCO S&P 500 Index Fund - Institutional Class
Investor Class
|
AIM TAX-EXEMPT FUNDS
AIM High Income Municipal Fund - Class A
Class C
AIM Tax-Exempt Cash Fund - Class A
Investor Class
AIM Tax-Free Intermediate Fund - Class A
Class A3
|
AIM TREASURER'S SERIES TRUST
INVESCO Stable Value Fund - Class R
Institutional Class
INVESCO U.S. Government Money Fund - Investor Class
|
All other terms and provisions of the Agreement not amended herein shall remain in full force and effect.
Dated: April 30, 2004
EACH FUND (LISTED ON SCHEDULE A) ON BEHALF OF
THE SHARES OF EACH PORTFOLIO LISTED ON
SCHEDULE A
By: /s/ MARK H. WILLIAMSON
----------------------------------------
Mark H. Williamson
Executive Vice President
|
A I M DISTRIBUTORS, INC.
By: /s/ GENE L. NEEDLES
----------------------------------------
Gene L. Needles
President
|
AMENDMENT NO. 8
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(CLASS B SHARES)
The Amended and Restated Master Distribution Agreement (Class B Shares) (the "Agreement") made as of the 18th day of August 2003, by and between each registered investment company set forth on Schedule A-1 and Schedule A-2 to the Agreement (each individually referred to as the "Fund", or collectively, the "Funds"), severally, on behalf of each of its series of common stock or beneficial interest, as the case may be, set forth on Schedule A-1 and Schedule A-2 to the Agreement (each, a "Portfolio"), with respect to the Class B Shares (the "Shares") of each Portfolio, and A I M DISTRIBUTORS, INC., a Delaware corporation (the "Distributor"), is hereby amended as follows:
1. Schedule A-1 and Schedule A-2 to the Agreement are hereby deleted in their entirety and replaced with Schedule A-1 and Schedule A-2 attached to this amendment.
All other terms and provisions of the Agreement not amended hereby shall remain in full force and effect.
Dated: March 31, 2004 EACH FUND LISTED ON SCHEDULE A-1 ON
BEHALF OF THE SHARES OF EACH PORTFOLIO
LISTED ON SCHEDULE A-1
By: /s/ MARK H. WILLIAMSON
---------------------------------
Name: Mark H. Williamson
Title: Executive Vice President
EACH FUND LISTED ON SCHEDULE A-2 ON
BEHALF OF THE SHARES OF EACH PORTFOLIO
LISTED ON SCHEDULE A-2
By: /s/ MARK H. WILLIAMSON
---------------------------------
Name: Mark H. Williamson
Title: Executive Vice President
A I M DISTRIBUTORS, INC.
By: /s/ GENE L. NEEDLES
---------------------------------
Name: Gene L. Needles
Title: President
|
SCHEDULE A-1
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(CLASS B SHARES)
AIM EQUITY FUNDS
PORTFOLIOS
AIM Aggressive Growth Fund
AIM Basic Value II Fund
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Charter Fund
AIM Constellation Fund
AIM Core Strategies Fund
AIM Dent Demographic Trends Fund
AIM Diversified Dividend Fund
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund
AIM Mid Cap Growth Fund
AIM U.S. Growth Fund
AIM Weingarten Fund
AIM FUNDS GROUP
PORTFOLIOS
AIM Balanced Fund
AIM Basic Balanced Fund
AIM European Small Company Fund
AIM Global Value Fund
AIM International Emerging Growth Fund
AIM Mid Cap Basic Value Fund
AIM Premier Equity Fund
AIM Select Equity Fund
AIM Small Cap Equity Fund
AIM GROWTH SERIES
PORTFOLIOS
AIM Basic Value Fund
AIM Global Equity Fund
AIM Mid Cap Core Equity Fund
AIM Small Cap Growth Fund
AIM INTERNATIONAL MUTUAL FUNDS
PORTFOLIOS
AIM Asia Pacific Growth Fund
AIM European Growth Fund
AIM Global Aggressive Growth Fund
AIM Global Growth Fund
AIM International Growth Fund
INVESCO International Core Equity Fund
AIM INVESTMENT FUNDS
PORTFOLIOS
AIM Developing Markets Fund
AIM Global Health Care Fund
AIM Libra Fund
AIM Trimark Endeavor Fund
AIM Trimark Fund
AIM Trimark Small Companies Fund
AIM INVESTMENT SECURITIES FUNDS
PORTFOLIOS
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Real Estate Fund
AIM Total Return Bond Fund
AIM SPECIAL OPPORTUNITIES FUNDS
PORTFOLIOS
AIM Opportunities I Fund
AIM Opportunities II Fund
AIM Opportunities III Fund
AIM TAX-EXEMPT FUNDS
PORTFOLIO
AIM High Income Municipal Fund
SCHEDULE A-2
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(CLASS B SHARES)
AIM COMBINATION STOCK & BOND FUNDS
PORTFOLIOS
INVESCO Core Equity Fund
INVESCO Total Return Fund
AIM COUNSELOR SERIES TRUST
PORTFOLIOS
INVESCO Advantage Health Sciences Fund
INVESCO Multi-Sector Fund
AIM SECTOR FUNDS
PORTFOLIOS
INVESCO Energy Fund
INVESCO Financial Services Fund
INVESCO Gold & Precious Metals Fund
INVESCO Health Sciences Fund
INVESCO Leisure Fund
INVESCO Technology Fund
INVESCO Utilities Fund
AIM STOCK FUNDS
PORTFOLIOS
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
AMENDMENT NO. 9
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(CLASS B SHARES)
The Amended and Restated Master Distribution Agreement (Class B Shares) (the "Agreement") made as of the 18th day of August, 2003, by and between each registered investment company set forth on Schedule A-1 and Schedule A-2 to the Agreement (each individually referred to as the "Fund", or collectively, the "Funds"), severally, on behalf of each of its series of common stock or beneficial interest, as the case may be, set forth on Schedule A-1 and Schedule A-2 to the Agreement (each, a "Portfolio"), with respect to the Class B Shares (the "Shares") of each Portfolio, and A I M DISTRIBUTORS, INC., a Delaware corporation (the "Distributor"), is hereby amended as follows:
1. Schedule A-1 and Schedule A-2 to the Agreement are hereby deleted in their entirety and replaced with Schedule A-1 and Schedule A-2 attached to this amendment.
All other terms and provisions of the Agreement not amended hereby shall remain in full force and effect.
Dated: April 30, 2004
EACH FUND LISTED ON SCHEDULE A-1 ON
BEHALF OF THE SHARES OF EACH PORTFOLIO
LISTED ON SCHEDULE A-1
By: /s/ MARK H. WILLIAMSON
---------------------------------
Name: Mark H. Williamson
Title: Executive Vice President
|
EACH FUND LISTED ON SCHEDULE A-2 ON
BEHALF OF THE SHARES OF EACH PORTFOLIO
LISTED ON SCHEDULE A-2
By: /s/ MARK H. WILLIAMSON
---------------------------------
Name: Mark H. Williamson
Title: Executive Vice President
|
A I M DISTRIBUTORS, INC.
By: /s/ GENE L. NEEDLES
---------------------------------
Name: Gene L. Needles
Title: President
|
SCHEDULE A-1
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(CLASS B SHARES)
AIM EQUITY FUNDS
PORTFOLIOS
AIM Aggressive Growth Fund
AIM Basic Value II Fund
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Charter Fund
AIM Constellation Fund
AIM Core Strategies Fund
AIM Dent Demographic Trends Fund
AIM Diversified Dividend Fund
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund
AIM Mid Cap Growth Fund
AIM U.S. Growth Fund
AIM Weingarten Fund
AIM FUNDS GROUP
PORTFOLIOS
AIM Balanced Fund
AIM Basic Balanced Fund
AIM European Small Company Fund
AIM Global Value Fund
AIM International Emerging Growth Fund
AIM Mid Cap Basic Value Fund
AIM Premier Equity Fund
AIM Select Equity Fund
AIM Small Cap Equity Fund
AIM GROWTH SERIES
PORTFOLIOS
AIM Aggressive Allocation Fund
AIM Basic Value Fund
AIM Conservative Allocation Fund
AIM Mid Cap Core Equity Fund
AIM Moderate Allocation Fund
AIM Small Cap Growth Fund
AIM Global Trends Fund
AIM INTERNATIONAL MUTUAL FUNDS
PORTFOLIOS
AIM Asia Pacific Growth Fund
AIM European Growth Fund
AIM Global Aggressive Growth Fund
AIM Global Growth Fund
AIM International Growth Fund
INVESCO International Core Equity Fund
AIM INVESTMENT FUNDS
PORTFOLIOS
AIM Developing Markets Fund
AIM Global Health Care Fund
AIM Libra Fund
AIM Trimark Fund
AIM Trimark Endeavor Fund
AIM Trimark Small Companies Fund
AIM INVESTMENT SECURITIES FUNDS
PORTFOLIOS
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Total Return Bond Fund
AIM Real Estate Fund
AIM SPECIAL OPPORTUNITIES FUNDS
PORTFOLIOS
AIM Opportunities I Fund
AIM Opportunities II Fund
AIM Opportunities III Fund
AIM TAX-EXEMPT FUNDS
PORTFOLIO
AIM High Income Municipal Fund
SCHEDULE A-2
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION AGREEMENT
(CLASS B SHARES)
AIM COMBINATION STOCK & BOND FUNDS
PORTFOLIOS
INVESCO Core Equity Fund
INVESCO Total Return Fund
AIM COUNSELOR SERIES TRUST
PORTFOLIOS
INVESCO Advantage Health Sciences Fund
INVESCO Multi-Sector Fund
AIM SECTOR FUNDS
PORTFOLIOS
INVESCO Energy Fund
INVESCO Financial Services Fund
INVESCO Gold & Precious Metals Fund
INVESCO Health Sciences Fund
INVESCO Leisure Fund
INVESCO Technology Fund
INVESCO Utilities Fund
AIM STOCK FUNDS
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
EXPENSE REIMBURSEMENT AGREEMENT
RELATED TO DST TRANSFER AGENT SYSTEM CONVERSION
This Expense Reimbursement Agreement (this "Agreement") is made as of the 30th day of June 2003, by and between A I M Fund Services, Inc. ("AFS"), and each of the mutual funds on behalf of each of their respective portfolios listed on Exhibit A, attached hereto (each, a "Fund").
WHEREAS, AFS currently serves and has, at all relevant times, served as the transfer agent for each of the Funds, pursuant to a Transfer Agency and Service Agreement with each Fund (collectively, the "Transfer Agency Agreements"); and
WHEREAS, pursuant to the Transfer Agency Agreements, AFS has agreed to maintain and does maintain all shareholder account records and information for the Funds, and the Funds have agreed to reimburse AFS for certain costs incurred by AFS in the course of performing such services, including, but not limited to, the cost of obtaining licenses to use and the cost of usage of certain record keeping systems and related support systems owned by DST Systems, Inc., and its affiliates (collectively, "DST"); and
WHEREAS, the Funds were made aware of (i) the costs associated with the movement of shareholder account information and related books and records from systems previously used by AFS to perform such services to the DST-owned systems (the "DST system conversion"), and (ii) the cost savings and other benefits that were expected to be realized over the long term by using the DST-owned systems; and
WHEREAS, the Funds determined that it was in the best interests of their shareholders to facilitate the DST system conversion and the use the DST-owned systems by AFS to provide the services contemplated by the Transfer Agency Agreements; and
WHEREAS, the Boards of Directors/Trustees of the Funds have agreed that each of the Funds would reimburse a pro rata share of the costs of the DST system conversion; and
WHEREAS, AFS provided the Funds with periodic reports regarding the project plan and budget related to the DST system conversion, updating cost projections as the project progressed; and
WHEREAS, the DST system conversion is now complete and the final costs related to the project have been compiled;
THEREFORE, the premises considered, AFS and each of the Funds agree on behalf of the portfolios set forth on Exhibit A, severally and not jointly, as follows:
1. Each Fund agrees to reimburse AFS for a pro rata share of the expenses incurred by AFS in connection with the DST system conversion in an aggregate amount, when allocated to all portfolios of the Funds, not to exceed FOUR MILLION SIX HUNDRED FORTY-NINE THOUSAND THREE HUNDRED THIRTY FOUR AND 57/100 DOLLARS ($4,649,334.57), payable in equal installments over thirty-six (36) months. Each month, each portfolio of each Fund shall pay its pro rata portion of the reimbursement, based on each portfolios' number of open billable shareholder accounts for the preceding month. AFS shall submit an invoice to each Fund on the first business day of each month for the amount due by each portfolio. Unless this Agreement is terminated prior to the payment of an invoice, each invoice shall be due and payable by each portfolio of each Fund within thirty (30) days of receipt.
2. The Funds may terminate this Agreement with respect to any portfolio, without penalty, for cause or for convenience, upon notice to AFS.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
A I M FUND SERVICES, INC. ON BEHALF OF EACH OF THE FUNDS:
By: /s/ TONY D. GREEN /s/ KEVIN M. CAROME
------------------------------ -----------------------------------
Name: Tony D. Green Name: Kevin M. Carome
----------------------------- -----------------------------
Title: President Title: Senior Vice President
---------------------------- ----------------------------
|
EXHIBIT A
SCHEDULE OF FUNDS
The following Funds enter into the Agreement on behalf of each of their respective portfolios:
FUND NAME PORTFOLIO NAME
--------- --------------
AIM Advisor Funds AIM International Core Equity Fund
AIM Real Estate Fund
AIM Equity Funds AIM Aggressive Growth Fund
AIM Basic Value II Fund
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Charter Fund
AIM Constellation Fund
AIM Core Strategies Fund
AIM Dent Demographic Trends Fund
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund
AIM Large Cap Core Equity Fund
AIM Large Cap Growth Fund
AIM Mid Cap Growth Fund
AIM U.S. Growth Fund
AIM Weingarten Fund
AIM Floating Rate Fund AIM Floating Rate Fund
AIM Funds Group AIM Balanced Fund
AIM Basic Balanced Fund
AIM European Small Company Fund
AIM Global Utilities Fund
AIM International Emerging Growth Fund
AIM Mid Cap Basic Value Fund
AIM New Technology Fund
AIM Premier Equity Fund
AIM Premier Equity II Fund
AIM Select Equity Fund
AIM Small Cap Equity Fund
AIM Worldwide Spectrum Fund
AIM Growth Series AIM Basic Value Fund
AIM Mid Cap Core Equity Fund
AIM Small Cap Growth Fund
AIM International Funds, Inc. AIM Asia Pacific Growth Fund
AIM European Growth Fund
AIM Global Aggressive Growth Fund
AIM Global Growth Fund
AIM Global Income Fund
AIM International Growth Fund
|
FUND NAME PORTFOLIO NAME
--------- --------------
AIM Investment Funds AIM Developing Markets Fund
AIM Global Biotech Fund
AIM Global Energy Fund
AIM Global Financial Services Fund
AIM Global Health Care Fund
AIM Global Science and Technology Fund
AIM Strategic Income Fund
AIM Investment Securities Funds AIM High Yield Fund
AIM High Yield Fund II
AIM Income Fund
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Short Term Bond Fund
AIM Total Return Bond Fund
AIM Series Trust AIM Global Trends Fund
AIM Special Opportunities Funds AIM Opportunities I Fund
AIM Opportunities II Fund
AIM Opportunities III Fund
AIM Tax-Exempt Funds AIM High Income Municipal Fund
AIM Tax-Exempt Cash Fund
AIM Tax-Free Intermediate Fund
|
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 Statements of Additional Information for the retail and institutional classes of AIM Investment Securities Funds, which are included in Post-Effective Amendment No. 26 to the Registration Statement under the Securities Act of 1933, as amended (No. 33-39519), and Amendment No. 30 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
April 23, 2004
|
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 use of our report dated September 10, 2003, on the financial statements and financial highlights of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Limited Maturity Treasury Fund, AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund, AIM Short Term Bond Fund, and AIM Total Return Bond Fund as of and for the year ended July 31, 2003 in the Post-Effective Amendment Number 26 to the Registration Statement (Form N-1A No. 33-39519).
/s/ Ernst & Young LLP
------------------------------------
Ernst & Young LLP
Houston, Texas
April 21, 2004
|
AMENDMENT NO. 6
TO THE AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS A SHARES)
The Amended and Restated Master Distribution Plan (the "Plan"), dated as of August 18, 2003, pursuant to Rule 12b-1, is hereby amended, effective March 31, 2004, as follows:
Schedule A to the Plan is hereby deleted in its entirety and replaced with the following:
"SCHEDULE A
TO
THE AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS A SHARES)
(DISTRIBUTION AND SERVICE FEES)
The Fund shall pay the Distributor as full compensation for all services rendered and all facilities furnished under the Distribution Plan for the Class A Shares of each Portfolio designated below, a Distribution Fee* and a Service Fee determined by applying the annual rate set forth below as to the Class A Shares of each Portfolio to the average daily net assets of the Class A Shares of the Portfolio for the plan year. Average daily net assets shall be computed in a manner used for the determination of the offering price of the Class A Shares of the Portfolio.
MINIMUM
ASSET
AIM COMBINATION STOCK & BOND FUNDS BASED MAXIMUM MAXIMUM
---------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
INVESCO Core Equity Fund 0.10% 0.25% 0.35%
INVESCO Total Return Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM COUNSELOR SERIES TRUST BASED MAXIMUM MAXIMUM
-------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
INVESCO Advantage Health Sciences Fund 0.10% 0.25% 0.35%
INVESCO Multi-Sector Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Aggressive Growth Fund 0.00% 0.25% 0.25%
AIM Basic Value II Fund 0.10% 0.25% 0.35%
AIM Blue Chip Fund 0.10% 0.25% 0.35%
AIM Capital Development Fund 0.10% 0.25% 0.35%
AIM Charter Fund 0.05% 0.25% 0.30%
AIM Constellation Fund 0.05% 0.25% 0.30%
AIM Core Strategies Fund 0.10% 0.25% 0.35%
AIM Dent Demographic Trends Fund 0.10% 0.25% 0.35%
AIM Diversified Dividend Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Emerging Growth Fund 0.10% 0.25% 0.35%
AIM Large Cap Basic Value Fund 0.10% 0.25% 0.35%
AIM Large Cap Growth Fund 0.10% 0.25% 0.35%
AIM Mid Cap Growth Fund 0.10% 0.25% 0.35%
AIM U.S. Growth Fund 0.10% 0.25% 0.35%
AIM Weingarten Fund 0.05% 0.25% 0.30%
|
MINIMUM
ASSET
AIM FUNDS GROUP BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Balanced Fund 0.00% 0.25% 0.25%
AIM Basic Balanced Fund 0.10% 0.25% 0.35%
AIM European Small Company Fund 0.10% 0.25% 0.35%
AIM Global Value Fund 0.10% 0.25% 0.35%
AIM International Emerging Growth Fund 0.10% 0.25% 0.35%
AIM Mid Cap Basic Value Fund 0.10% 0.25% 0.35%
AIM Premier Equity Fund 0.00% 0.25% 0.25%
AIM Select Equity Fund 0.00% 0.25% 0.25%
AIM Small Cap Equity Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM GROWTH SERIES BASED MAXIMUM MAXIMUM
----------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Basic Value Fund 0.10% 0.25% 0.35%
AIM Global Equity Fund 0.25% 0.25% 0.50%
AIM Mid Cap Core Equity Fund 0.10% 0.25% 0.35%
AIM Small Cap Growth Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM INTERNATIONAL MUTUAL FUNDS BASED MAXIMUM MAXIMUM
------------------------------ SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Asia Pacific Growth Fund 0.10% 0.25% 0.35%
AIM European Growth Fund 0.10% 0.25% 0.35%
AIM Global Aggressive Growth Fund 0.25% 0.25% 0.50%
AIM Global Growth Fund 0.25% 0.25% 0.50%
AIM International Growth Fund 0.05% 0.25% 0.30%
INVESCO International Core Equity Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM INVESTMENT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Developing Markets Fund 0.25% 0.25% 0.50%
AIM Global Health Care Fund 0.25% 0.25% 0.50%
AIM Libra Fund 0.10% 0.25% 0.35%
AIM Trimark Endeavor Fund 0.10% 0.25% 0.35%
AIM Trimark Fund 0.10% 0.25% 0.35%
AIM Trimark Small Companies Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM INVESTMENT SECURITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM High Yield Fund 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 Real Estate Fund 0.10% 0.25% 0.35%
AIM Total Return Bond Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM SECTOR FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
INVESCO Energy Fund 0.10% 0.25% 0.35%
INVESCO Financial Services Fund 0.10% 0.25% 0.35%
INVESCO Gold & Precious Metals Fund 0.10% 0.25% 0.35%
INVESCO Health Sciences Fund 0.10% 0.25% 0.35%
INVESCO Leisure Fund 0.10% 0.25% 0.35%
INVESCO Technology Fund 0.10% 0.25% 0.35%
INVESCO Utilities Fund 0.00% 0.25% 0.25%
|
MINIMUM
ASSET
AIM SPECIAL OPPORTUNITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Opportunities I Fund 0.10% 0.25% 0.35%
AIM Opportunities II Fund 0.10% 0.25% 0.35%
AIM Opportunities III Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM STOCK FUNDS BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
INVESCO Dynamics Fund 0.10% 0.25% 0.35%
INVESCO Mid-Cap Growth Fund 0.10% 0.25% 0.35%
INVESCO Small Company Growth Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM TAX-EXEMPT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM High Income Municipal Fund 0.00% 0.25% 0.25%
AIM Tax-Exempt Cash Fund 0.00% 0.25% 0.25%"
|
* The Distribution Fee is payable apart from the sales charge, if any, as stated in the current prospectus for the applicable Portfolio (or Class thereof).
All other terms and provisions of the Plan not amended herein shall remain in full force and effect.
Dated: March 31, 2004
AMENDMENT NO. 7
TO THE AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS A SHARES)
The Amended and Restated Master Distribution Plan (the "Plan"), dated as of August 18, 2003, pursuant to Rule 12b-1, is hereby amended, effective April 30, 2004, as follows:
Schedule A to the Plan is hereby deleted in its entirety and replaced with the following:
"SCHEDULE A
TO
THE AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS A SHARES)
(DISTRIBUTION AND SERVICE FEES)
The Fund shall pay the Distributor as full compensation for all services rendered and all facilities furnished under the Distribution Plan for the Class A Shares of each Portfolio designated below, a Distribution Fee* and a Service Fee determined by applying the annual rate set forth below as to the Class A Shares of each Portfolio to the average daily net assets of the Class A Shares of the Portfolio for the plan year. Average daily net assets shall be computed in a manner used for the determination of the offering price of the Class A Shares of the Portfolio.
MINIMUM
ASSET
AIM COMBINATION STOCK & BOND FUNDS BASED MAXIMUM MAXIMUM
---------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
INVESCO Core Equity Fund 0.10% 0.25% 0.35%
INVESCO Total Return Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM COUNSELOR SERIES TRUST BASED MAXIMUM MAXIMUM
SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
INVESCO Advantage Health Sciences Fund 0.10% 0.25% 0.35%
INVESCO Multi-Sector Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Aggressive Growth Fund 0.00% 0.25% 0.25%
AIM Basic Value II Fund 0.10% 0.25% 0.35%
AIM Blue Chip Fund 0.10% 0.25% 0.35%
AIM Capital Development Fund 0.10% 0.25% 0.35%
AIM Charter Fund 0.05% 0.25% 0.30%
AIM Constellation Fund 0.05% 0.25% 0.30%
AIM Core Strategies Fund 0.10% 0.25% 0.35%
AIM Dent Demographic Trends Fund 0.10% 0.25% 0.35%
AIM Diversified Dividend Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Emerging Growth Fund 0.10% 0.25% 0.35%
AIM Large Cap Basic Value Fund 0.10% 0.25% 0.35%
AIM Large Cap Growth Fund 0.10% 0.25% 0.35%
AIM Mid Cap Growth Fund 0.10% 0.25% 0.35%
AIM U.S. Growth Fund 0.10% 0.25% 0.35%
AIM Weingarten Fund 0.05% 0.25% 0.30%
|
MINIMUM
ASSET
AIM FUNDS GROUP BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Balanced Fund 0.00% 0.25% 0.25%
AIM Basic Balanced Fund 0.10% 0.25% 0.35%
AIM European Small Company Fund 0.10% 0.25% 0.35%
AIM Global Value Fund 0.10% 0.25% 0.35%
AIM International Emerging Growth Fund 0.10% 0.25% 0.35%
AIM Mid Cap Basic Value Fund 0.10% 0.25% 0.35%
AIM Premier Equity Fund 0.00% 0.25% 0.25%
AIM Select Equity Fund 0.00% 0.25% 0.25%
AIM Small Cap Equity Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM GROWTH SERIES BASED MAXIMUM MAXIMUM
----------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Aggressive Allocation Fund 0.10% 0.25% 0.35%
AIM Basic Value Fund 0.10% 0.25% 0.35%
AIM Conservative Allocation Fund 0.10% 0.25% 0.35%
AIM Global Equity Fund 0.25% 0.25% 0.50%
AIM Mid Cap Core Equity Fund 0.10% 0.25% 0.35%
AIM Moderate Allocation Fund 0.10% 0.25% 0.35%
AIM Small Cap Growth Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM INTERNATIONAL MUTUAL FUNDS BASED MAXIMUM MAXIMUM
------------------------------ SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Asia Pacific Growth Fund 0.10% 0.25% 0.35%
AIM European Growth Fund 0.10% 0.25% 0.35%
AIM Global Aggressive Growth Fund 0.25% 0.25% 0.50%
AIM Global Growth Fund 0.25% 0.25% 0.50%
AIM International Growth Fund 0.05% 0.25% 0.30%
INVESCO International Core Equity Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM INVESTMENT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Developing Markets Fund 0.25% 0.25% 0.50%
AIM Global Health Care Fund 0.25% 0.25% 0.50%
AIM Libra Fund 0.10% 0.25% 0.35%
AIM Trimark Endeavor Fund 0.10% 0.25% 0.35%
AIM Trimark Fund 0.10% 0.25% 0.35%
AIM Trimark Small Companies Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM INVESTMENT SECURITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM High Yield Fund 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 Real Estate Fund 0.10% 0.25% 0.35%
AIM Short Term Bond Fund 0.10% 0.25% 0.35%
AIM Total Return Bond Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM SECTOR FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
INVESCO Energy Fund 0.10% 0.25% 0.35%
INVESCO Financial Services Fund 0.10% 0.25% 0.35%
INVESCO Gold & Precious Metals Fund 0.10% 0.25% 0.35%
INVESCO Health Sciences Fund 0.10% 0.25% 0.35%
INVESCO Leisure Fund 0.10% 0.25% 0.35%
INVESCO Technology Fund 0.10% 0.25% 0.35%
INVESCO Utilities Fund 0.00% 0.25% 0.25%
|
MINIMUM
ASSET
AIM SPECIAL OPPORTUNITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM Opportunities I Fund 0.10% 0.25% 0.35%
AIM Opportunities II Fund 0.10% 0.25% 0.35%
AIM Opportunities III Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM STOCK FUNDS BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
INVESCO Dynamics Fund 0.10% 0.25% 0.35%
INVESCO Mid-Cap Growth Fund 0.10% 0.25% 0.35%
INVESCO Small Company Growth Fund 0.10% 0.25% 0.35%
|
MINIMUM
ASSET
AIM TAX-EXEMPT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS A SHARES CHARGE FEE FEE
------- ------- ---------
AIM High Income Municipal Fund 0.00% 0.25% 0.25%
AIM Tax-Exempt Cash Fund 0.00% 0.25% 0.25%"
|
* The Distribution Fee is payable apart from the sales charge, if any, as stated in the current prospectus for the applicable Portfolio (or Class thereof).
All other terms and provisions of the Plan not amended herein shall remain in full force and effect.
Dated: April 30, 2004
AMENDMENT NO. 6
TO
AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS B SHARES)
(SECURITIZATION FEATURE)
The Amended and Restated Master Distribution Plan (the "Plan"), dated as of August 18, 2003, pursuant to Rule 12b-1, is hereby amended, effective March 31, 2004, as follows:
1. Schedule A to the Plan is hereby deleted and replaced in its entirety with Schedule A attached hereto.
All other terms and provisions of the Plan not amended hereby shall remain in full force and effect.
Dated: March 31, 2004
SCHEDULE A
AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS B SHARES)
DISTRIBUTION AND SERVICE FEES
The Fund shall pay the Distributor or the Assignee as full compensation for all services rendered and all facilities furnished under the Distribution Plan for the Class B Shares of each Portfolio designated below, a Distribution Fee and a Service Fee determined by applying the annual rate set forth below to the average daily net assets of the Class B Shares of the Portfolio. Average daily net assets shall be computed in a manner used for the determination of the offering price of Class B Shares of the Portfolio.
MAXIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Aggressive Growth Fund 0.75% 0.25% 1.00%
AIM Basic Value II Fund 0.75% 0.25% 1.00%
AIM Blue Chip Fund 0.75% 0.25% 1.00%
AIM Capital Development Fund 0.75% 0.25% 1.00%
AIM Charter Fund 0.75% 0.25% 1.00%
AIM Constellation Fund 0.75% 0.25% 1.00%
AIM Core Strategies Fund 0.75% 0.25% 1.00%
AIM Dent Demographic Trends Fund 0.75% 0.25% 1.00%
AIM Diversified Dividend Fund 0.75% 0.25% 1.00%
AIM Emerging Growth Fund 0.75% 0.25% 1.00%
AIM Large Cap Basic Value Fund 0.75% 0.25% 1.00%
AIM Large Cap Growth Fund 0.75% 0.25% 1.00%
AIM Mid Cap Growth Fund 0.75% 0.25% 1.00%
AIM U.S. Growth Fund 0.75% 0.25% 1.00%
AIM Weingarten Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM FUNDS GROUP BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Balanced Fund 0.75% 0.25% 1.00%
AIM Basic Balanced Fund 0.75% 0.25% 1.00%
AIM European Small Company Fund 0.75% 0.25% 1.00%
AIM Global Value Fund 0.75% 0.25% 1.00%
AIM International Emerging Growth Fund 0.75% 0.25% 1.00%
AIM Mid Cap Basic Value Fund 0.75% 0.25% 1.00%
AIM Premier Equity Fund 0.75% 0.25% 1.00%
AIM Select Equity Fund 0.75% 0.25% 1.00%
AIM Small Cap Equity Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM GROWTH SERIES BASED MAXIMUM MAXIMUM
----------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Basic Value Fund 0.75% 0.25% 1.00%
AIM Global Equity Fund 0.75% 0.25% 1.00%
AIM Mid Cap Core Equity Fund 0.75% 0.25% 1.00%
AIM Small Cap Growth Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INTERNATIONAL MUTUAL FUNDS BASED MAXIMUM MAXIMUM
------------------------------ SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Asia Pacific Growth Fund 0.75% 0.25% 1.00%
AIM European Growth Fund 0.75% 0.25% 1.00%
AIM Global Aggressive Growth Fund 0.75% 0.25% 1.00%
AIM Global Growth Fund 0.75% 0.25% 1.00%
AIM International Growth Fund 0.75% 0.25% 1.00%
INVESCO International Core Equity Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INVESTMENT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Developing Markets Fund 0.75% 0.25% 1.00%
AIM Global Health Care Fund 0.75% 0.25% 1.00%
AIM Libra Fund 0.75% 0.25% 1.00%
AIM Trimark Endeavor Fund 0.75% 0.25% 1.00%
AIM Trimark Fund 0.75% 0.25% 1.00%
AIM Trimark Small Companies Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INVESTMENT SECURITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM High Yield Fund 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 Real Estate Fund 0.75% 0.25% 1.00%
AIM Total Return Bond Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM SPECIAL OPPORTUNITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Opportunities I Fund 0.75% 0.25% 1.00%
AIM Opportunities II Fund 0.75% 0.25% 1.00%
AIM Opportunities III Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM TAX-EXEMPT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO CHARGE FEE FEE
------- ------- ---------
AIM High Income Municipal Fund 0.75% 0.25% 1.00%
|
MAXIMUM
AIM COMBINATION STOCK & ASSET
BOND FUNDS BASED MAXIMUM MAXIMUM
----------------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
INVESCO Core Equity Fund 0.75% 0.25% 1.00%
INVESCO Total Return Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM COUNSELSOR SERIES TRUST BASED MAXIMUM MAXIMUM
--------------------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
INVESCO Advantage Health Sciences Fund 0.75% 0.25% 1.00%
INVESCO Multi-Sector Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM SECTOR FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
INVESCO Energy Fund 0.75% 0.25% 1.00%
INVESCO Financial Services Fund 0.75% 0.25% 1.00%
INVESCO Gold & Precious Metals Fund 0.75% 0.25% 1.00%
INVESCO Health Sciences Fund 0.75% 0.25% 1.00%
INVESCO Leisure Fund 0.75% 0.25% 1.00%
INVESCO Technology Fund 0.75% 0.25% 1.00%
INVESCO Utilities Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM STOCK FUNDS BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
INVESCO Dynamics Fund 0.75% 0.25% 1.00%
INVESCO Mid-Cap Growth Fund 0.75% 0.25% 1.00%
INVESCO Small Company Growth Fund 0.75% 0.25% 1.00%
|
AMENDMENT NO. 7
TO
AMENDED AND RESTATED MASTER DISTRIBUTION PLAN
(CLASS B SHARES)
(SECURITIZATION FEATURE)
The Amended and Restated Master Distribution Plan (the "Plan"), dated as of August 18, 2003, pursuant to Rule 12b-1, is hereby amended, effective April 30, 2004, as follows:
1. Schedule A to the Plan is hereby deleted and replaced in its entirety with Schedule A attached hereto.
All other terms and provisions of the Plan not amended hereby shall remain in full force and effect.
SCHEDULE A
AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS B SHARES)
DISTRIBUTION AND SERVICE FEES
The Fund shall pay the Distributor or the Assignee as full compensation for all services rendered and all facilities furnished under the Distribution Plan for the Class B Shares of each Portfolio designated below, a Distribution Fee and a Service Fee determined by applying the annual rate set forth below to the average daily net assets of the Class B Shares of the Portfolio. Average daily net assets shall be computed in a manner used for the determination of the offering price of Class B Shares of the Portfolio.
MAXIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Aggressive Growth Fund 0.75% 0.25% 1.00%
AIM Basic Value II Fund 0.75% 0.25% 1.00%
AIM Blue Chip Fund 0.75% 0.25% 1.00%
AIM Capital Development Fund 0.75% 0.25% 1.00%
AIM Charter Fund 0.75% 0.25% 1.00%
AIM Constellation Fund 0.75% 0.25% 1.00%
AIM Core Strategies Fund 0.75% 0.25% 1.00%
AIM Dent Demographic Trends Fund 0.75% 0.25% 1.00%
AIM Diversified Dividend Fund 0.75% 0.25% 1.00%
AIM Emerging Growth Fund 0.75% 0.25% 1.00%
AIM Large Cap Basic Value Fund 0.75% 0.25% 1.00%
AIM Large Cap Growth Fund 0.75% 0.25% 1.00%
AIM Mid Cap Growth Fund 0.75% 0.25% 1.00%
AIM U.S. Growth Fund 0.75% 0.25% 1.00%
AIM Weingarten Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM FUNDS GROUP BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Balanced Fund 0.75% 0.25% 1.00%
AIM Basic Balanced Fund 0.75% 0.25% 1.00%
AIM European Small Company Fund 0.75% 0.25% 1.00%
AIM Global Value Fund 0.75% 0.25% 1.00%
AIM International Emerging Growth Fund 0.75% 0.25% 1.00%
AIM Mid Cap Basic Value Fund 0.75% 0.25% 1.00%
AIM Premier Equity Fund 0.75% 0.25% 1.00%
AIM Select Equity Fund 0.75% 0.25% 1.00%
AIM Small Cap Equity Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM GROWTH SERIES BASED MAXIMUM MAXIMUM
----------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Aggressive Allocation Fund 0.75% 0.25% 1.00%
AIM Basic Value Fund 0.75% 0.25% 1.00%
AIM Conservative Allocation Fund 0.75% 0.25% 1.00%
AIM Mid Cap Core Equity Fund 0.75% 0.25% 1.00%
AIM Moderate Allocation Fund 0.75% 0.25% 1.00%
AIM Small Cap Growth Fund 0.75% 0.25% 1.00%
AIM Global Trends Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INTERNATIONAL MUTUAL FUNDS BASED MAXIMUM MAXIMUM
------------------------------ SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Asia Pacific Growth Fund 0.75% 0.25% 1.00%
AIM European Growth Fund 0.75% 0.25% 1.00%
AIM Global Aggressive Growth Fund 0.75% 0.25% 1.00%
AIM Global Growth Fund 0.75% 0.25% 1.00%
AIM International Growth Fund 0.75% 0.25% 1.00%
INVESCO International Core Equity Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INVESTMENT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Developing Markets Fund 0.75% 0.25% 1.00%
AIM Global Health Care Fund 0.75% 0.25% 1.00%
AIM Libra Fund 0.75% 0.25% 1.00%
AIM Trimark Fund 0.75% 0.25% 1.00%
AIM Trimark Endeavor Fund 0.75% 0.25% 1.00%
AIM Trimark Small Companies Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INVESTMENT SECURITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM High Yield Fund 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 Real Estate Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM SPECIAL OPPORTUNITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIOS CHARGE FEE FEE
------- ------- ---------
AIM Opportunities I Fund 0.75% 0.25% 1.00%
AIM Opportunities II Fund 0.75% 0.25% 1.00%
AIM Opportunities III Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM TAX-EXEMPT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO CHARGE FEE FEE
------- ------- ---------
AIM High Income Municipal Fund 0.75% 0.25% 1.00%
|
AIM COMBINATION STOCK & MAXIMUM
BOND FUNDS BASED MAXIMUM MAXIMUM
----------------------- SALES SERVICE AGGREGATE
PORTFOLIO CHARGE FEE FEE
------- ------- ---------
INVESCO Core Equity Fund 0.75% 0.25% 1.00%
INVESCO Total Return Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM COUNSELOR SERIES TRUST BASED MAXIMUM MAXIMUM
-------------------------- SALES SERVICE AGGREGATE
PORTFOLIO CHARGE FEE FEE
------- ------- ---------
INVESCO Advantage Health
Sciences Fund 0.75% 0.25% 1.00%
INVESCO Multi-Sector Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM SECTOR FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO CHARGE FEE FEE
------- ------- ---------
INVESCO Energy Fund 0.75% 0.25% 1.00%
INVESCO Financial Services Fund 0.75% 0.25% 1.00%
INVESCO Gold & Precious Metals Fund 0.75% 0.25% 1.00%
INVESCO Health Sciences Fund 0.75% 0.25% 1.00%
INVESCO Leisure Fund 0.75% 0.25% 1.00%
INVESCO Technology Fund 0.75% 0.25% 1.00%
INVESCO Utilities Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM STOCK FUNDS BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIO CHARGE FEE FEE
------- ------- ---------
INVESCO Dynamics Fund 0.75% 0.25% 1.00%
INVESCO Mid-Cap Growth Fund 0.75% 0.25% 1.00%
INVESCO Small Company Growth Fund 0.75% 0.25% 1.00%
|
AMENDMENT NO. 6
TO THE AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS C SHARES)
The Amended and Restated Master Distribution Plan (the "Plan"), dated as of August 18, 2003, pursuant to Rule 12b-1, is hereby amended, effective March 31, 2004, as follows:
Schedule A to the Plan is hereby deleted in its entirety and replaced with the following:
"SCHEDULE A
TO
THE AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS C SHARES)
(DISTRIBUTION AND SERVICE FEES)
The Fund shall pay the Distributor as full compensation for all services rendered and all facilities furnished under the Distribution Plan for the Class C Shares of each Portfolio designated below, a Distribution Fee* and a Service Fee determined by applying the annual rate set forth below as to the Class C Shares of each Portfolio to the average daily net assets of the Class C Shares of the Portfolio for the plan year. Average daily net assets shall be computed in a manner used for the determination of the offering price of the Class C Shares of the Portfolio.
MAXIMUM
ASSET
AIM COMBINATION STOCK & BOND FUNDS BASED MAXIMUM MAXIMUM
---------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
INVESCO Core Equity Fund 0.75% 0.25% 1.00%
INVESCO Total Return Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM COUNSELOR SERIES TRUST BASED MAXIMUM MAXIMUM
-------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
INVESCO Advantage Health Sciences Fund 0.75% 0.25% 1.00%
INVESCO Multi-Sector Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
AIM Aggressive Growth Fund 0.75% 0.25% 1.00%
AIM Basic Value II Fund 0.75% 0.25% 1.00%
AIM Blue Chip Fund 0.75% 0.25% 1.00%
AIM Capital Development Fund 0.75% 0.25% 1.00%
AIM Charter Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
AIM Constellation Fund 0.75% 0.25% 1.00%
AIM Core Strategies Fund 0.75% 0.25% 1.00%
AIM Dent Demographic Trends Fund 0.75% 0.25% 1.00%
AIM Diversified Dividend Fund 0.75% 0.25% 1.00%
AIM Emerging Growth Fund 0.75% 0.25% 1.00%
AIM Large Cap Basic Value Fund 0.75% 0.25% 1.00%
AIM Large Cap Growth Fund 0.75% 0.25% 1.00%
AIM Mid Cap Growth Fund 0.75% 0.25% 1.00%
AIM U.S. Growth Fund 0.75% 0.25% 1.00%
AIM Weingarten Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM FUNDS GROUP BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
AIM Balanced Fund 0.75% 0.25% 1.00%
AIM Basic Balanced Fund 0.75% 0.25% 1.00%
AIM European Small Company Fund 0.75% 0.25% 1.00%
AIM Global Value Fund 0.75% 0.25% 1.00%
AIM International Emerging Growth Fund 0.75% 0.25% 1.00%
AIM Mid Cap Basic Value Fund 0.75% 0.25% 1.00%
AIM Premier Equity Fund 0.75% 0.25% 1.00%
AIM Select Equity Fund 0.75% 0.25% 1.00%
AIM Small Cap Equity Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM GROWTH SERIES BASED MAXIMUM MAXIMUM
----------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
AIM Basic Value Fund 0.75% 0.25% 1.00%
AIM Global Equity Fund 0.75% 0.25% 1.00%
AIM Mid Cap Core Equity Fund 0.75% 0.25% 1.00%
AIM Small Cap Growth Fund 0.75% 0.25% 1.00%
|
MINIMUM
ASSET
AIM INTERNATIONAL MUTUAL FUNDS BASED MAXIMUM MAXIMUM
------------------------------ SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
AIM Asia Pacific Growth Fund 0.75% 0.25% 1.00%
AIM European Growth Fund 0.75% 0.25% 1.00%
AIM Global Aggressive Growth Fund 0.75% 0.25% 1.00%
AIM Global Growth Fund 0.75% 0.25% 1.00%
AIM International Growth Fund 0.75% 0.25% 1.00%
INVESCO International Core Equity Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INVESTMENT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
AIM Developing Markets Fund 0.75% 0.25% 1.00%
AIM Global Health Care Fund 0.75% 0.25% 1.00%
AIM Libra Fund 0.75% 0.25% 1.00%
AIM Trimark Endeavor Fund 0.75% 0.25% 1.00%
AIM Trimark Fund 0.75% 0.25% 1.00%
AIM Trimark Small Companies Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INVESTMENT SECURITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
AIM High Yield Fund 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 Real Estate Fund 0.75% 0.25% 1.00%
AIM Short Term Bond Fund 0.75% 0.25% 1.00%
AIM Total Return Bond Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM SECTOR FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
INVESCO Energy Fund 0.75% 0.25% 1.00%
INVESCO Financial Services Fund 0.75% 0.25% 1.00%
INVESCO Gold & Precious Metals Fund 0.75% 0.25% 1.00%
INVESCO Health Sciences Fund 0.75% 0.25% 1.00%
INVESCO Leisure Fund 0.75% 0.25% 1.00%
INVESCO Technology Fund 0.75% 0.25% 1.00%
INVESCO Utilities Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM SPECIAL OPPORTUNITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
AIM Opportunities I Fund 0.75% 0.25% 1.00%
AIM Opportunities II Fund 0.75% 0.25% 1.00%
AIM Opportunities III Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM STOCK FUNDS BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
INVESCO Dynamics Fund 0.75% 0.25% 1.00%
INVESCO Mid-Cap Growth Fund 0.75% 0.25% 1.00%
INVESCO Small Company Growth Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM TAX-EXEMPT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
------- ------- --------
AIM High Income Municipal Fund 0.75% 0.25% 1.00%"
|
* The Distribution Fee is payable apart from the sales charge, if any, as stated in the current prospectus for the applicable Portfolio (or Class thereof).
All other terms and provisions of the Plan not amended herein shall remain in full force and effect.
Dated: March 31, 2004
AMENDMENT NO. 7
TO THE AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS C SHARES)
The Amended and Restated Master Distribution Plan (the "Plan"), dated as of August 18, 2003, pursuant to Rule 12b-1, is hereby amended, effective April 30, 2004, as follows:
Schedule A to the Plan is hereby deleted in its entirety and replaced with the following:
"SCHEDULE A
TO
THE AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS C SHARES)
(DISTRIBUTION AND SERVICE FEES)
The Fund shall pay the Distributor as full compensation for all services rendered and all facilities furnished under the Distribution Plan for the Class C Shares of each Portfolio designated below, a Distribution Fee* and a Service Fee determined by applying the annual rate set forth below as to the Class C Shares of each Portfolio to the average daily net assets of the Class C Shares of the Portfolio for the plan year. Average daily net assets shall be computed in a manner used for the determination of the offering price of the Class C Shares of the Portfolio.
MAXIMUM
ASSET
AIM COMBINATION STOCK & BOND FUNDS BASED MAXIMUM MAXIMUM
---------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
INVESCO Core Equity Fund 0.75% 0.25% 1.00%
INVESCO Total Return Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM COUNSELOR SERIES TRUST BASED MAXIMUM MAXIMUM
-------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
INVESCO Advantage Health Sciences Fund 0.75% 0.25% 1.00%
INVESCO Multi-Sector Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Aggressive Growth Fund 0.75% 0.25% 1.00%
AIM Basic Value II Fund 0.75% 0.25% 1.00%
AIM Blue Chip Fund 0.75% 0.25% 1.00%
AIM Capital Development Fund 0.75% 0.25% 1.00%
AIM Charter Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Constellation Fund 0.75% 0.25% 1.00%
AIM Core Strategies Fund 0.75% 0.25% 1.00%
AIM Dent Demographic Trends Fund 0.75% 0.25% 1.00%
AIM Diversified Dividend Fund 0.75% 0.25% 1.00%
AIM Emerging Growth Fund 0.75% 0.25% 1.00%
AIM Large Cap Basic Value Fund 0.75% 0.25% 1.00%
AIM Large Cap Growth Fund 0.75% 0.25% 1.00%
AIM Mid Cap Growth Fund 0.75% 0.25% 1.00%
AIM U.S. Growth Fund 0.75% 0.25% 1.00%
AIM Weingarten Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM FUNDS GROUP BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Balanced Fund 0.75% 0.25% 1.00%
AIM Basic Balanced Fund 0.75% 0.25% 1.00%
AIM European Small Company Fund 0.75% 0.25% 1.00%
AIM Global Value Fund 0.75% 0.25% 1.00%
AIM International Emerging Growth Fund 0.75% 0.25% 1.00%
AIM Mid Cap Basic Value Fund 0.75% 0.25% 1.00%
AIM Premier Equity Fund 0.75% 0.25% 1.00%
AIM Select Equity Fund 0.75% 0.25% 1.00%
AIM Small Cap Equity Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM GROWTH SERIES BASED MAXIMUM MAXIMUM
----------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Aggressive Allocation Fund 0.75% 0.25% 1.00%
AIM Basic Value Fund 0.75% 0.25% 1.00%
AIM Conservative Allocation Fund 0.75% 0.25% 1.00%
AIM Global Equity Fund 0.75% 0.25% 1.00%
AIM Mid Cap Core Equity Fund 0.75% 0.25% 1.00%
AIM Moderate Allocation Fund 0.75% 0.25% 1.00%
AIM Small Cap Growth Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INTERNATIONAL MUTUAL FUNDS BASED MAXIMUM MAXIMUM
------------------------------ SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Asia Pacific Growth Fund 0.75% 0.25% 1.00%
AIM European Growth Fund 0.75% 0.25% 1.00%
AIM Global Aggressive Growth Fund 0.75% 0.25% 1.00%
AIM Global Growth Fund 0.75% 0.25% 1.00%
AIM International Growth Fund 0.75% 0.25% 1.00%
INVESCO International Core Equity Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INVESTMENT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Developing Markets Fund 0.75% 0.25% 1.00%
AIM Global Health Care Fund 0.75% 0.25% 1.00%
AIM Libra Fund 0.75% 0.25% 1.00%
AIM Trimark Endeavor Fund 0.75% 0.25% 1.00%
AIM Trimark Fund 0.75% 0.25% 1.00%
AIM Trimark Small Companies Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM INVESTMENT SECURITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
AIM High Yield Fund 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 Real Estate Fund 0.75% 0.25% 1.00%
AIM Short Term Bond Fund 0.75% 0.25% 1.00%
AIM Total Return Bond Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM SECTOR FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
INVESCO Energy Fund 0.75% 0.25% 1.00%
INVESCO Financial Services Fund 0.75% 0.25% 1.00%
INVESCO Gold & Precious Metals Fund 0.75% 0.25% 1.00%
INVESCO Health Sciences Fund 0.75% 0.25% 1.00%
INVESCO Leisure Fund 0.75% 0.25% 1.00%
INVESCO Technology Fund 0.75% 0.25% 1.00%
INVESCO Utilities Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM SPECIAL OPPORTUNITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Opportunities I Fund 0.75% 0.25% 1.00%
AIM Opportunities II Fund 0.75% 0.25% 1.00%
AIM Opportunities III Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM STOCK FUNDS BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
INVESCO Dynamics Fund 0.75% 0.25% 1.00%
INVESCO Mid-Cap Growth Fund 0.75% 0.25% 1.00%
INVESCO Small Company Growth Fund 0.75% 0.25% 1.00%
|
MAXIMUM
ASSET
AIM TAX-EXEMPT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS C SHARES CHARGE FEE FEE
-------- ------- ---------
AIM High Income Municipal Fund 0.75% 0.25% 1.00%"
|
* The Distribution Fee is payable apart from the sales charge, if any, as stated in the current prospectus for the applicable Portfolio (or Class thereof).
All other terms and provisions of the Plan not amended herein shall remain in full force and effect.
Dated: April 30, 2004
AMENDMENT NO. 4
TO THE AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS R SHARES)
The Amended and Restated Master Distribution Plan (the "Plan"), dated as of August 18, 2003, pursuant to Rule 12b-1, is hereby amended, effective April 30, 2004, as follows:
Schedule A to the Plan is hereby deleted in its entirety and replaced with the following:
"SCHEDULE A
TO
THE AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN
(CLASS R SHARES)
(DISTRIBUTION AND SERVICE FEES)
The Fund shall pay the Distributor as full compensation for all services rendered and all facilities furnished under the Distribution Plan for the Class R Shares of each Portfolio designated below, a Distribution Fee* and a Service Fee determined by applying the annual rate set forth below as to the Class R Shares of each Portfolio to the average daily net assets of the Class R Shares of the Portfolio for the plan year. Average daily net assets shall be computed in a manner used for the determination of the offering price of the Class R Shares of the Portfolio.
MINIMUM
ASSET
AIM EQUITY FUNDS BASED MAXIMUM MAXIMUM
---------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS R SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Aggressive Growth Fund 0.25% 0.25% 0.50%
AIM Blue Chip Fund 0.25% 0.25% 0.50%
AIM Capital Development Fund 0.25% 0.25% 0.50%
AIM Charter Fund 0.25% 0.25% 0.50%
AIM Constellation Fund 0.25% 0.25% 0.50%
AIM Large Cap Basic Value Fund 0.25% 0.25% 0.50%
AIM Large Cap Growth Fund 0.25% 0.25% 0.50%
AIM Mid Cap Growth Fund 0.25% 0.25% 0.50%
AIM Weingarten Fund 0.25% 0.25% 0.50%
|
MINIMUM
ASSET
AIM FUNDS GROUP BASED MAXIMUM MAXIMUM
--------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS R SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Balanced Fund 0.25% 0.25% 0.50%
AIM Basic Balanced Fund 0.25% 0.25% 0.50%
AIM Mid Cap Basic Value Fund 0.25% 0.25% 0.50%
AIM Premier Equity Fund 0.25% 0.25% 0.50%
AIM Small Cap Equity Fund 0.25% 0.25% 0.50%
|
MINIMUM
ASSET
AIM GROWTH SERIES BASED MAXIMUM MAXIMUM
----------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS R SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Aggressive Allocation Fund 0.25% 0.25% 0.50%
AIM Basic Value Fund 0.25% 0.25% 0.50%
AIM Conservative Allocation Fund 0.25% 0.25% 0.50%
AIM Mid Cap Core Equity Fund 0.25% 0.25% 0.50%
AIM Moderate Allocation Fund 0.25% 0.25% 0.50%
AIM Small Cap Growth Fund 0.25% 0.25% 0.50%
|
MINIMUM
ASSET
AIM INTERNATIONAL MUTUAL FUNDS BASED MAXIMUM MAXIMUM
------------------------------ SALES SERVICE AGGREGATE
PORTFOLIO - CLASS R SHARES CHARGE FEE FEE
-------- ------- ---------
AIM European Growth Fund 0.25% 0.25% 0.50%
AIM International Growth Fund 0.25% 0.25% 0.50%
INVESCO International Core Equity Fund 0.25% 0.25% 0.50%
|
MINIMUM
ASSET
AIM INVESTMENT FUNDS BASED MAXIMUM MAXIMUM
-------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS R SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Trimark Endeavor Fund 0.25% 0.25% 0.50%
AIM Trimark Fund 0.25% 0.25% 0.50%
AIM Trimark Small Companies Fund 0.25% 0.25% 0.50%
|
MINIMUM
ASSET
AIM INVESTMENT SECURITIES FUNDS BASED MAXIMUM MAXIMUM
------------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS R SHARES CHARGE FEE FEE
-------- ------- ---------
AIM Income Fund 0.25% 0.25% 0.50%
AIM Intermediate Government Fund 0.25% 0.25% 0.50%
AIM Money Market Fund 0.25% 0.25% 0.50%
AIM Real Estate Fund 0.25% 0.25% 0.50%
AIM Short Term Bond Fund 0.25% 0.25% 0.50%
AIM Total Return Bond Fund 0.25% 0.25% 0.50%
|
MINIMUM
ASSET
AIM TREASURER'S SERIES TRUST BASED MAXIMUM MAXIMUM
---------------------------- SALES SERVICE AGGREGATE
PORTFOLIO - CLASS R SHARES CHARGE FEE FEE
-------- ------- ---------
INVESCO Stable Value Fund 0.25% 0.25% 0.50%
|
All other terms and provisions of the Plan not amended herein shall remain in full force and effect.
Dated: April 30, 2004