<PAGE>
PRIVATE INVESTMENT CLASS
OF THE
CASH RESERVE PORTFOLIO
OF
TAX-FREE INVESTMENTS CO.
Supplement dated June 29, 1995
to the Prospectus
dated August 1, 1994
Effective July 1, 1995, A I M Institutional Fund Services, Inc. ("AIFS"),
a wholly-owned subsidiary of A I M Advisors, Inc. and a registered transfer
agent, will become the exclusive transfer agent and dividend disbursing agent
for the Private Investment Class (the "Class") of the Cash Reserve Portfolio of
Tax-Free Investments Co. Since September 16, 1994, AIFS has been acting as a
transfer agent for the Class providing certain limited transfer agency services
for shares of the Class. The address of AIFS is A I M Institutional Fund
Services, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas, 77046-1173. The
phone number of AIFS is (800) 877-7748.
<PAGE>
PROSPECTUS
----------
PRIVATE INVESTMENT CLASS
OF THE
CASH RESERVE PORTFOLIO
OF
TAX-FREE INVESTMENTS CO.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
(800) 877-7748
--------------
The Private Investment Class of the Cash Reserve Portfolio of Tax-Free
Investments Co. (the "Fund") is designed to be a convenient vehicle in which
customers of banks, certain broker-dealers and other financial institutions can
invest in a diversified, open-end money market fund which is exempt from federal
income taxes.
Pursuant to this Prospectus, the Fund offers one class of shares which
represents interests in the Cash Reserve Portfolio. Shares of the Institutional
Class of the Cash Reserve Portfolio are offered pursuant to a separate
prospectus. The Cash Reserve Portfolio is a "money market fund," the investment
objective of which is the generation of as high a level of tax exempt income as
is consistent with preservation of capital and maintenance of liquidity by
investing in high quality, short-term municipal obligations. The Cash Reserve
Portfolio attempts to maintain a constant net asset value of $1.00 per share. No
assurance can be given that such a net asset value can be maintained.
This Prospectus relates solely to the Private Investment Class of the Cash
Reserve Portfolio.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT A PROSPECTIVE INVESTOR
SHOULD KNOW BEFORE INVESTING IN SHARES OF THE FUND AND SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION DATED
AUGUST 1, 1994 HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
HEREBY INCORPORATED BY REFERENCE. FOR A COPY OF THE STATEMENT OF ADDITIONAL
INFORMATION, WRITE TO FUND MANAGEMENT COMPANY AT P.O. BOX 4333, HOUSTON, TEXAS
77210-4333 OR CALL (800) 877-7748.
SHARES OF THE CASH RESERVE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE CASH RESERVE PORTFOLIO'S SHARES ARE
NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THERE CAN
BE NO ASSURANCE THAT THE CASH RESERVE PORTFOLIO WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE. SHARES OF THE CASH RESERVE PORTFOLIO
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
PROSPECTUS DATED: AUGUST 1, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <S> <C>
SUMMARY........................ 2 DIVIDENDS...................... 12
TABLE OF FEES AND EXPENSES..... 4 TAXES.......................... 13
FINANCIAL HIGHLIGHTS........... 5 NET ASSET VALUE................ 13
SUITABILITY FOR INVESTORS...... 5 YIELD INFORMATION.............. 14
INVESTMENT PROGRAM............. 5 REPORTS TO SHAREHOLDERS........ 14
PURCHASE OF SHARES............. 9 MANAGEMENT OF THE FUND......... 15
REDEMPTION OF SHARES........... 11 GENERAL INFORMATION............ 18
</TABLE>
SUMMARY
THE FUND AND ITS INVESTMENT OBJECTIVE
The Fund is an open-end, diversified, series management investment company
with one portfolio, the Cash Reserve Portfolio (the "Portfolio"). Pursuant to
this Prospectus, the Fund offers one class of shares of the Portfolio, known as
the Private Investment Class (the "Class"). Shares of such Class represent an
interest in the Portfolio. The investment objective of the Portfolio is the
generation of as high a level of tax-exempt income as is consistent with
preservation of capital and maintenance of liquidity by investing in high
quality, short-term municipal obligations. The Portfolio attempts to maintain a
constant net asset value of $1.00 per share. No assurance can be given that such
a net asset value can be maintained.
The Portfolio currently offers two classes of shares, the Institutional Cash
Reserve Shares and the Class. Shares of the Institutional Cash Reserve Shares
are offered pursuant to a separate prospectus.
Because the Fund declares dividends on a daily basis, shares of each class of
the Portfolio are expected to have the same net asset value (proportionate
interest in the net assets of the Portfolio) and bear equally the expenses, such
as the advisory fee, of the Portfolio as a whole. Both classes of the Portfolio
share a common investment objective and portfolio of investments. However, the
classes have different shareholder qualifications, and are separately allocated
certain class expenses, such as those associated with the distribution of their
shares. Therefore, each class will have a different dividend payment and a
different yield.
INVESTORS IN THE FUND
The Class is designed to be a convenient vehicle in which customers of banks,
certain broker-dealers and other financial institutions can invest in a
diversified, open-end money market fund, the income from which is exempt from
federal income taxes.
PURCHASE OF SHARES
Shares of the Portfolio are sold at net asset value. The minimum initial
investment in the shares of the Class is $10,000. There is no minimum amount for
subsequent investments. Payment for shares purchased must be in funds
immediately available to the Fund. See "Purchase of Shares."
REDEMPTION OF SHARES
Redemptions may be made without charge at net asset value. Payment for
redeemed shares for which redemption orders are received prior to 12:00 noon
Eastern Time will normally be made on the same day. Payment for redeemed shares
for which redemption orders are received via AIM LINK(TM), a personal computer
application software product, prior to 11:00 a.m. Eastern Time will normally be
made on the
2
<PAGE>
same day. The preceding sentence applies only to shareholders of the Class
utilizing the version of AIM LINK(TM) that contains the subaccounting feature.
See "Redemption of Shares."
DIVIDENDS
The net income of the Portfolio is declared as a dividend daily to
shareholders of record immediately after 3:00 p.m. Eastern Time. Dividends are
paid monthly by check or wire transfer unless the shareholder has previously
elected to have such dividends automatically reinvested in additional shares of
the Class. Information concerning the amount of the dividends declared on any
particular day will normally be available by 4:00 p.m. Eastern Time on that day.
See "Dividends."
CONSTANT NET ASSET VALUE
The Fund uses the amortized cost method of valuing the securities held by the
Portfolio and rounds the per share net asset value to the nearest whole cent.
Accordingly, the net asset value per share of the Portfolio will normally remain
constant at $1.00; however, no assurance can be given that such a net asset
value can be maintained. See "Net Asset Value."
INVESTMENT ADVISOR
A I M Advisors, Inc. ("AIM") serves as the Fund's investment advisor and
receives a fee based on the Fund's average daily net assets. During the fiscal
year ended March 31, 1994, the Fund paid AIM advisory fees which represented
0.15% of the average net assets of the Portfolio. During such fiscal year, those
expenses of the Fund (relating exclusively to the Portfolio) which were borne by
the Class, including fees paid to AIM, amounted to 0.45% of the Class' average
net assets. For the fiscal year ended March 31, 1994, AIM waived a portion of
its fees from the Fund with respect to the Portfolio. Had AIM not waived its
fee, AIM would have received an amount from the Fund pursuant to the Investment
Advisory Agreement with respect to the Portfolio which represented 0.22% of the
Portfolio's average daily net assets. AIM is primarily engaged in the business
of acting as manager or advisor to investment companies. See "Management of the
Fund--Investment Advisor."
DISTRIBUTOR AND DISTRIBUTION PLAN
Fund Management Company ("FMC") acts as the exclusive distributor of the
shares of the Class. Pursuant to a Distribution Plan (the "Plan") adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") with respect to the Class, the Fund may pay up to 0.50% of the
Fund's average net asset value attributable to the shares of the Class to FMC
and/or to certain broker-dealers or other financial institutions. Of this
amount, up to 0.25% may be for continuing personal services to shareholders
provided by broker-dealers or institutions and the balance would be deemed an
asset-based sales charge. See "Purchase of Shares" and "Distribution Plan."
SPECIAL CONSIDERATIONS
The Portfolio may invest in repurchase agreements on a temporary basis or for
defensive purposes. AIM may purchase securities for the Portfolio on a "when-
issued" basis or on a delayed delivery basis. The Portfolio may also purchase
participation interests from financial institutions. Accordingly, an investment
in the shares of the Class may entail somewhat different risks from an
investment in an investment company that does not engage in such investment
practices. See "Investment Program."
3
<PAGE>
TABLE OF FEES AND EXPENSES
The following table is designed to help an investor understand the various
costs and expenses that an investor in the shares of the Class will bear
directly or indirectly. If management fees were not being waived and other
expenses were not being reimbursed, management fees, 12b-1 fees, and other
expenses would be 0.22%, 0.50% and 0.43%, respectively, of average net assets of
the shares of the Class. The 12b-1 fees have been restated to reflect current
fee waivers. A beneficial holder of shares of the Class should also consider the
effect of any account fees charged by the financial institution managing his or
her account.
[CAPTION]
<TABLE>
PRIVATE
INVESTMENT
CLASS
CASH
RESERVE
PORTFOLIO
---------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases
(as a percentage of offering price)....................... None
Maximum sales load on reinvested dividends
(as a percentage of offering price)....................... None
Deferred sales load (as a percentage of original purchase
price or redemption proceeds, as applicable).............. None
Redemption fees (as a percentage of amount redeemed,
if applicable)............................................ None
Exchange fees.............................................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees (after fee waivers)........................ 0.15%
12b-1 fees (after fee waivers)............................. 0.25%(a)
Other expenses (after expense reimbursements).............. 0.05%
----
Total fund operating expenses.............................. 0.45%
====
</TABLE>
- ------------
(a) It is possible that as a result of Rule 12b-1 fees, long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales
charges permitted under rules of the National Association of Securities
Dealers, Inc. Given the Rule 12b-1 fee of the Class, however, it is
estimated that it would take a substantial number of years for a shareholder
to exceed such maximum front-end sales charges.
EXAMPLE
An investor in the Class would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
time period.
<TABLE>
<CAPTION>
PRIVATE
INVESTMENT
CLASS
CASH
RESERVE
PORTFOLIO
---------
<S> <C>
1 year........................................ $ 5
3 years....................................... $14
5 years....................................... $25
10 years....................................... $57
</TABLE>
The example shown in the above table should not be considered to be an
accurate representation of past or future performance and actual expenses may be
greater or less than those shown.
4
<PAGE>
FINANCIAL HIGHLIGHTS
Shown below are the per share income and capital changes for a share of the
Class outstanding during the fiscal years ended March 31, 1993 and 1994. The
following information has been derived from financial statements audited by KPMG
Peat Marwick, independent auditors, whose report on the financial statements and
the related notes appears in the Statement of Additional Information.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED MARCH 31,
-----------------
1994 1993
------ ------
<S> <C> <C>
Net asset value, beginning of period................... $ 1.00 $ 1.00
Income from investment operations:
Net investment income................................. 0.02 0.02
------- ------
Less distributions:
Dividends from net investment operations.............. (0.02) (0.02)
------- ------
Net asset value, end of period......................... $ 1.00 $ 1.00
======= ======
Total return........................................... 2.07% 2.43%
======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted).............. $16,601 $9,593
======= ======
Ratio of expenses to average net assets(a)............ 0.45%(b) 0.45%
======= ======
Ratio of net investment income to average net
assets(a)........................................... 2.05%(b) 2.22%
======= ======
</TABLE>
- ------------
(a) After waiver of advisory fees and expense reimbursements.
(b) Ratios are based on average net assets of $13,746,589. Ratios of expenses
and net investment income to average net assets prior to waiver of advisory
fees and expense reimbursements are 0.90% and 1.60%, respectively.
SUITABILITY FOR INVESTORS
The Class is intended for use primarily by customers of banks, certain broker-
dealers and other financial institutions who seek a convenient and economical
vehicle in which to invest in an open-end, diversified money market fund, the
income from which is exempt from federal income taxes. The minimum initial
investment is $10,000.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is to generate as high a level of
tax-exempt income as is consistent with preservation of capital and maintenance
of liquidity by investing in high quality, short-term municipal obligations.
There can be no assurance that the Portfolio will achieve its investment
objective.
5
<PAGE>
MUNICIPAL SECURITIES
"Municipal Securities" include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the obtaining of funds for
general operating expenses and the lending of 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 facilities. As used in this Prospectus and its related
Statement of Additional Information, interest which is "tax-exempt" or "exempt
from federal income taxes" means interest on Municipal Securities which is
excluded from gross income for federal income tax purposes, and which does not
give rise to a federal alternative minimum tax liability. See "Tax Matters"
herein and in the Statement of Additional Information.
INVESTMENT POLICIES
Except where noted, the investment policies stated below are not fundamental
and may be changed by the Board of Directors of the Fund without shareholder
approval. Shareholders will be notified before any material change in the
following investment policies becomes effective. Policies which are noted as
fundamental may be changed only with the approval of the shareholders of the
Portfolio.
QUALITY STANDARDS
The policies set forth below with respect to quality standards are fundamental
and may be changed only with shareholder approval. The quality standards apply
at the time of purchase of a security. Information concerning the ratings
criteria of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") and certain other nationally recognized statistical ratings
organizations ("NRSROs") appears in the Statement of Additional Information.
The Portfolio will limit its purchases of Municipal Securities to those which
are "First Tier" securities as defined in Rule 2a-7 under the 1940 Act. The
Securities and Exchange Commission (the "SEC") has proposed certain changes to
Rule 2a-7. While such proposed changes may have a prospective impact on the
investments held by the Fund, the Fund anticipates no difficulty in complying
with any proposed change if adopted by the SEC. Briefly, "First Tier" securities
are securities that are rated in the highest rating category for short-term
obligations by two NRSROs, or, if only rated by one NRSRO, are rated in the
highest rating category by that NRSRO, or, if unrated, are determined by the
Portfolio's investment advisor (under the supervision of and pursuant to
guidelines established by the Board of Directors) to be of comparable quality to
a rated security that meets the foregoing quality standards. For a complete
definition of a "First Tier" security, see the definition set forth in the
Statement of Additional Information.
MATURITIES
The policies set forth below with respect to maturities are non-fundamental
and may be changed without shareholder approval.
Consistent with its objective of stability of principal, the Portfolio
attempts to maintain a constant net asset value per share of $1.00 and, to this
end, values its assets by the amortized cost method and rounds the per share net
asset value of its shares in compliance with Rule 2a-7, as amended from time to
time. Accordingly, the Portfolio invests only in Municipal Securities having
remaining maturities of 397 days or less and maintains a dollar weighted average
portfolio maturity of 90 days or less.
6
<PAGE>
The maturity of a security held by the Portfolio is determined in compliance
with applicable rules and regulations. Certain securities bearing interest at
rates that are adjusted prior to the stated maturity of the instrument or that
are subject to repurchase agreements are deemed to have maturities shorter than
their stated maturities.
VARIABLE OR FLOATING RATE INSTRUMENTS
The Portfolio may invest in Municipal Securities which have variable or
floating interest rates which are readjusted periodically. Such readjustment may
be based either upon a predetermined standard, such as a bank prime rate or the
U.S. Treasury bill rate, or upon prevailing market conditions. Variable or
floating interest rates generally reduce changes in the market price of
Municipal Securities from their original purchase price. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable or floating rate Municipal Securities than for
fixed income obligations.
Many Municipal Securities with variable or floating interest rates purchased
by the Portfolio are subject to payment of principal and accrued interest
(usually within seven days) on the Portfolio's demand. The terms of such demand
instruments require payment of principal and accrued interest from the issuer, a
guarantor and/or a liquidity provider. Frequently such obligations include
letters of credit or other credit support arrangements provided by banking
institutions. All variable or floating rate instruments will meet the quality
standards of the Portfolio. The Fund's investment advisor will monitor the
pricing, quality and liquidity of the variable or floating rate Municipal
Securities held by the Portfolio.
SYNTHETIC MUNICIPAL INSTRUMENTS
AIM believes that certain synthetic municipal instruments provide
opportunities for mutual funds to invest in high credit quality securities
providing attractive returns, even in market conditions where the supply of
short-term tax-exempt instruments may be limited. Synthetic municipal
instruments (sometimes referred to as "derivative municipal instruments") are
securities the value of and return on which are derived from underlying
securities. Synthetic municipal instruments comprise a large percentage of tax-
exempt securities eligible for purchase by tax-exempt money market funds. The
types of synthetic municipal instruments in which the Portfolio may invest
involve the deposit into a trust or custodial account of one or more long-term
tax-exempt bonds or notes ("Underlying Bonds"), and the sale of certificates
evidencing interests in the trust or custodial account to investors such as the
Portfolio. The trustee or custodian receives the long-term fixed rate interest
payments on the Underlying Bonds, and pays certificate holders short-term
floating or variable interest rates which are reset periodically. Synthetic
municipal instruments typically are created by a bank, broker-dealer or other
financial institution ("Sponsor"). Typically, a portion of the interest paid on
the Underlying Bonds which exceeds the interest paid to the certificate holders
is paid to the Sponsor or other investors. For further information regarding
specific types of synthetic municipal instruments in which the Portfolio may
invest see the Statement of Additional Information.
All such instruments must meet the minimum quality standards required for the
Portfolio's investments and must present minimal credit risks. In selecting
synthetic municipal instruments for the Portfolio, AIM considers the
creditworthiness of the issuer of the Underlying Bonds, the Sponsor and the
party providing certificate holders with a conditional right to sell (put) their
certificates at stated times and prices. Typically, a certificate holder cannot
exercise its put upon the occurrence of certain conditions, such as where the
issuer of the Underlying Bond defaults on interest payments. Moreover, because
synthetic municipal instruments involve a trust or custodial account and a third
party conditional put feature, they involve complexities and potential risks
that may not be present where a municipal security is owned directly.
7
<PAGE>
The tax-exempt character of the interest paid to certificate holders is based
on the assumption that the holders have an ownership interest in the Underlying
Bonds; however, the Internal Revenue Service has not issued a ruling addressing
this issue. In the event the Internal Revenue Service issues an adverse ruling
or successfully litigates this issue, it is possible that the interest paid to
the Portfolio on certain synthetic municipal instruments would be deemed to be
taxable. The Portfolio relies on opinions of counsel on this ownership question
and opinions of bond counsel regarding the tax-exempt character of interest paid
on the Underlying Bonds.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS
The Portfolio may purchase Municipal Securities on a "when-issued" basis, that
is, delivery of and payment for the securities is not fixed at the date of
purchase, but is set after the securities are issued (normally within forty-five
days after the date of the transaction), and may purchase or sell Municipal
Securities on a delayed delivery basis. The payment obligation and the interest
rate that will be received on the securities are fixed at the time the buyer
enters into the commitment. The Portfolio will only make commitments to purchase
when-issued or delayed delivery Municipal Securities with the intention of
actually acquiring such securities, but the Portfolio may sell these securities
before the settlement date if it is deemed advisable. No additional when-issued
or delayed delivery commitments will be made if more than 25% of the Portfolio's
net assets would become so committed.
Investment in securities on a when-issued or delayed delivery basis may
increase the Portfolio's exposure to market fluctuation and may increase the
possibility that the Portfolio will incur short-term gains subject to federal
taxation or short-term losses if the Portfolio must engage in portfolio
transactions in order to honor a when-issued or delayed delivery commitment. In
a delayed delivery transaction, the Portfolio relies on the other party to
complete the transaction. If the transaction is not completed, the Portfolio may
miss a price or yield considered to be advantageous. The Portfolio will employ
techniques designed to reduce such risks.
If the Portfolio purchases a when-issued or delayed delivery security, the
Portfolio will direct its custodian bank to segregate cash or other high grade
securities (including temporary investments and Municipal Securities) of the
Portfolio in an amount equal to the when-issued or delayed delivery commitment.
If the market value of such segregated securities declines, additional cash or
securities will be segregated on a daily basis so that the market value of the
segregated cash or securities will equal the amount of the Portfolio's when-
issued or delayed delivery commitments. To the extent funds are segregated, they
will not be available for new investments or to meet redemptions.
For a more complete description of when-issued securities and delayed delivery
transactions, see the Statement of Additional Information under the caption
"Investment Program and Restrictions--When-Issued Securities and Delayed
Delivery Transactions."
INVESTMENT RESTRICTIONS
The Portfolio's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. The most significant of these restrictions provide that
the Portfolio will not:
(1) with respect to 75% of its total assets, purchase securities of any
issuer (except obligations of the U.S. Government, its agencies or
instrumentalities, including any Municipal Securities guaranteed by the U.S.
Government) if as a result of such purchase more than 5% of the Portfolio's
total net assets
8
<PAGE>
would be invested in securities of such issuer, and except as permitted by
Rule 2a-7 of the 1940 Act as amended from time to time; or
(2) purchase any securities which would cause more than 25% of the value
of the Portfolio's total net assets at the time of such purchase to be
invested in: (i) securities of one or more issuers conducting their
principal activities in the same state, (ii) securities, the interest on
which is paid from revenues of projects with similar characteristics, or
(iii) industrial development bonds issued by issuers in the same industry;
provided that there is no limit with respect to investments in U.S. Treasury
Bills, other obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, certificates of deposit and guarantees of
Municipal Securities by banks.
The foregoing restrictions are matters of fundamental policy and may not be
changed without shareholder approval.
The Portfolio also may not invest more than 10% of the value of its net assets
in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days.
In addition to the restrictions set forth above, the Fund must also comply
with the requirements of Rule 2a-7 under the 1940 Act, which governs the
operations of money market funds and may be more restrictive. Further investment
restrictions applicable to the Fund are contained in the Statement of Additional
Information.
OTHER CONSIDERATIONS
The ability of the Portfolio to achieve its investment objectives depends upon
the continuing ability of the issuers or guarantors of Municipal Securities held
by the Portfolio to meet their obligations for the payment of interest and
principal when due. The securities in which the Portfolio 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. The net
asset value of the shares of the Class will normally remain constant at $1.00
per share (although there can be no assurance that such net asset value will not
change).
PURCHASE OF SHARES
Shares of the Class are sold on a continuing basis at their net asset value
next determined after an order has been accepted by the Fund. Although no sales
charges are imposed in connection with the purchase of shares of the Class,
banks or other financial institutions may charge a recordkeeping, account
maintenance or other fees to their customers, and beneficial holders of shares
of the Portfolio should consult with such institutions to obtain a schedule of
such fees. In order to maximize its income, the Fund attempts to remain as fully
invested as practicable. Accordingly, in order to be accepted for execution,
purchase orders must be submitted to and received by the Fund prior to 12:00
noon Eastern Time on a business day of the Fund, which means any day on which
commercial banks are open for business. It is expected that commercial banks
will be closed during the next twelve months on Saturdays and Sundays and on the
observed holidays for New Year's Day, Martin Luther King Jr. Day, Presidents'
Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day. In order to be accepted for execution,
purchase orders via AIM LINK(TM) must be submitted to and received by the Fund
prior to 11:00 a.m. Eastern Time on a business day of the Fund. The preceding
sentence applies only to those shareholders of the Class utilizing the version
of AIM LINK(TM) that contains the subaccounting feature.
9
<PAGE>
Shares of the Class are sold to customers of banks, certain broker-dealers and
other financial institutions (individually, "Institution," or collectively,
"Institutions"). Individuals, corporations, partnerships and other businesses
that maintain qualified accounts at an Institution may invest in shares of the
Class. Each institution will render administrative support services to its
customers who are the beneficial owners of the shares of the Class. Such
services include, among other things, establishment and maintenance of
shareholder accounts and records; assistance in processing purchase and
redemption transactions in shares of the Class; providing periodic statements
showing a client's account balance in shares of the Class; distribution of Fund
proxy statements, annual reports and other communications to shareholders whose
accounts are serviced by the Institution; and such other services as the Fund
may reasonably request. Institutions will be required to certify to the Fund
that they comply with applicable state law regarding registration as broker-
dealers, or that they are exempt from such registration.
Prior to the initial purchase of shares, an Account Information and
Authorization Form, which can be obtained from FMC, must be completed and sent
to FMC, P.O. Box 4333, Houston, Texas 77210-4333. Any changes made to the
information provided in the Account Information and Authorization Form must be
made in writing or by completing a new form and providing it to FMC. An investor
must open a Fund account through an Institution in accordance with procedures
established by such Institution. Each Institution separately determines the
rules applicable to Fund accounts opened with it including minimum initial and
subsequent investment requirements and the procedures to be followed by
investors to effect purchases of shares. The minimum initial investment is
$10,000, and there is no minimum amount of subsequent purchases of shares by an
Institution on behalf of its customers.
An Institution may have a "sweep" program under which a portion of a
customer's account with such Institution may be automatically invested in the
Class. An investor who proposes to open a Fund account with an Institution
should consult with a representative of such Institution to obtain a description
of the rules governing such an account. The Institution holds shares registered
in its name, as agent for the customer, on the books of the Institution. A
statement with regard to the customer's investment in the Class is supplied to
the customer periodically, and confirmations of all transactions for the account
of the customer are provided by the Institution to the client promptly upon
request. In addition, each customer is sent proxies, periodic reports and other
information from the Institution with regard to the customer's shares of the
Class. The customer's shares of the Class are fully assignable and subject to
encumbrance by the customer.
An investor may terminate his relationship with an Institution at any time, in
which case an account in the investor's name will be established directly with
the Fund and the investor will become a shareholder of record. In such case,
however, the investor will not be able to purchase additional shares of the
Class directly, except through reinvestment of dividends and distributions.
All agreements which relate to a customer's account with an Institution are
with the Institution.
An order for the purchase of shares of the Class is placed by the investor
with the Institution. The Institution is responsible for the prompt transmission
of the order to the Fund. The Portfolio is normally required to make immediate
settlement in federal funds (member bank deposits with a Federal Reserve Bank)
for portfolio securities purchased. Accordingly, payment for shares of the Class
purchased by Institutions on behalf of their clients must be in federal funds.
If an investor's order to purchase shares of the Class is paid for other than in
federal funds, the Institution, acting on behalf of the investor, completes the
conversion into federal funds (which may take two business days), or itself
advances federal funds prior to conversion, and promptly transmits the order and
payment in the form of federal funds to the Fund.
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To facilitate the investment of proceeds of purchase orders, the Fund urges
investors to place their orders as early in the day as possible. The Fund will
not accept orders placed after 12:00 noon Eastern Time (11:00 a.m. Eastern Time
for orders transmitted via the version of AIM LINK(TM) containing the
subaccounting feature). Orders placed after 12:00 noon Eastern Time (11:00 a.m.
Eastern Time for orders transmitted via the version of AIM LINK(TM) containing
the subaccounting feature) will be processed at the next day's net asset value.
Subject to the conditions stated above and to the Fund's right to reject any
purchase order, orders will be accepted (i) when payment for shares of the Class
purchased is received by the Fund in the form described above or (ii) at the
time the order is placed, if the Fund is assured of payment. Shares purchased by
orders which are accepted prior to 12:00 noon Eastern Time (11:00 a.m. Eastern
Time for orders transmitted via the version of AIM LINK(TM) containing the
subaccounting feature) will earn the dividend declared on the date of purchase.
Federal Reserve wires should be sent as early as possible in order to
facilitate crediting to the shareholder's account. Any funds received in respect
of an order which is not accepted by the Fund and any funds received for which
an order has not been received will be returned to the sending Institution.
In the interest of economy and convenience, certificates representing shares
of the Class will not be issued except upon written request to the Fund.
Certificates (in full shares only) will be issued without charge and may be
redeposited at any time.
The Fund reserves the right in its sole discretion to withdraw all or any part
of the offering made by this Prospectus or to reject any purchase order.
REDEMPTION OF SHARES
A shareholder may redeem any or all of his or her shares of the Class at the
net asset value next determined after receipt of the redemption request in
proper form by the Fund. Normally, the net asset value per share of the
Portfolio will remain constant at $1.00 per share. See "Net Asset Value" below.
Redemption requests with respect to shares for which certificates have not been
issued are normally made through a customer's Institution.
Payment for redeemed shares is normally made by Federal Reserve wire to the
commercial bank account designated in the Institution's Account Information and
Authorization Form, but may be remitted by check upon request by a shareholder.
If a redemption request is received by the Fund prior to 12:00 noon Eastern Time
(11:00 a.m. Eastern Time for redemption requests transmitted via the version of
AIM LINK(TM) containing the subaccounting feature) on a business day of the
Fund, the redemption will be effected at the net asset value next determined on
such day and the shares of the Class to be redeemed will not receive the
dividend declared on the day the request is received. If a redemption request is
received by the Fund after 12:00 noon Eastern Time (11:00 a.m. Eastern Time for
redemption requests transmitted via the version of AIM LINK(TM) containing the
subaccounting feature) or on other than a business day of the Fund, the
redemption will be effected at the net asset value of the Portfolio determined
as of 12:00 noon Eastern Time on the next business day of the Fund, and the
proceeds of such redemption will normally be wired on that day.
A shareholder may change the bank account designated to receive redemption
proceeds by written notice to the Fund. The authorized signature on the notice
must be guaranteed by a commercial bank or a trust company. Additional
documentation may be required when deemed appropriate by the Fund or the
Transfer Agent.
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<PAGE>
Payment for shares redeemed by mail and payment for telephone redemptions in
amounts of less than $1,000 will be made by check mailed within seven days after
receipt of the redemption request in proper form. The Fund may make payment for
telephone redemptions in excess of $1,000 by check when it is considered to be
in the Fund's best interest to do so.
The shares of the Class are not redeemable at the option of the Fund unless
the Board of Directors of the Fund determines in its sole discretion that
failure to so redeem may have materially adverse consequences to the
shareholders of the Fund.
DIVIDENDS
Dividends from the net investment income (not including any net short-term
gains) earned by the Portfolio are declared daily to shareholders of record as
of 3:00 p.m. Eastern Time on the day of declaration. Net investment income for
dividend purposes is determined daily as of 3:00 p.m. Eastern Time. Although
realized gains and losses on the assets of the Portfolio are reflected in the
net asset value of the Portfolio, they are not expected to be of an amount which
would affect the Portfolio's net asset value of $1.00 per share for purposes of
purchases and redemptions. See "Net Asset Value." Distributions from net
realized capital gains (including net short-term gains) are normally distributed
annually. See "Taxes." The Fund does not expect to realize any long-term capital
gains or losses in the Portfolio.
All dividends declared during a month will be paid by check or wire transfer.
(Wire transfers will generally only be made in amounts of $1,000 or more.)
Payment will normally be made on the first business day of the following month.
A shareholder may elect to have all dividends automatically reinvested in
additional full and fractional shares of the Portfolio at the net asset value of
such shares as of 12:00 noon Eastern Time on the last business day of the month.
Such election, or any revocation thereof, must be made either in writing by the
Institution to FMC, P.O. Box 4333, Houston, TX 77210-4333 or transmitted via the
version of AIM LINK(TM) containing the subaccounting feature, and will become
effective with dividends paid after its receipt by FMC or its affiliates (if
transmitted via AIM LINK(TM)). If a shareholder redeems all the shares in his
account at any time during the month, all dividends declared through the date of
redemption are paid to the shareholder along with the proceeds of the
redemption.
The dividend accrued and paid for each class of the Portfolio will consist of:
(a) interest accrued and original issue discount earned less amortization of
market premiums if any, for the Portfolio, the allocation of which is based upon
each such class' pro rata share of the total shares outstanding, less (b) Fund
expenses accrued for the applicable dividend period, such as custodian fees and
accounting expenses, based upon each such class' pro rata share of the net
assets of the Portfolio, less (c) expenses directly attributable to each class
that are accrued for the applicable dividend period, such as distribution
expenses, if any, transfer agent fees or registration fees that may be unique to
such class.
The Fund uses its best efforts to maintain the net asset value per share of
the Portfolio at $1.00 for purposes of sales and redemptions. See "Net Asset
Value." Should the Fund incur or anticipate any unusual expense, loss or
depreciation which could adversely affect the income or net asset value of the
Portfolio, the Fund's Board of Directors would at that time consider whether to
adhere to the present dividend policy described above or to revise it in light
of the then prevailing circumstances. For example, under such unusual
circumstances the Board of Directors might reduce or suspend the daily dividend
in order to prevent to the extent possible the net asset value per share of the
Portfolio from being reduced below $1.00. Thus, such expenses, losses or
depreciation may result in a shareholder receiving no dividends for the period
during which
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<PAGE>
shares of the Class were held and cause such a shareholder to receive upon
redemption a price per share lower than the shareholder's original cost.
TAXES
The Portfolio has qualified and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As long as the Portfolio qualifies for this tax
treatment, it will not be subject to federal income taxes on amounts distributed
to shareholders.
Shareholders will not be required to include the "exempt-interest" portion of
dividends paid by the Portfolio in their gross income for federal income tax
purposes. However, shareholders will be required to report the receipt of
exempt-interest dividends and other tax-exempt interest on their federal income
tax returns. Moreover, exempt-interest dividends from the Portfolio may be
subject to state income taxes, may give rise to a federal alternative minimum
tax liability, may affect the amount of social security benefits subject to
federal income tax, may affect the deductibility of interest on certain
indebtedness of the shareholder and may have other collateral federal income tax
consequences. The Portfolio intends to avoid investment in those Municipal
Securities where the interest thereon will constitute an item of tax preference,
and therefore which could give rise to a federal alternative minimum tax
liability. For additional information concerning the alternative minimum tax and
certain collateral tax consequences of the receipt of exempt-interest dividends,
see the Statement of Additional Information.
The Portfolio may pay dividends to shareholders which are taxable, but will
endeavor to avoid investments which would result in taxable dividends. Unless
otherwise required by Treasury regulations, the percentage of dividends which
constitute exempt-interest dividends, and the percentage thereof (if any) which
constitute an item of tax preference, will be determined annually and will be
applied uniformly to all dividends declared during that year. These percentages
may differ from the actual percentages for any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains (capital gain dividends), whether received in cash or additional
shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the Fund
to pay exempt-interest dividends would be adversely affected.
Shareholders will be advised annually as to the federal income tax status of
distributions made during the year. Shareholders are advised to consult with
their tax advisors concerning the impact of the Code on their investments in the
Portfolio, and concerning the application of state, local and foreign taxes to
investments in the Portfolio, which may differ significantly from the federal
income tax consequences described above.
NET ASSET VALUE
The net asset value per share (or share price) of the Portfolio is determined
as of 12:00 noon Eastern Time on each "business day of the Fund," as previously
defined. It is calculated by subtracting the Portfolio's liabilities from its
total assets and by dividing the result by the total number of shares
outstanding in the Portfolio, and rounding such per share net asset value to the
nearest whole cent. The determination of the
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<PAGE>
Portfolio's net asset value is made in accordance with generally accepted
accounting principles. Among other items, the Portfolio's liabilities include
accrued expenses and dividends payable, and its total assets include portfolio
securities valued at their market value as well as income accrued but not yet
received.
Securities held by the Portfolio are valued on the basis of amortized cost
pursuant to rules promulgated by the SEC applicable to money market funds. This
method values a security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the security. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Portfolio would receive if the security were sold.
During such periods, the daily yield on shares of the Portfolio computed as
described in "Purchases and Redemptions--Yield Information" in the Statement of
Additional Information may differ somewhat from an identical computation made by
an investment company with identical investments utilizing available indications
as to market value to value its portfolio securities. All variable rate
securities held in the Fund with an unconditional demand or put feature
exercisable within seven days or less shall be valued at par, which reflects the
market value of such securities.
YIELD INFORMATION
Yield information for the shares of the Class can be obtained by calling the
Fund at (800) 877-7748. Yields will vary from time to time and past results are
not necessarily indicative of future results. Accordingly, the yield information
for the shares of the Class may not provide a basis for comparison with
investments which pay fixed rates of interest for a stated period of time, with
other investments or with investment companies which use a different method of
calculating performance. Yield is a function of the type and quality of a
Portfolio's investments, a Portfolio's maturity and the operating expense ratio
of the Classes and a Portfolio. A SHAREHOLDER'S INVESTMENT IN THE PORTFOLIO IS
NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT OR BY ANY INSTITUTION. THESE
FACTORS SHOULD BE CAREFULLY CONSIDERED BY THE INVESTOR BEFORE MAKING AN
INVESTMENT IN THE PORTFOLIO.
Comparative performance information using data from the industry publications
may be used from time to time in advertising or marketing the shares of the
Class.
The yield of the Class calculated as described below, will fluctuate from day
to day. Calculations of yield will take into account the total income received
by the Portfolio, including taxable income, if any; however, the Portfolio
intends to invest its assets so that one hundred percent (100%) of its annual
interest income will be tax-exempt. To the extent that different classes of
shares bear different expenses, the yield of such classes can be expected to
vary. To the extent that Institutions charge fees in connection with services
provided in conjunction with the Fund, the yield will be lower for those
beneficial owners paying such fees.
The current yield, effective yield (which assumes the reinvestment of
dividends for a 365 day year and a return for the entire year equal to the
average annualized current yield for the period) and tax equivalent yield for
the Class are calculated according to a formula prescribed by the SEC. See
"Performance Information" in the Statement of Additional Information. For the
seven-day period ended March 31, 1994, the current and effective yield for the
Class were 1.86% and 1.88%, respectively.
REPORTS TO SHAREHOLDERS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of the
investments held in the Portfolio's financial statements. The annual financial
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<PAGE>
statements are audited by the Fund's independent auditors. The Board of
Directors has selected KPMG Peat Marwick, 700 Louisiana, NationsBank Building,
Houston, Texas 77002, as the Fund's independent auditors to audit the Fund's
financial statements and review the Fund's tax returns.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The overall management of the business and affairs of the Fund is vested with
its Board of Directors. The Board of Directors approves all significant
agreements between the Fund and persons or companies furnishing services to the
Fund, including agreements with the Fund's investment advisor, distributor,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Fund's officers and to AIM, subject always to the objective and
policies of the Fund and to the general supervision of the Fund's Board of
Directors. Certain directors and officers of the Fund are affiliated with AIM
and A I M Management Group Inc. ("AIM Management"), the parent of AIM.
Information concerning the Board of Directors may be found in the Statement of
Additional Information.
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-
1173, acts as the investment advisor for the Portfolio pursuant to an Investment
Advisory Agreement dated as of October 18, 1993 (the "Agreement"). AIM was
organized in 1976 and, together with its affiliates, manages or advises 35
investment company portfolios. As of July 1, 1994, the total assets of the
investment company portfolios managed or advised by AIM and its affiliates were
approximately $25.8 billion. Pursuant to the terms of the Agreement, AIM manages
the investment of the Portfolio's assets. AIM obtains and evaluates economic,
statistical and financial information to formulate and implement investment
programs for the Portfolio. AIM shall not be liable to the Fund or to its
shareholders except in the case of AIM's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty; provided, however, that AIM may be
liable for certain breaches of duty under the 1940 Act. Certain of the directors
and officers of AIM are also directors or executive officers of the Fund.
Pursuant to the Agreement, AIM is paid a fee from the Fund with respect to the
Portfolio calculated at the annual rate of 0.25% of the first $500 million of
the Portfolio's average daily net assets plus 0.20% of such Portfolio's average
daily net assets in excess of $500 million.
For the fiscal year ended March 31, 1994, AIM was paid fees from the Fund with
respect to the Portfolio which represented 0.15% of the Portfolio's average net
assets. During such fiscal year, those expenses of the Fund (relating
exclusively to the Portfolio) which were borne by the Class, including fees paid
to AIM, amounted to 0.45% of the Class' average net assets. For the fiscal year
ended March 31, 1994, AIM waived a portion of its fees from the Fund with
respect to the Portfolio. Had AIM not waived its fee, AIM would have received an
amount from the Fund pursuant to the Agreement with respect to the Portfolio
which represented 0.22% of the Portfolio's average daily net assets. AIM also
reimbursed the Fund for expenses of $51,600 with respect to the Class for the
year ended March 31, 1994.
The Fund pays or causes to be paid all expenses of the Fund which are not
borne by its distributor or AIM. See the Statement of Additional Information for
a detailed description of these other charges.
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<PAGE>
DISTRIBUTOR
The Fund has entered into a distribution agreement dated as of October 18,
1993 (the "Distribution Agreement") with FMC, a registered broker-dealer and a
wholly-owned subsidiary of AIM, to act as the exclusive distributor of the
shares of the Class. The address of FMC is 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173. Certain directors and officers of the Fund are
affiliated with FMC and AIM Management. The Distribution Agreement provides that
FMC has the exclusive right to distribute shares of the Fund either directly or
through other broker-dealers. FMC is the distributor of several of the mutual
funds managed or advised by AIM.
FMC may, from time to time, at its expense, pay a bonus or other consideration
or incentive to financial institutions who sell a minimum dollar amount of the
shares of the Private Investment Class during a specific period of time. In some
instances, these incentives may be offered only to certain Institutions who have
sold or may sell significant amounts of shares. The total amount of such
additional bonus payments or other consideration shall not exceed 0.05% of the
net asset value of the shares sold. Any such bonus or incentive programs will
not change the price paid by investors for the purchase of shares in the Class
or the amount received as proceeds from such sales. Sales of shares of the Class
may not be used to qualify for any incentives to the extent that such incentives
may be prohibited by the laws of any jurisdiction.
DISTRIBUTION PLAN
The Fund has adopted the Plan pursuant to Rule 12b-1 under the 1940 Act with
respect to the Class. The Plan provides that the Fund may incur expenses in
connection with the distribution of the shares of the Class of up to 0.50% on an
annualized basis of the average daily net assets of the shares of the Class.
Such amounts may be expended when and if authorized by the Board of Directors
and may be used to finance such distribution-related services as expenses of
organizing and conducting sales seminars, printing of prospectuses and
statements of additional information (and supplements thereto) and reports for
other than existing shareholders, preparation and distribution of advertising
material and sales literature, costs of administering the Plan and payment of
service fees to certain Institutions. The Plan provides for payment of a service
fee to Institutions that provide continuing personal shareholder services to
their customers who purchase and own shares of the Class, in amounts of up to
0.25% of the average net assets of the Class attributable to the Institutions.
Payments to Institutions in excess of such amount and payments to FMC would be
characterized as an asset-based sales charge pursuant to the Plan. The Plan also
imposes a cap on the total amount of sales charges, including asset-based sales
charges, that may be paid by the Portfolio with respect to the Class. The Plan
does not obligate the Fund to reimburse FMC for the actual expenses FMC may
incur in fulfilling its obligations under the Plan on behalf of the Class. Thus,
under the Plan, even if FMC's actual expenses exceed the fee payable to FMC
thereunder at any given time, the Fund will not be obligated to pay more than
that fee. If FMC's expenses are less than the fee it receives, FMC will retain
the full amount of the fee.
FMC is a wholly-owned subsidiary of AIM. Both Charles T. Bauer, a Director and
Chairman of the Fund and Robert H. Graham, a Director and President of the Fund,
own shares of AIM Management.
The Plan requires the officers of the Fund to provide the Board of Directors
at least quarterly with a written report of the amounts expended pursuant to the
Plan and the purposes for which such expenditures were made. The Board of
Directors shall review these reports in connection with their decisions with
respect to the Plan.
As required by Rule 12b-1 under the 1940 Act, the Plan was most recently
approved by the Board of Directors, including a majority of the directors who
are not "interested persons" (as defined in the 1940 Act)
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<PAGE>
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related to the Plan ("Qualified
Directors") on May 10, 1994. In approving the Plan in accordance with the
requirements of Rule 12b-1, the directors considered various factors and
determined that there is a reasonable likelihood that the Plan would benefit the
Fund and the holders of the shares of the Class.
The Plan became effective on May 1, 1992, as amended as of July 1, 1993, and
unless sooner terminated in accordance with its terms, shall continue in effect
for each year thereafter as long as such continuance is specifically approved at
least annually by the Board of Directors, including a majority of the Qualified
Directors. On May 10, 1994, the Board of Directors, including the Qualified
Directors, voted to continue the Plan until June 30, 1995.
The Plan may be terminated by a vote of a majority of the Qualified Directors,
or by a vote of a majority of the holders of the outstanding voting securities
of the Class. Any change in the Plan that would increase materially the
distribution expenses paid by the Class requires shareholder approval; otherwise
the Plan may be amended by the Board of Directors, including a majority of the
Qualified Directors, by vote cast in person at a meeting called for the purpose
of voting upon such amendment. As long as the Plan is in effect, the selection
or nomination of the Qualified Directors is committed to the discretion of the
Qualified Directors.
PORTFOLIO TRANSACTIONS AND BROKERAGE
AIM is responsible for decisions to buy and sell securities for the Portfolio,
broker-dealer selection and negotiation of commission rates. Since purchases and
sales of portfolio securities by the Portfolio are usually principal
transactions, the Portfolio incurs little or no brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to dealers serving as market
makers may include a spread between the bid and asked prices. The Portfolio may
also purchase securities from underwriters at prices which include a concession
paid by the issuer to the underwriter.
AIM's primary consideration in effecting a security transaction is to obtain
the best net price and the most favorable execution of the order. To the extent
that the execution and prices offered by more than one dealer are comparable,
AIM may, in its discretion, effect transactions with dealers that furnish
statistical, research or other information or services which are deemed by AIM
to be beneficial to the Portfolio's investment program. Certain research
services furnished by dealers may be useful to AIM with clients other than the
Portfolio. Similarly, research services received by AIM through placement of
Portfolio transactions of other clients may be of value to AIM in fulfilling its
obligations to the Portfolio.
FEE WAIVERS
In order to increase the yield to investors, AIM or its affiliates may from
time to time waive or reduce its advisory or distribution fees while retaining
the right to be reimbursed prior to year end. Fee waivers or reductions, other
than those set forth in the Agreement, may be rescinded at any time without
further notice to investors. AIM has agreed, however, to provide the Board of
Directors with 60 days' notice prior to terminating the current voluntary fee
waiver described below.
AIM has voluntarily agreed to reduce its advisory fee from the Portfolio to
the extent necessary so that the amount of ordinary expenses of the
Institutional Cash Reserve Shares (excluding interest, taxes, brokerage
commissions, directors' fees, extraordinary expenses and federal registration
fees) paid or incurred by the Institutional Cash Reserve Shares does not exceed
0.20% of the Institutional Cash Reserve Shares' average daily net assets. As a
result, AIM's advisory fee on the Class is reduced in the same proportion as the
17
<PAGE>
Institutional Cash Reserve Shares. For the year ended March 31, 1994, AIM
reduced its fees from the Portfolio by $802,331. AIM also assumed expenses of
$51,600 on the Class during the same period.
GENERAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Fund was originally incorporated in Maryland on January 24, 1977, but had
no operations prior to March 21, 1983. Effective August 30, 1985, the Fund was
reorganized as a Massachusetts business trust and, effective May 1, 1992, it was
reorganized as a Maryland corporation. The Fund currently offers shares of one
portfolio, the Portfolio, which has two classes. All shares of the Fund have
equal rights with respect to voting, except that the holders of shares of a
particular class will have the exclusive right to vote on matters pertaining
solely to that class. For example, holders of shares of a particular class will
have the exclusive right to vote on any matter, such as distribution
arrangements, which relates solely to such class. In the event of liquidation or
termination of the Fund, holders of shares of each class will receive pro rata,
subject to the rights of creditors, (a) the proceeds of the sale of the assets
held in the Portfolio, less (b) the liabilities of the Fund attributable to the
respective class of the Portfolio allocated between the two classes thereof
based on the respective liquidation value of the class. Fractional shares of the
Class have the same rights as full shares to the extent of their proportionate
interest.
There will not normally be annual shareholders' meetings. Shareholders may
remove directors from office by votes cast at a meeting of shareholders or by
written consent, and a meeting of shareholders may be called at the request of
the holders of 10% or more of the Fund's outstanding shares.
There are no preemptive or conversion rights applicable to any of the Fund's
shares. The Fund's shares, when issued, will be fully paid and non-assessable.
The Board of Directors may create additional classes or series of the Fund
without shareholder approval.
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02105, acts as custodian for the Fund's portfolio securities and
cash and as transfer agent for shares of the Class. A I M Fund Services, Inc.,
Institutional Funds Department, P.O. Box 4497, Houston, Texas 77214-4497, acts
as sub-transfer agent for shares of the Class.
LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania,
serves as counsel to the Fund, and has passed upon the legality of the shares of
the Fund offered by this Prospectus.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed
to an investor's Institution, or to the Fund at 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173, or may be made by calling (800) 877-7748.
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<PAGE>
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing. A Statement of Additional Information has been
filed with the SEC. Copies of the Statement of Additional Information are
available upon request and without charge by writing or calling the Fund or FMC.
This Prospectus omits certain information contained in the registration
statement filed with the SEC. Copies of the registration statement, including
items omitted herein, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
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<PAGE>
INVESTMENT ADVISOR TAX-FREE
A I M ADVISORS, INC. INVESTMENTS CO.
11 Greenway Plaza, Suite 1919 (TFIC)
Houston, Texas 77046-1173
(713) 626-1919 PRIVATE
INVESTMENT CLASS
OF THE
DISTRIBUTOR -----------------------------------
FUND MANAGEMENT COMPANY CASH RESERVE PROSPECTUS
11 Greenway Plaza, Suite 1919 PORTFOLIO
Houston, Texas 77046-1173
(800) 877-7748
AUDITORS
KPMG PEAT MARWICK
700 Louisiana
NationsBank Building
Houston, Texas 77002
CUSTODIAN AND TRANSFER AGENT August 1, 1994
STATE STREET BANK AND TRUST
COMPANY
225 Franklin Street
Boston, Massachusetts 02110
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE FUND OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN [AIM LOGO APPEARS HERE]
ANY JURISDICTION TO ANY PERSON TO WHOM SUCH
OFFERING MAY NOT LAWFULLY BE MADE. Fund Management Company
