<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
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The Private Investment Class of the Cash Reserve Portfolio of Tax-Free
Investments Co. (the "Company") 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 Company 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.
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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.
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THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT A PROSPECTIVE INVESTOR
SHOULD KNOW ABOUT THE COMPANY AND THE SHARES PRIOR TO INVESTING AND SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 31, 1995 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: JULY 31, 1995
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TABLE OF CONTENTS
<TABLE>
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PAGE PAGE
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<S> <C> <C> <C>
SUMMARY..................... 2 DIVIDENDS.................. 12
TABLE OF FEES AND EXPENSES.. 4 TAXES...................... 13
FINANCIAL HIGHLIGHTS........ 5 NET ASSET VALUE............ 14
SUITABILITY FOR INVESTORS... 5 YIELD INFORMATION.......... 14
INVESTMENT PROGRAM.......... 5 REPORTS TO SHAREHOLDERS.... 15
PURCHASE OF SHARES.......... 9 MANAGEMENT OF THE COMPANY.. 15
REDEMPTION OF SHARES........ 11 GENERAL INFORMATION........ 18
</TABLE>
SUMMARY
THE COMPANY AND ITS INVESTMENT OBJECTIVE
The Company is an open-end, diversified, series management investment company
with one portfolio, the Cash Reserve Portfolio (the "Portfolio"). Pursuant to
this Prospectus, the Company 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 Company 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 COMPANY
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 Company. 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. See "Redemption of Shares."
2
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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 Company 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 Company's investment advisor and
receives a fee based on the Portfolio's average daily net assets. During the
fiscal year ended March 31, 1995, the Company paid AIM advisory fees which
represented 0.16% of the average net assets of the Portfolio. During such
fiscal year, those expenses of the Company (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,
1995, AIM waived a portion of its fees from the Company with respect to the
Portfolio. Had AIM not waived its fee, AIM would have received an amount from
the Company 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 Company--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 Company pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "1940 Act") with respect to the Class, the Company may pay up
to 0.50% of the Portfolio'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."
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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 0.45%, respectively, of the 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.
<TABLE>
<CAPTION>
PRIVATE
INVESTMENT
CLASS OF THE CASH
RESERVE PORTFOLIO
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<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)......................... 0.16%
12b-1 Fees (after fee waivers).............................. 0.25%(a)
Other expenses (after expense reimbursements)............... 0.04%
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Total fund operating expenses............................... 0.45%
====
</TABLE>
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(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 OF THE 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.
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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, 1995, 1994 and 1993.
The following information has been derived from financial statements audited by
KPMG Peat Marwick LLP, 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,
---------------------------
1995 1994 1993
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<S> <C> <C> <C>
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income............................ 0.03 0.02 0.02
Less distributions:
Dividends from net investment operations......... (0.03) (0.02) (0.02)
------- ------- ------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00
======= ======= ======
Total return...................................... 2.80% 2.07% 2.43%
======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted)......... $29,286 $16,601 $9,593
======= ======= ======
Ratio of expenses to average net assets(a)....... 0.45%(b) 0.45% 0.45%
======= ======= ======
Ratio of net investment income to average net
assets(a)....................................... 2.89%(b) 2.05% 2.22%
======= ======= ======
</TABLE>
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(a) After waiver of advisory fees and expense reimbursements.
(b) Ratios are based on average net assets of $24,685,681. Ratios of expenses
and net investment income to average net assets prior to waiver of advisory
fees and expense reimbursements are 0.92% and 2.42%, 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
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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 Company 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
United States 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 Portfolio, the Company
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.
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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 Company'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.
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<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 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
8
<PAGE>
(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 Company 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. The SEC has
proposed certain changes to Rule 2a-7. While such proposed changes may have a
prospective impact on the investments of the Portfolio, the Portfolio
anticipates no difficulty in complying with any proposed change if adopted by
the SEC. A description of further investment restrictions applicable to the
Portfolio is 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 Company. 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 Portfolio 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 Company prior to 12:00 noon Eastern Time on a business day of the Company,
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.
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
9
<PAGE>
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
Company proxy statements, annual reports and other communications to
shareholders whose accounts are serviced by the Institution; and such other
services as the Company may reasonably request. Institutions will be required
to certify to the Company 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 Application, which can be
obtained from A I M Institutional Fund Services, Inc. ("Transfer Agent" or
"AIFS"), must be completed and sent to AIFS, P.O. Box 4497, Houston, Texas
77210-4497. Any changes made to the information provided in the Account
Application must be made in writing or by completing a new form and providing
it to AIFS. An investor must open a Company account through an Institution in
accordance with procedures established by such Institution. Each Institution
separately determines the rules applicable to Company 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 Company 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 Company 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 Company. 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 AIFS.
10
<PAGE>
Subject to the conditions stated above and to the Company's right to reject
any purchase order, orders will be accepted (i) when payment for shares of the
Class purchased is received by the Company in the form described above or (ii)
at the time the order is placed, if the Company is assured of payment. Shares
purchased by orders which are accepted prior to 12:00 noon Eastern Time 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 Company 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 Company.
Certificates (in full shares only) will be issued without charge and may be
redeposited at any time.
The Company 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 Company. Redemption requests with respect to the Class may
also be made via AIM LINK(TM), a personal computer application software product.
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 Application,
but may be remitted by check upon request by a shareholder. If a redemption
request is received by AIFS prior to 12:00 noon Eastern Time on a business day
of the Portfolio, 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 AIFS after 12:00 noon Eastern Time or on
other than a business day of the Portfolio, 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 Portfolio, 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 Company. 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 Portfolio or the
Transfer Agent.
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 Company may make
payment for telephone redemptions in excess of $1,000 by check when it is
considered to be in the Company's best interest to do so.
The shares of the Class are not redeemable at the option of the Company
unless the Board of Directors of the Company determines in its sole discretion
that failure to so redeem may have materially adverse consequences to the
shareholders of the Company.
11
<PAGE>
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 Company does not expect to realize any
long-term capital gains or losses in the Portfolio.
All dividends declared during a month will normally be paid by wire transfer.
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 in writing by the
Institution to AIFS, P.O. Box 4497, Houston, TX 77210-4497 and will become
effective with dividends paid after its receipt by AIFS. 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 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)
Company 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 Company 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 Company incur or anticipate any unusual expense, loss or
depreciation which could adversely affect the income or net asset value of the
Portfolio, the Company'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 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.
12
<PAGE>
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
constitutes exempt-interest dividends, and the percentage thereof (if any)
which constitutes 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
Portfolio 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.
13
<PAGE>
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 Company," 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 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 Portfolio 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
Company 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 Portfolio, the yield will be lower for those
beneficial owners paying such fees.
From time to time and in its discretion, AIM may waive all or a portion of
its advisory fees and/or assume certain expenses of the Portfolio. Such a
practice will have the effect of increasing the Portfolio's yield and total
return.
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<PAGE>
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, 1995, the current and effective yield for the
Class were 3.61% and 3.67%, respectively.
REPORTS TO SHAREHOLDERS
The Company furnishes shareholders with semi-annual reports containing
information about the Company and its operations, including a list of the
investments held in the Portfolio's financial statements. The annual financial
statements are audited by the Company's independent auditors. The Board of
Directors has selected KPMG Peat Marwick LLP, 700 Louisiana, NationsBank
Building, Houston, Texas 77002, as the Company's independent auditors to audit
the Company's financial statements and review the Portfolio's tax returns.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The overall management of the business and affairs of the Company is vested
with its Board of Directors. The Board of Directors approves all significant
agreements between the Company and persons or companies furnishing services to
the Company, including agreements with the Company's investment advisor,
distributor, custodian and transfer agent. The day-to-day operations of the
Company are delegated to the Company's officers and to AIM, subject always to
the objective and policies of the Company and to the general supervision of the
Company's Board of Directors. Certain directors and officers of the Company 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
37 investment company portfolios. As of July 14, 1995, the total assets of the
investment company portfolios managed or advised by AIM and its affiliates were
approximately $34.8 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 Company
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 Company.
Pursuant to the Agreement, AIM is paid a fee from the Company 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.
15
<PAGE>
For the fiscal year ended March 31, 1995, AIM was paid fees from the Company
with respect to the Portfolio which represented 0.16% of the Portfolio's
average net assets. During such fiscal year, those expenses of the Company
(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, 1995, AIM waived a portion of its fees from
the Company with respect to the Portfolio. Had AIM not waived its fee, AIM
would have received an amount from the Company 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 Company for expenses of $100,000 with
respect to the Class for the year ended March 31, 1995.
The Company pays or causes to be paid all expenses of the Company which are
not borne by its distributor or AIM. See the Statement of Additional
Information for a detailed description of these other charges.
DISTRIBUTOR
The Company 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 Company are
affiliated with FMC and AIM Management. The Distribution Agreement provides
that FMC has the exclusive right to distribute shares of the Company 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 Company has adopted the Plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Class. The Plan provides that the Company 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
16
<PAGE>
respect to the Class. The Plan does not obligate the Company 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
Company 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 Company and Robert H. Graham, a Director and President of
the Company, own shares of AIM Management.
The Plan requires the officers of the Company 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) of the Company 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 9,
1995. 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 Company 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 9, 1995, the Board of Directors, including the
Qualified Directors, voted to continue the Plan until June 30, 1996.
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
17
<PAGE>
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 Institutional Cash Reserve Shares. For the year ended March 31, 1995, AIM
reduced its fees from the Portfolio by $659,533. AIM also assumed expenses of
$100,000 on the Class during the same period.
GENERAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Company was originally incorporated in Maryland on January 24, 1977, but
had no operations prior to March 21, 1983. Effective August 30, 1985, the
Company was reorganized as a Massachusetts business trust and, effective May 1,
1992, it was reorganized as a Maryland corporation. The Company currently
offers shares of one portfolio, the Portfolio, which has two classes. All
shares of the Company 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 Company, 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
Company 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 Company's outstanding shares.
There are no preemptive or conversion rights applicable to any of the
Company's shares. The Company's shares, when issued, will be fully paid and
non-assessable. The Board of Directors may create additional classes or series
of the Company without shareholder approval.
18
<PAGE>
TRANSFER AGENT AND CUSTODIAN
A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173, acts as transfer agent for the Class offered
pursuant to this Prospectus. State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02105, acts as custodian for the Company's
portfolio securities and cash for the Class offered pursuant to this
Prospectus.
LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, Philadelphia,
Pennsylvania, serves as counsel to the Company, and has passed upon the
legality of the shares of the Portfolio 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 Company at 11 Greenway Plaza, Suite
1919, Houston, Texas 77046-1173, or may be made by calling (800) 877-7748.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know about
the Company 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 Company 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.
19
<PAGE>
INVESTMENT ADVISOR
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 1919 TAX-FREE
Houston, Texas 77046-1173 INVESTMENTS CO.
(713) 626-1919 (TFIC)
DISTRIBUTOR PRIVATE
FUND MANAGEMENT COMPANY INVESTMENT CLASS
11 Greenway Plaza, Suite 1919 OF THE
Houston, Texas 77046-1173 -------------------------------------
(800) 877-7748 CASH RESERVE PROSPECTUS
PORTFOLIO
AUDITORS
KPMG PEAT MARWICK LLP JULY 31, 1995
700 Louisiana
NationsBank Building
Houston, Texas 77002
CUSTODIAN
STATE STREET BANK AND TRUST
COMPANY
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
A I M INSTITUTIONAL FUND SERVICES, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
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 [LOGO OF AIM APPEARS HERE]
DISTRIBUTOR. THIS PROSPECTUS DOES Fund Management Company
NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION TO ANY PERSON TO WHOM
SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
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
----------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS,
COPIES OF WHICH
MAY BE OBTAINED BY WRITING
FUND MANAGEMENT COMPANY, P.O. BOX 4333,
HOUSTON, TEXAS 77210-4333
OR CALLING (800) 877-7748
----------------------
STATEMENT OF ADDITIONAL INFORMATION DATED: JULY 31, 1995
RELATING TO THE PROSPECTUS DATED: JULY 31, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION................................................... 1
GENERAL INFORMATION ABOUT THE COMPANY.......................... 1
The Company and its Shares................................ 1
Directors and Officers.................................... 3
Remuneration of Directors................................. 7
AIM Funds Retirement Plan for Eligible Directors/Trustees. 8
Deferred Compensation Agreements.......................... 8
The Investment Advisor.................................... 9
Expenses.................................................. 11
Transfer Agent and Custodian.............................. 12
Reports................................................... 12
Principal Holders of Securities........................... 12
SHARE PURCHASES AND REDEMPTIONS................................ 14
Purchases and Redemptions................................. 14
Net Asset Value Determination............................. 14
The Distribution Agreement................................ 16
Distribution Plan......................................... 16
PERFORMANCE INFORMATION........................................ 19
INVESTMENT PROGRAM AND RESTRICTIONS............................ 19
Investment Program........................................ 19
Municipal Securities...................................... 21
Investment Ratings........................................ 22
When-Issued Securities and Delayed Delivery Transactions.. 27
Variable or Floating Rate Instruments..................... 28
Synthetic Municipal Instruments........................... 28
Participation Interests and Municipal Leases.............. 29
Investment Restrictions................................... 29
PORTFOLIO TRANSACTIONS......................................... 30
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS....................... 32
Dividends and Distributions............................... 32
Tax Matters............................................... 32
Qualification as a Regulated Investment Company........... 33
Excise Tax on Regulated Investment Companies.............. 34
Company Distributions..................................... 34
Foreign Shareholders...................................... 36
Effect of Future Legislation; Local Tax Considerations.... 36
FINANCIAL STATEMENTS........................................... FS
</TABLE>
<PAGE>
INTRODUCTION
Tax-Free Investments Co. (the "Company") is a mutual fund organized with
one portfolio, the Cash Reserve Portfolio, which has two classes of shares. The
rules and regulations of the Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors certain information
concerning the activities of the being considered for investment. This
information is included in a Prospectus dated July 31, 1995. Copies of the
Prospectus and additional copies of the Statement of Additional Information may
be obtained without charge by writing the principal distributor of the Company's
shares, Fund Management Company ("FMC"), 11 Greenway Plaza, Suite 1919, Houston,
Texas 77046-1173 or by calling (800) 877-7748. Investors must receive a
Prospectus before they invest.
This Statement of Additional Information is intended to furnish prospective
investors with additional information concerning the Company and the Private
Investment Class of the Cash Reserve Portfolio (the "Class"). Some of the
information required to be in this Statement of Additional Information is also
included in the current Prospectus and, in order to avoid repetition, reference
will be made to sections of the Prospectus. Additionally, the Prospectus and
this Statement of Additional Information omit certain information contained in
the registration statement filed with the SEC. Copies of the registration
statement, including items omitted from the Prospectus and this Statement of
Additional Information, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE COMPANY
THE COMPANY AND ITS SHARES
The Company is an open-end, diversified, series, management investment
company initially organized as a corporation under the laws of the State of
Maryland on January 24, 1977. The Company was reorganized as a business trust
under the laws of The Commonwealth of Massachusetts on August 30, 1985 and was
reorganized as a Maryland corporation on May 1, 1992. Shares of common stock of
the Company are redeemable at the net asset value thereof at the option of the
shareholder or at the option of the Company in certain circumstances. For
information concerning the methods of redemption and the rights of share
ownership, investors should consult the Prospectus under the captions "General
Information" and "Redemption of Shares."
The Company offers shares of one portfolio, the Cash Reserve Portfolio
(referred to as the "Portfolio"). This Statement of Additional Information and
the Prospectus referred to above relate solely to the Class.
As used in the Prospectus, the term "majority of the outstanding shares" of
the Company, the Portfolio or a particular class means, respectively, the vote
of the lesser of (i) 67% or more of the shares of the Company, the Portfolio or
such class present at a meeting of the Company's shareholders, if the holders of
more than 50% of the outstanding shares of the Company, the Portfolio or such
class are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Company, the Portfolio or such class.
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<PAGE>
Shareholders of the Portfolio do not have cumulative voting rights, and
therefore the holders of a majority of a quorum of the outstanding shares of the
Portfolio voting together for election of directors may elect all of the members
of the Board of Directors of the Company. In such event, the remaining holders
cannot elect any members of the Board of Directors of the Company.
The Board of Directors may classify or reclassify any unissued shares of
any class or classes in addition to those already authorized by setting or
changing in any one or more respects, from time to time, prior to the issuance
of such shares, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption, of such shares. Any such classification or
reclassification will comply with the provisions of the Investment Company Act
of 1940, as amended (the "1940 Act").
The Articles of Incorporation permit the directors to issue 6,000,000,000
shares of common stock at $.001 par value. A share of the Portfolio represents
an equal proportionate interest in the Portfolio with each other share of the
Portfolio and is entitled to a proportionate interest in the dividends and
distributions with respect to its class. Additional information concerning the
rights of share ownership is set forth in the Prospectus.
The assets received by the Company for the issue or sale of shares of each
class relating to a Portfolio and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of creditors, constitute the
underlying assets of that Portfolio. The underlying assets of the Portfolio are
segregated and are charged with the expenses with respect to the Portfolio. See
"Expenses."
The Articles of Incorporation further provide that the directors will not
be liable for errors of judgment or mistakes of fact or law. However, nothing
in the Articles of Incorporation protects a director against any liability to
which a director 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 office. The Articles of Incorporation provide for
indemnification by the Company of the directors and the officers of the Company
except with respect to any matter as to which any such person did not act in
good faith and in the reasonable belief that his action was in or not opposed to
the best interests of the Company. Such person may not be indemnified against
any liability to the Company or the Company's shareholders to which he 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
office. The Articles of Incorporation also authorize the purchase of liability
insurance on behalf of the Company's directors and officers.
As described in the Prospectus, the Company will not normally hold annual
shareholders' meetings. A special meeting shall be held upon written request of
the holders of not less than 10% of the outstanding shares of the Company. At
such time as less than a majority of the directors have been elected by the
shareholders, the directors then in office will call a shareholders' meeting for
the election of directors. In addition, directors may be removed from office by
a written consent signed by the holders of two-thirds of the outstanding shares
of the Company and filed with the Company's transfer agent or by a vote of the
holders of two-thirds of the outstanding shares at a meeting duly called for the
purpose. Upon written request by ten or more shareholders, who have been such
for at least six months and who hold shares constituting 1% of the outstanding
shares, stating that such shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
2
<PAGE>
meeting to consider removal of a director, the Company has undertaken to provide
a list of shareholders or to disseminate appropriate materials (at the expense
of the requesting shareholders).
Except as otherwise disclosed in the Prospectus and in this Statement of
Additional Information, the directors shall continue to hold office and may
appoint their successors.
DIRECTORS AND OFFICERS
The directors and executive officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
indicated, the address of each director and executive officer is 11 Greenway
Plaza, Suite 1919, Houston, Texas 77046.
*CHARLES T. BAUER, Director and Chairman (76)
Director, Chairman and Chief Executive Officer, A I M Management Group
Inc.; Chairman of the Board of Directors, A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc., A I M
Global Associates, Inc., A I M Global Holdings, Inc., A I M Institutional Fund
Services, Inc. and Fund Management Company; and Director, AIM Global Advisors
Limited, A I M Global Management Company Limited and AIM Global Venture Co.
BRUCE L. CROCKETT, Director (51)
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Director, President and Chief Executive Officer, COMSAT Corporation
(Includes COMSAT World Systems, COMSAT Mobile Communications, COMSAT Video
Enterprises and COMSAT RSI and COMSAT International Ventures). Previously,
President and Chief Operating Officer, COMSAT Corporation; President, World
Systems Division, COMSAT Corporation; and Chairman, Board of Governors of
INTELSAT (each of the COMSAT companies listed above is an international
communication, information and entertainment-distribution services
company).
OWEN DALY II, Director (70)
6 Blythewood Road
Baltimore, MD 21210
Director, Cortland Trust Inc. (investment company). Formerly, Director,
CF & I Steel Corp., Monumental Life Insurance Company and Monumental General
Insurance Company; and Chairman of the Board of Equitable Bancorporation.
- --------------------
* A director who is an "interested person" of the Company and A I M Advisors,
Inc. as defined in the 1940 Act.
3
<PAGE>
*CARL FRISCHLlNG, Director (58)
919 Third Avenue
New York, NY 10022
Partner, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (law firm).
Formerly, Partner, Reid & Priest (law firm); and, prior thereto, Partner,
Spengler Carlson Gubar Brodsky & Frischling (law firm).
**ROBERT H. GRAHAM, Director and President (48)
Director, President and Chief Operating Officer, A I M Management Group
Inc.; Director and President, A I M Advisors, Inc.; Director and Executive Vice
President, A I M Distributors, Inc.; Director and Senior Vice President, A I M
Capital Management, Inc., A I M Fund Services, Inc., A I M Global Associates,
Inc., A I M Global Holdings, Inc., AIM Global Ventures Co., A I M Institutional
Fund Services, Inc. and Fund Management Company; and Senior Vice President, AIM
Global Advisors Limited.
JOHN F. KROEGER, Director (70)
24875 Swan Road - Martingham
Box 464
St. Michaels, MD 21663
Trustee, Flag Investors International Fund, Inc.; and Director, Flag
Investors Emerging Growth Fund, Inc., Flag Investors Telephone Income Fund,
Inc., Flag Investors Equity Partners Fund, Inc., Total Return U.S. Treasury
Fund, Inc., Flag Investors Intermediate Term Income Fund, Inc., Managed
Municipal Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag Investors
Maryland Intermediate Tax-Free Income Fund, Inc., Flag Investors Real Estate
Securities Fund, Inc., Alex. Brown Cash Reserve Fund, Inc. and North American
Government Bond Fund, Inc. (investment companies). Formerly, Consultant,
Wendell & Stockel Associates, Inc. (consulting firm).
LEWIS F. PENNOCK, Director (52)
8955 Katy Freeway, Suite 204
Houston, TX 77024
Attorney in private practice in Houston, Texas.
- --------------------------
* A director who is an "interested person" of the Company as defined in the
1940 Act.
** A director who is an "interested person" of the Company and A I M Advisors,
Inc. as defined in the 1940 Act.
4
<PAGE>
IAN W. ROBINSON, Director (72)
183 River Drive
Tequesta, FL 33469
Formerly, Executive Vice President and Chief Financial Officer, Bell
Atlantic Management Services, Inc. (provider of centralized management services
to telephone companies); Executive Vice President, Bell Atlantic Corporation
(parent of seven telephone companies); and Vice President and Chief Financial
Officer, Bell Telephone Company of Pennsylvania and Diamond State Telephone
Company.
LOUIS S. SKLAR, Director (55)
Transco Tower, 50th Floor
2800 Post Oak Blvd.
Houston, TX 77056
Executive Vice President, Development and Operations, Hines Interests
Limited Partnership (real estate development).
***JOHN J. ARTHUR, Senior Vice President and Treasurer (50)
Senior Vice President and Treasurer, A I M Advisors, Inc.; Vice President
and Treasurer, A I M Management Group Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services, Inc., A I M Institutional Funds
Services, Inc. and Fund Management Company; and Vice President, AIM Global
Advisors Limited, A I M Global Associates, Inc., A I M Global Holdings, Inc. and
AIM Global Ventures Co..
GARY T. CRUM, Senior Vice President (47)
Director and President, A I M Capital Management, Inc.; Director and Senior
Vice President, A I M Management Group Inc., A I M Advisors, Inc., A I M Global
Associates, Inc., A I M Global Holdings, Inc. and AIM Global Ventures Co.;
Director, A I M Distributors, Inc.; and Senior Vice President, AIM Global
Advisors Limited.
***CAROL F. RELIHAN, Vice President and Assistant Secretary (40)
Vice President, General Counsel and Secretary, A I M Management Group Inc.,
A I M Advisors, Inc., A I M Fund Services, Inc., A I M Institutional Fund
Services, Inc. and Fund Management Company; Vice President and Secretary, A I M
Distributors, Inc., A I M Global Associates, Inc. and A I M Global Holdings,
Inc.; Vice President and Assistant Secretary, AIM Global Advisors Limited and
AIM Global Ventures Co.; and Secretary, A I M Capital Management, Inc.
DANA R. SUTTON, Vice President and Assistant Treasurer (36)
Vice President and Fund Controller, A I M Advisors, Inc.; and Assistant
Vice President and Assistant Treasurer, Fund Management Company.
- ------------------------------
*** Mr. Arthur and Ms. Relihan are married.
5
<PAGE>
STUART W. COCO, Vice President (40)
Senior Vice President, A I M Capital Management, Inc.; and Vice President,
A I M Advisors, Inc.
MELVILLE B. COX, Vice President (51)
Vice President, A I M Advisors, Inc., A I M Capital Management, Inc. and
A I M Fund Services, Inc. and A I M Institutional Fund Services, Inc.; and
Assistant Vice President, A I M Distributors, Inc. and Fund Management Company.
Formerly, Vice President, Charles Schwab & Co., Inc.; Assistant Secretary,
Charles Schwab Family of Funds and Schwab Investments; Chief Compliance Officer,
Charles Schwab Investment Management, Inc.; and Vice President, Integrated
Resources Life Insurance Co. and Capitol Life Insurance Co.
KAREN DUNN KELLEY, Vice President (35)
Director, A I M Global Management Company Limited; Senior Vice President,
A I M Capital Management, Inc. and AIM Global Advisors Limited; and Vice
President, A I M Advisors, Inc. and AIM Global Ventures Co.
J. ABBOTT SPRAGUE, Vice President (40)
Director and President, A I M Institutional Fund Services, Inc. and Fund
Management Company; Director and Senior Vice President, A I M Advisors, Inc.;
and Senior Vice President, A I M Management Group Inc.
The Company's Board of Directors has an Audit Committee, consisting of
Messrs. Kroeger (Chairman), Daly, Pennock and Robinson, which is responsible for
meeting with the Company's auditors to review audit procedures and results and
to consider any matters arising from an audit to be brought to the attention of
the directors as a whole with respect to the Company's fund accounting, its
internal accounting controls, or to consider such matters as may from time to
time be set forth in a charter adopted by the Board of Directors and such
committee.
The Board of Directors of the Company also has an Investments Committee,
consisting of Messrs. Daly (Chairman), Bauer, Crockett, Kroeger and Pennock,
which is responsible for considering matters relating to investment management,
or for considering such matters as may from time to time be set forth in a
charter adopted by the Board of Directors.
The Company also has a Nominating and Compensation Committee, consisting of
Messrs. Pennock (Chairman), Crockett, Daly, Kroeger and Sklar, which is
responsible for considering and nominating individuals to stand for election as
directors who are not "interested persons" of the Company (as defined by the
1940 Act) as long as the Company maintains a Distribution Plan on behalf of the
Portfolio pursuant to Rule 12b-1 under the 1940 Act, or considering such matters
as may from time to time be set forth in a charter adopted by the Board and such
committee.
All of the Company's directors also serve as directors or trustees of some
or all of the other investment companies managed or advised by A I M Advisors,
Inc. ("AIM") or distributed and administered by FMC. All of the Company's
executive officers hold similar offices with some or all of such investment
companies.
6
<PAGE>
REMUNERATION OF DIRECTORS
Each director is reimbursed for expenses incurred in connection with each
meeting of the Board of Directors or any Committee attended. The directors of
the Company who do not serve as officers of the Company are compensated for
their services according to a fee schedule which recognizes the fact that they
also serve as directors or trustees of certain other regulated investment
companies managed, administered or distributed by AIM or its affiliates (the
"AIM Funds"). Each such director receives a fee, allocated among the AIM Funds
for which he serves as a director or trustee, which consists of an annual
retainer component and a meeting fee component.
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended March 31, 1995 for each director of the
Company:
<TABLE>
<CAPTION>
AGGREGATE RETIREMENT TOTAL
DIRECTOR COMPENSATION BENEFITS COMPENSATION
FROM COMPANY(1) ACCRUED FROM ALL AIM FUNDS(3)
BY ALL AIM FUNDS(2)
<S> <C> <C> <C>
Charles T. Bauer -0- -0- -0-
Bruce L. Crockett $1,650.04 $ 3,446.35 $45,093.75
Owen Daly II $1,655.05 $17,603.00 $45,843.75
Carl Frischling $1,650.04 $ 9,618.55 $45,093.75
Robert H. Graham -0- -0- -0-
John F. Kroeger $1,655.05 $24,043.55 $45,843.75
Lewis F. Pennock $1,655.05 $ 5,850.45 $45,843.75
Ian W. Robinson $1,650.04 $13,201.65 $45,093.75
Louis S. Sklar $1,650.04 $ 5,871.80 $45,093.75
</TABLE>
- -------------------------
(1) The total amount of compensation deferred by all Directors of the Company
during the fiscal year ended March 31, 1995, including interest earned
thereon, was $7,017.34.
(2) During the fiscal year ended March 31, 1995, the total amount of expenses
allocated to the Company in respect of such retirement benefits was
$3,330.09.
(3) Messrs. Bauer, Daly, Graham, Kroeger and Pennock each serves as a Director
or Trustee of a total of 11 AIM Funds. Messrs. Crockett, Frischling,
Robinson and Sklar each serves as a Director or Trustee of a total of 10
AIM Funds. Data reflects compensation earned for the calendar year ended
December 31, 1994.
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<PAGE>
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the AIM Funds. Each eligible director is
entitled to receive an annual benefit from the AIM Funds commencing on the first
day of the calendar quarter coincident with or following his date of retirement
equal to 5% of such Director's compensation paid by the AIM Funds multiplied by
the number of such Director's years of service (not in excess of 10 years of
service) completed with respect to any of the AIM Funds. Such benefit is payable
to each eligible director in quarterly installments for a period of no more than
five years. If an eligible director dies after attaining the normal retirement
date but before receipt of any benefits under the Plan commences, the director's
surviving spouse (if any) shall receive a quarterly survivor's benefit equal to
50% of the amount payable to the deceased director, for no more than five years
beginning the first day of the calendar quarter following the date of the
director's death. Payments under the Plan are not secured or funded by any AIM
Fund.
Set forth below is a table that shows the estimated annual benefits payable
to an eligible director upon retirement assuming various compensation and years
of service classifications. The estimated credited years of service as of
December 31, 1994 for Messrs. Crockett, Daly, Frischling, Kroeger, Pennock,
Robinson and Sklar are 7, 8, 17, 17, 13, 7 and 5 years, respectively.
<TABLE>
<CAPTION>
Annual Compensation Paid By All AIM Funds
$40,000 $45,000 $50,000 $55,000
<S> <C> <C> <C> <C> <C>
10 $20,000 $22,500 $25,000 $27,500
Number of
Years of 9 $18,000 $20,250 $22,500 $24,750
Service
with the 8 $16,000 $18,000 $20,000 $22,000
AIM Funds
7 $14,000 $15,750 $17,500 $19,250
6 $12,000 $13,500 $15,000 $16,500
5 $10,000 $11,250 $12,500 $13,750
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this
paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors elected to defer receipt of 100% of their
compensation payable by the Company, and such amounts are placed into a deferral
account. Currently, the deferring directors may select various AIM Funds in
which all or part of his deferral account shall be deemed to be invested.
Distributions from the deferring directors' deferral accounts will be paid in
cash, in generally equal quarterly installments over a period of five years
beginning on the date the deferring director's retirement benefits
8
<PAGE>
commence under the Plan. The Company's Board of Directors, in its sole
discretion, may accelerate or extend the distribution of such deferral accounts
after the deferring director's termination of service as a director of the
Company. If a deferring director dies prior to the distribution of amounts in
his deferral account, the balance of the deferral account will be distributed to
his designated beneficiary in a single lump sum payment as soon as practicable
after such deferring director's death. The Agreements are not funded and, with
respect to the payments of amounts held in the deferral accounts, the deferring
directors have the status of unsecured creditors of the Company and of each
other AIM Fund from which they are deferring compensation.
AIM and the Company have adopted a Code of Ethics which requires investment
personnel (a) to pre-clear all personal securities transactions, (b) to file
reports regarding such transactions, and (c) to refrain from personally engaging
in (i) short-term trading of a security, (ii) transactions involving a security
within seven days of an AIM Fund transaction involving the same security, and
(iii) transactions involving securities being considered for investment by an
AIM Fund. The Code also prohibits investment personnel from purchasing
securities in an initial public offering. Personal trading reports are reviewed
periodically by AIM, and the Board of Directors reviews annually such reports
(including information on any substantial violations of the Code). Violations
of the Code may result in censure, monetary penalties, suspension or termination
of employment.
The Portfolio paid legal fees of $4,475 for services rendered by Reid &
Priest as counsel to the Board of Directors. In September 1994, Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel was appointed as counsel to the Board of
Directors. The Portfolio paid legal fees of $1,296 for services rendered by
that firm as counsel. A member of that firm is a director of the Company and,
prior to September 1994, was a member of Reid & Priest.
THE INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas
77046-1173, serves as investment advisor to the Portfolio pursuant to an
Investment Advisory Agreement dated October 18, 1993 (the "Advisory Agreement").
AIM, which was organized in 1976, is the investment advisor or manager of 37
investment company portfolios. As of July 14, 1995, the total assets advised or
managed by AIM or its affiliates were approximately $34.8 billion.
AIM is a wholly-owned subsidiary of A I M Management Group Inc. ("AIM
Management"), 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173. All of
the directors and certain of the officers of AIM are also executive officers of
the Company and their affiliations are shown under "Directors and Officers."
The address of each director and officer of AIM is 11 Greenway Plaza, Suite
1919, Houston, Texas 77046-1173.
AIM Management is a privately-held corporation. FMC is a registered
broker-dealer and wholly-owned subsidiary of AIM. FMC acts as distributor of
the shares of the Class.
The Advisory Agreement was last approved by the Board of Directors on May
9, 1995, and will continue in effect until June 30, 1996, and from year to year
thereafter if it is specifically approved at least annually by the Company's
Board of Directors and by the affirmative vote of a majority of the directors
who are not parties to the Advisory Agreement or "interested persons" of any
such party by votes cast in person at a meeting called for such purpose. The
Company or AIM may terminate the Advisory Agreement on 60 days' written notice
without penalty. The
9
<PAGE>
Advisory Agreement terminates automatically in the event of its "assignment," as
defined in the 1940 Act.
Pursuant to the terms of the Advisory Agreement, AIM: (a) supervises and
manages all aspects of the Company's operations; (b) provides the Company with
certain executive, administrative and clerical services as deemed advisable by
the Board of Directors; (c) provides the Company with, or obtains for the
Company, adequate office space and all necessary equipment and services,
including telephone services, utilities, stationery supplies and similar items
for the Company's principal office; (d) arranges, but does not pay for, the
periodic updating of prospectuses and statements of additional information (and
supplements thereto), proxy materials, tax returns, reports to the Company's
shareholders and reports to and filings with the SEC and state Blue Sky
authorities; (e) provides the Company's Board of Directors on a regular basis
with financial reports and analyses of the Company's operations and the
operation of comparable funds; (f) obtains and evaluates pertinent information
about significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or the
Company and whether concerning the individual issuers whose securities are
included in the Company's Portfolio; (g) determines which issuers and securities
shall be represented in the Portfolio and regularly reports thereon to the Board
of Directors; (h) formulates and implements continuing programs for purchases
and sales of securities for the Portfolio; and (i) takes, on behalf of the
Company, all actions which appear to the Company to be necessary to carry into
effect such purchase and sale programs, including the placing of orders for the
purchase and sale of portfolio securities. Any investment program undertaken by
AIM will at all times be subject to the policies and control of the Board of
Directors. AIM shall not be liable to the Company or its shareholders for any
act or omission by AIM or for any loss sustained by the Company or 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.
As compensation for its advisory services under the Advisory Agreement, AIM
receives a fee from the Company with respect to the Portfolio, calculated daily
and paid monthly, at the annual rate of 0.25% of the first $500 million of the
Portfolio's aggregate average daily net assets, plus 0.20% of the Portfolio's
aggregate average daily net assets in excess of $500 million. For the fiscal
years ended March 31, 1995, 1994 and 1993, pursuant to an advisory agreement
previously in effect which provided for the same level of compensation to AIM,
the fees paid by the Company to AIM with respect to the Portfolio were
$1,824,453, $1,525,419 and $1,799,812, respectively (after giving effect to fee
waivers for the fiscal years ended March 31, 1995, 1994 and 1993 of $659,533,
$802,331 and $741,740, respectively). The Private Investment Class commenced
operations April 1, 1992.
In order to increase the yield to investors, AIM may, from time to time,
waive or reduce its fee. The fee waivers currently in effect, if any, are shown
in the Prospectus.
EXPENSES
AIM and FMC furnish, without cost to the Company, the services of the
President, Secretary and one or more Vice Presidents of the Company and such
other personnel as are required for the proper conduct of the Company's affairs
and to carry out their obligations under the Advisory Agreement and the
Distribution Agreement. AIM maintains, at its expense and without cost to the
Company, a trading function in order to carry out its obligations to place
orders for the purchase and sale of portfolio securities for the Company. FMC
bears the expenses of printing and distributing prospectuses and statements of
additional information (other than those
10
<PAGE>
prospectuses and statements of additional information distributed to existing
shareholders) and any other promotional or sales literature used by FMC or
furnished by FMC to purchasers or dealers in connection with the public offering
of the shares of the Class.
The Company pays, or causes to be paid, all other expenses of the Company,
including, without limitation, the fees paid to AIM; the charges and expenses of
any registrar, any custodian or depository appointed by the Company for the
safekeeping of cash, portfolio securities and other property, and any transfer,
dividend or accounting agent or agents; brokers' commissions in connection with
portfolio securities transactions of the Company; all taxes, including
securities issuance and transfer taxes, and fees payable to federal, state or
other governmental agencies; the costs and expenses of engraving or printing
share certificates; all costs and expenses in connection with registration and
maintenance of registration with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting, and distributing
proxy statements, reports to shareholders, prospectuses and statements of
additional information of the Company and supplements thereto (except reports to
shareholders and prospectuses distributed to potential shareholders of the
Company which are paid for by FMC); expenses of shareholders' and directors'
meetings; fees and travel expenses of directors or director members of any
advisory board or committee; expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside pricing service; fees and expenses of legal counsel
and of independent accountants; membership dues of industry associations;
interest payable on borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Company; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Company's operations unless otherwise explicitly assumed by AIM
or FMC.
The Company may also reimburse AIM for the costs of a principal financial
officer and related personnel who may perform internal accounting functions for
the Company. Such accounting functions consist primarily of regulatory, tax,
shareholder and internal management reporting and calculation of the Portfolio's
net asset value and the daily dividend for its two classes. The method of
calculating such reimbursements must be approved annually, and the amounts paid
will be reviewed periodically by the Board of Directors. For the fiscal years
ended March 31, 1995, 1994 and 1993, AIM was reimbursed $78,184, $65,124 and
$53,930, respectively, by the Portfolio with respect to the Institutional Cash
Reserve Shares. The Private Investment Class commenced operations April 1,
1992.
AIM has agreed to reduce its fee for any fiscal year, or reimburse each
Portfolio, to the extent required, so that the amount of the ordinary expenses
of the Company (excluding brokerage commissions, interest, directors' fees,
taxes and extraordinary expenses such as litigation costs) paid or incurred by
the Company does not exceed the expense limitations applicable to each
Portfolio, imposed by the securities laws or regulations of those states or
jurisdictions in which the Company's shares are registered or qualified for
sale. Currently, the most restrictive of such state expense limitations would
require AIM to reduce its fees to the extent required so that ordinary expenses
of the Company (excluding interest, taxes, brokerage commissions and
extraordinary expenses) for any fiscal year do not exceed 2-1/2% of the first
$30 million of the Company's average daily net assets, plus 2% of the next $70
million of the Company's average daily net assets, plus 1-1/2% of the Company's
average daily net assets in excess of $100 million.
11
<PAGE>
In addition, in order to increase the yield to investors, AIM may, from
time to time, waive or reduce its fee while retaining the right to be reimbursed
prior to year end. The fee waivers currently in effect, if any, are shown in
the Prospectus.
Expenses of the Company which are not directly attributable to the
operations of any class are pro-rated among the classes of the Company based
upon the relative net assets of each class. Expenses of the Company which are
directly attributable to a class are charged against the income available for
distribution as dividends to such class.
TRANSFER AGENT AND CUSTODIAN
A I M Institutional Fund Services, Inc. ("AIFS") serves as transfer agent
and dividend disbursing agent for the 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 Company pays AIFS such compensation as may be
agreed upon from time to time. State Street Bank and Trust Company ("State
Street") acts as custodian for the Company's portfolio securities and cash.
State Street receives such compensation from the Company for its services in
such capacity as is agreed to from time to time by State Street and the Company.
The address of State Street is 225 Franklin Street, Boston, Massachusetts 02110.
REPORTS
The Company furnishes shareholders with semi-annual reports containing
information about the Company and its operations, including a schedule of
investments held in the Company's Portfolios and its financial statements. The
annual financial statements are audited by the Company's independent auditors.
The Board of Directors has selected KPMG Peat Marwick LLP, 700 Louisiana,
NationsBank Building, Houston, Texas 77002, as the independent auditors to audit
the financial statements and review the tax returns of the Portfolio.
PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of each class of the
Company's shares are set forth below.
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<PAGE>
INSTITUTIONAL CASH RESERVE SHARES OF THE CASH RESERVE PORTFOLIO
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding shares of the Institutional Cash
Reserve Shares as of July 14, 1995, and the amount of outstanding shares held of
record by such holders are set forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD*
--------------- ---------
<S> <C>
NationsBank of Texas, N.A. 25.93%**
1401 Elm Street
Dallas, TX 75202
Liberty Bank and Trust Company of Tulsa 10.82%
P.O. Box 25848
Oklahoma City, OK 73125
First Interstate Bank Northwest Region 10.44%
P.O. Box 2971
Portland, OR 97208
Trust Company Bank 10.08%
P.O. Box 105504
Atlanta, GA 30348
</TABLE>
PRIVATE INVESTMENT CLASS OF THE CASH RESERVE PORTFOLIO
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding shares of the Private Investment Class
as of July 14, 1995, and the amount of outstanding shares held of record by such
holders are set forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD*
--------------- ---------
<S> <C>
Cullen/Frost Discount Brokers 36.70%**
P.O. Box 2358
San Antonio, TX 78299
</TABLE>
- --------------------
* The Company has no knowledge as to whether all or any portfolio of the
shares owned of record only are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in
the 1940 Act.
13
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD*
--------------- ---------
<S> <C>
The Bank of New York 33.87%**
440 Mamaroneck Ave.
Harrison, NY 10528
Huntington Capital Corporation 20.61%
41 South High St.
Columbus, OH 43287
Charter National Bank of Houston 6.12%
P.O. Box 1494
Houston, TX 77251
</TABLE>
As of July 14, 1995, the directors and officers of the Company
beneficially owned less than 1% of each class of shares of the Company.
SHARE PURCHASES AND REDEMPTIONS
PURCHASES AND REDEMPTIONS
A complete description of the manner by which the shares may be purchased,
redeemed or exchanged appears in the Prospectus under the heading "Purchase of
Shares."
The right of redemption may be suspended or the date of payment postponed
when (a) trading on the New York Stock Exchange is restricted, as determined by
applicable rules and regulations of the SEC, (b) the New York Stock Exchange 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 the Company not reasonably practicable.
NET ASSET VALUE DETERMINATION
The net asset value of a share of the Portfolio is determined once daily
as of the time shown in the Prospectus on each business day of the Company, as
defined in the Prospectus. For the purpose of determining the price at which
all shares of the Portfolio are issued and redeemed, the net asset value per
share is calculated by: (a) valuing all securities and instruments of the
Portfolio as set forth below; (b) adding other assets of the Portfolio, if any;
(c)
- --------------------
* The Company has no knowledge as to whether all or any portfolio of the
shares owned of record only are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in
the 1940 Act.
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<PAGE>
deducting the liabilities of the Portfolio; (d) dividing the resulting amount by
the number of shares outstanding of the Portfolio; and (e) rounding such per
share net asset value to the nearest whole cent.
The debt instruments held in the Portfolio are valued on the basis of
amortized cost. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. 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 Company would receive if it sold the entire
portfolio.
All variable rate securities held in the Portfolio, 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.
The valuation of the portfolio instruments based upon their amortized cost
and the concomitant maintenance of the net asset value per share of $1.00 for
the Portfolio is permitted in accordance with applicable rules and regulations
of the SEC, which require the Company to adhere to certain conditions. The
Portfolio is required pursuant to such rules to maintain a dollar-weighted
average portfolio maturity of 90 days or less, to purchase only instruments
having remaining maturities of 397 days or less, and to invest only in
securities determined by the Advisor, pursuant to guidelines established by the
Board of Directors, to be "Eligible Securities" and to present minimal credit
risk to the Company. The Company adheres to a policy of purchasing only "First
Tier" securities (as such term is defined in Rule 2a-7 under the 1940 Act),
which is a higher quality standard and more restrictive than required by such
rules.
Eligible Securities generally include (1) U.S. Government securities; (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by Standard & Poor's Corporation ("S&P"), or rated "Prime-1" or
"Prime-2" by Moody's Investors Service, Inc. ("Moody's")) or (b) are rated (at
the time of purchase) by only one NRSRO in one of its two highest rating
categories for such securities; (3) short-term obligations and long-term
obligations that have remaining maturities of 397 calendar days or less,
provided in each instance that such obligations have no short-term rating and
are comparable in priority and security to a class of short-term obligations of
the issuer that has been rated in accordance with (2)(a) or (b) above
("comparable obligations"); (4) securities that are not rated and are issued by
an issuer that does not have comparable obligations rated by an NRSRO ("Unrated
Securities"), provided that such securities are determined to be of comparable
quality to a security satisfying (2) or (3) above; and (5) long-term obligations
that have remaining maturities in excess of 397 calendar days that are subject
to a demand feature or put (such as a guarantee, a letter of credit or similar
credit enhancement) ("demand instrument") (a) that are unconditional (readily
exercisable in the event of default), provided that the demand feature satisfies
(2), (3) or (4) above, and the demand instrument or long-term obligations of the
issuer satisfy (2) or (4) above for long-term debt obligations. The Board of
Directors will approve or ratify any purchases by the Portfolio of securities
that are rated by only one NRSRO or that are unrated securities.
The Board of Directors is required to establish procedures designed to
stabilize, to the extent reasonably possible, the Portfolio's price per share at
$1.00 as computed for the purpose
15
<PAGE>
of sales and redemptions. Such procedures include review of the portfolio
holdings by the Board of Directors, at such intervals as they may deem
appropriate, to determine whether the net asset value calculated by using
available market quotations or other reputable sources for the Portfolio
deviates from $1.00 per share and, if so, whether such deviation may result in
material dilution or is otherwise unfair to purchasers or existing holders of
any class of shares of the Portfolio. In the event the Board of Directors
determines that such a deviation exists for any class of shares of the
Portfolio, it will take such corrective action as the Board of Directors deems
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten the average portfolio
maturity; the withholding of dividends; the redemption of shares in kind; or the
establishment of a net asset value per share by using available market
quotations.
THE DISTRIBUTION AGREEMENT
The Company 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 Private Investment Class. The address of FMC is 11 Greenway
Plaza, Suite 1919, Houston, Texas 77046-1173. See "Directors and Officers" and
"The Investment Advisor" for information as to the affiliation of certain
directors and officers of the Company with FMC and AIM Management.
The Distribution Agreement provides that FMC has the exclusive right to
distribute shares either directly or through other broker-dealers. The
Distribution Agreement also provides that, except as may otherwise be provided
in a distribution plan pursuant to Rule 12b-1 adopted by the Company's Board of
Directors, FMC will pay promotional expenses, including the incremental costs of
printing prospectuses and statements of additional information, annual reports
and other periodic reports for distribution to persons who are not shareholders
of the Company and the costs of preparing and distributing any other
supplemental sales literature. FMC has not undertaken to sell any specified
number of shares.
The Distribution Agreement will continue in effect until June 30, 1996,
and from year to year thereafter, provided that it is specifically approved at
least annually by the Company's Board of Directors and the affirmative vote of
the directors who are not parties to the Distribution Agreement or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. The Company or FMC may terminate the Distribution Agreement on sixty
days' written notice without penalty. The Distribution Agreement will terminate
automatically in the event of its "assignment," as defined in the 1940 Act.
FMC may, from time to time, at its expense, pay a bonus or other
consideration or incentive to dealers or banks who sell a minimum dollar amount
of the shares of the class during a specific period of time. In some instances,
these incentives may be offered only to certain dealers or institutions who have
sold or may sell significant amounts of shares. The total amount of such
additional bonus or payments or other consideration shall not exceed 0.05% of
the net asset value of the shares of the class sold. Any such bonus or
incentive programs will not change the price paid by investors for the purpose
of shares or the amount received as proceeds from such sales. Dealers or
institutions may not use sales of the shares to qualify for any incentives to
the extent that such incentives may be prohibited by the laws of any
jurisdiction.
16
<PAGE>
DISTRIBUTION PLAN
The Company has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act with respect to the Private Investment Class. The Plan
applicable to the Portfolio provides that the Private Investment Class may pay
up to 0.50% per annum of the average daily net assets of the Portfolio as
follows:
(1) to FMC, as an asset-based sales charge, (2) as a service fee
to certain banks ("Service Providers") who offer continuing personal
shareholder services to their customers who invest in the shares of the
class, and who have entered into Shareholder Service Agreements, and (3) as
a service fee to certain broker-dealers and other financial institutions
("Institutions") who offer continuing personal shareholder services to
their customers who invest in the shares of the class, and who have entered
into Shareholder Service Agreements.
Pursuant to the Plan, the Company may enter into Shareholder Service
Agreements ("Service Agreements") with selected broker-dealers, banks, other
financial institutions or their affiliates. Such firms may receive from the
Portfolio compensation for servicing investors as beneficial owners of shares of
the Private Investment Class. These services may include among other things:
(i) answering customer inquiries regarding the shares and the Portfolio; (ii)
assisting customers in changing dividend options, account designations and
addresses; (iii) performing sub-accounting; (iv) establishing and maintaining
shareholder accounts and records; (v) processing purchase and redemption
transactions; (vi) automatic investment in shares of the class of customer cash
account balances; (vii) providing periodic statements showing a customer's
account balance and integrating such statements with those of other transactions
and balances in the customer's other accounts serviced by such firm; (viii)
arranging for bank wires; and (ix) such other services as the Company may
request on behalf of the shares of the class, to the extent such firms are
permitted to engage in such services by applicable statute, rule or
regulation.
The Plan may only be used for the purposes specified above and as stated in
the Plan. Expenses may not be carried over from year to year.
The Plan requires the officers of the Company 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.
For the fiscal year ended March 31, 1995, $60,489 (or an amount equal to
0.25% of the average daily net assets of the Class) was paid to dealers and
financial institutions pursuant to the Plan. In addition, for the fiscal year
ended March 31, 1995, FMC received no compensation pursuant 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) of the Company 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 9, 1995. In
approving the Plan in accordance with the requirements of Rule 12b-1, the
17
<PAGE>
directors considered various factors and determined that there is a reasonable
likelihood that the Plan will benefit the Private Investment Class and the
holders of the shares.
The Plan shall continue in effect until June 30, 1996. The Plan shall
continue in effect thereafter as long as such continuance is specifically
approved at least annually by the Board of Directors, including a majority of
the Qualified Directors.
FMC is a wholly-owned subsidiary of AIM, a wholly-owned subsidiary of AIM
Management. Charles T. Bauer, a Director and Chairman of the Company, owns
shares of AIM Management and Robert H. Graham, a Director and President of the
Company, also owns shares of AIM Management.
The Plan may be terminated by vote of a majority of the Qualified
Directors, or by vote of a majority of the holders of the outstanding voting
securities of the Private Investment Class. Any change in the Plan that would
increase materially the distribution expenses paid by the Private Investment
Class requires shareholder approval; otherwise, the Plan may be amended by the
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.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the Company and alternate means for
continuing the servicing of such shareholders would be sought. In such event,
changes in the operation of the Company might occur and shareholders serviced by
such bank might no longer be able to avail themselves of any automatic
investment or other services then being provided by such bank. It is not
expected that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to register as dealers pursuant to state law.
The Plan complies with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and provides for payment of a service
fee to dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the
Private Investment Class, in amounts of up to 0.25% of the average net assets of
such class of the Portfolio attributable to the customers of such dealers or
financial institutions. Payments to dealers and other financial institutions in
excess of such amount and payments to FMC would be characterized as an asset-
based sales charge pursuant to the amended 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.
18
<PAGE>
PERFORMANCE INFORMATION
As stated under the caption "Yield Information" in the Prospectus,
yield information for the shares of the class may be obtained by calling the
Company at (800) 877-7748.
Calculations of yield will take into account the total income received
by the Portfolio, including taxable income, if any; however, the Company intends
to invest its assets so that 100% of its annual interest income will be tax-
exempt. To the extent that institutions charge fees in connection with services
provided in conjunction with the Company, the yield will be lower for those
beneficial owners paying such fees.
The current yields quoted for the Private Investment Class of the
Portfolio will be the net average annualized yield for an identified period,
usually seven consecutive calendar days. Yields for the Private Investment
Class of the Portfolio will be computed by assuming that an account was
established with a single share (the "Single Share Account") on the first day of
the period. To arrive at the quoted yield, the net change in the value of that
single Share Account for the period (which would include dividends accrued with
respect to the share, and dividends declared on shares purchased with dividends
accrued and paid, if any, but would not include any realized gains and losses or
unrealized appreciation or depreciation) will be multiplied by 365 and then
divided by the number of days in the period, with the resulting figure carried
to the nearest hundredth of one percent. The Company may also furnish a
quotation of effective yields for the Private Investment Class of the Portfolio
that assumes the reinvestment of dividends for a 365 day year and a return for
the entire year equal to the average annualized yields for the period, which
will be computed by compounding the unannualized current yields for the period
by adding 1 to the unannualized current yields, raising the sum to a power equal
to 365 divided by the number of days in the period, and then subtracting 1 from
the result.
In addition, the Company may furnish a tax equivalent yield which is
the rate an investor would have to earn from a fully taxable investment in order
to equal the share's yield after taxes. Tax equivalent yields are calculated by
dividing the share's yield by one minus the stated federal or combined federal
and state tax rate (if only a portion of the share's yield was tax-exempt, only
that portion is adjusted in the calculation).
For the seven-day period ended March 31, 1995, the current and
effective yield for the Class were 3.61% and 3.67%, respectively. Assuming a
tax rate of 36% these yields for the Class on a tax-equivalent basis were 5.64%
and 5.73%, respectively.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
Information concerning the Portfolio's investment objective and
fundamental and operating policies is set forth in the Prospectus. The
principal features of the Portfolio's investment program and the primary risks
associated with that investment program are also discussed in the Prospectus.
There can be no assurance that the Portfolio will achieve its objective. The
values of the securities in which the Portfolio invests fluctuate based upon
interest rates, the financial stability of the issuer and market factors. The
following is a more detailed description of the
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<PAGE>
portfolio instruments eligible for purchase by the Portfolio, which augments the
summary of the Portfolio's investment program which appears under the heading
"Investment Program" in the Prospectus.
As set forth in the Prospectus, the Portfolio will limit its purchases
of Municipal Securities (as hereinafter defined) to "First Tier" securities, as
such term is defined from time to time in Rule 2a-7 under the 1940 Act.
As of the date of this Statement of Additional Information, Rule 2a-7
defines a "First Tier" security as any "Eligible Security" (as defined in Rule
2a-7 and summarized above) that:
(i) is rated (or that has been issued by an issuer that is rated
with respect to a class of short-term debt obligations, or any security
within that class, that is comparable in priority and security with the
security) by the requisite nationally recognized statistical rating
organizations ("NRSROs") in the highest rating category for short-term debt
obligations (within which there may be sub-categories or gradations
indicating relative standing); or
(ii) is a security described in paragraph (a)(5)(ii) of Rule 2a-7
(i.e. a security that at the time of issuance was a long-term security but
that has a remaining maturity of 397 days or less) whose issuer has
received from the requisite NRSROs a rating, with respect to a class of
short-term debt obligations (or any security within that class) that now is
comparable in priority and security with the security in the highest rating
category for short-term debt obligations (within which there may be sub-
categories or gradations indicating relative standing); or
(iii) is an unrated security that is of comparable quality to a
security meeting the requirements of clauses (i) and (ii) above, as
determined by the Company's Board of Directors.
Subsequent to its purchase by the Portfolio, an issue of Municipal
Securities may cease to be a First Tier security. Subject to certain exceptions
set forth in Rule 2a-7, such an event will not require the elimination of the
security from the Portfolio, but AIM will consider such an event to be relevant
in its determination of whether the Portfolio should continue to hold the
security. To the extent that the ratings applied by an NRSRO to Municipal
Securities may change as a result of changes in these rating systems, the
Company will attempt to use comparable ratings as standards for its investments
in Municipal Securities in accordance with the investment policies described
herein.
The Portfolio may, from time to time, invest in taxable short-term
investments ("Temporary Investments") consisting of obligations of the U.S.
Government, its agencies or instrumentalities, and repurchase agreements
(instruments under which the seller agrees to repurchase the security at a
specified time and price) relating thereto; commercial paper rated within the
highest rating category by a recognized rating agency; and certificates of
deposit of domestic banks with assets of $1.5 billion or more as of the date of
their most recently published financial statements. The Portfolio may invest in
Temporary Investments, for example, due to market conditions or pending the
investment of proceeds from the sale of shares of the Portfolio or proceeds from
the sale of Portfolio securities or in anticipation of redemptions. Although
interest earned from such
20
<PAGE>
Temporary Investments will be taxable as ordinary income, the Portfolio intends
to minimize taxable income through investment, when possible, on short-term tax-
exempt securities, which may include shares of other investment companies whose
dividends are tax-exempt. See "Investment Restrictions" for limitations on the
Fund's ability to invest in repurchase agreements and in shares of other
investment companies. It is a fundamental policy of the Company that the
Portfolio's assets will be invested so that at least 80% of the Portfolio's
income will be exempt from federal income taxes, and it is the Company's present
intention (but it is not a fundamental policy) to invest the Portfolio's assets
so that 100% of the Portfolio's annual interest income will be tax-exempt.
Accordingly, the Portfolio may hold cash reserves pending the investment of such
reserves in Municipal Securities.
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 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 interest paid on such bonds may be exempt
from federal income tax, although current federal tax laws place substantial
limitations on the size and purpose 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" in
this Statement of Additional Information.
The two major classifications of Municipal Securities are bonds and notes.
Bonds may be further categorized 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 or, 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. 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 Portfolio's assets
may consist of any combination of general obligation bonds, revenue bonds,
industrial revenue bonds and notes. The percentage of such Municipal Securities
in the Portfolio will vary from time to time.
For the purpose of the diversification requirements applicable to the
Portfolio, the identification of the issuer of Municipal Securities depends on
the terms and conditions of the security. When the assets and revenues of an
agency, authority, instrumentality or other political
21
<PAGE>
subdivision are separate from those of the government creating the subdivision
and the security is backed only by the assets and revenues of the subdivision,
such subdivision will be deemed to be the sole issuer. Similarly, in the case of
an industrial revenue bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then such non-governmental user will be
deemed to be the sole issuer. If, however, in either case, the creating
government or some other entity guarantees a security, such a guarantee would be
considered a separate security and will be treated as an issue of such
government or other agency. Certain Municipal Securities may be secured by the
guaranty or irrevocable letter of credit of a major banking institution, or the
payment of principal and interest when due may be insured by an insurance
company.
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,
maturity of the obligation, and rating of the issue. The yield realized by
holders of a class of a portfolio will be the yield realized by the portfolio on
its investments reduced by the general expenses of the Company and those
expenses attributable to such class. The market values of the Municipal
Securities held by the Portfolio 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 on such Municipal Security decrease, the market
value of such security will generally increase.
INVESTMENT RATINGS
The following is a description of the factors underlying the tax-exempt
debt ratings of Moody's, S&P, Fitch Investors Service, Inc. ("Fitch") and Duff &
Phelps, Inc. ("Duff & Phelps"):
MOODY'S MUNICIPAL BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Note: Bonds in the Aa group which Moody's believes possess the strongest
investment attributes are designated by the symbol Aa1.
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Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in the Aa
group when assigning ratings to: industrial development bonds; and bonds secured
by either a letter of credit or bond insurance. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
MOODY'S DUAL RATINGS
In the case of securities with a demand feature, two ratings are assigned;
one representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an evaluation of the
degree of risk associated with the demand feature.
MOODY'S SHORT-TERM LOAN RATINGS
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade (or MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in bond
risk, long-term secular trends for example, may be less important over the short
run.
A short-term rating may also be assigned on an issue having a demand
feature (i.e., a variable rate demand obligation or VRDO). Short-term ratings
on issues with demand features may be differentiated by the use of the VMIG
symbol to reflect such characteristics as payment upon periodic demand rather
than fixed maturity dates, and payment relying on external liquidity.
Additionally, the source of payment may be limited to the external liquidity
with no or limited legal recourse to the issuer in the event the demand is not
met.
A VMIG rating may be assigned to commercial paper programs. Such programs
are characterized as having variable short-term maturities but having neither a
variable rate nor demand feature.
Gradations of investment quality are indicated by rating symbols, with each
symbol representing a group in which the quality characteristics are broadly the
same.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
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Moody's employs the following two designations, each judged to be
investment grade, to indicate the relative repayment capacity of rated issuers.
PRIME-1
Issuers (or related supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Note: A Moody's commercial paper rating may also be assigned as an
evaluation of the demand feature of a short-term or long-term security with a
put option.
S&P MUNICIPAL BOND RATINGS
A S&P municipal bond rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may take
into consideration obligors such as guarantors, insurers, or lessees.
The ratings are based, in varying degrees, on the following considerations:
likelihood of default - capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
Note: Ratings within the AA and A major rating categories may be modified
by the addition of a plus (+) sign or minus (-) sign to show relative standing.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have, as part of their
structure, a demand feature.
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
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used for bonds to denote the long-term maturity and the commercial paper rating
symbols for the demand feature (e.g., AAA/A-1+). With short-term demand debt,
the note rating symbols are used with the commercial paper rating symbols (e.g.,
SP-1+/A-l+).
S&P MUNICIPAL NOTE RATINGS
A S&P note rating reflects the liquidity concerns 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 dependent the issue is on the market for its refinancing, the more
likely it will be treated as a note).
The highest note rating symbol is as follows:
SP-1
Category denotes very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
S&P COMMERCIAL PAPER RATINGS
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.
The highest rating category is 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.
FITCH BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
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Bonds that have the same ratings are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA
Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA
Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1."
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.
FITCH SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
The highest Fitch short-term rating is as follows:
F-1
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
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DUFF & PHELPS RATINGS
AAA
Highest Credit Quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-
High Credit Quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS
The Portfolio may purchase Municipal Securities on a "when-issued"
basis, that is, 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
(normally within forty-five days after the date of the transaction). The
Portfolio may purchase or sell Municipal Securities on a delayed delivery basis.
The payment obligation and the interest rate that will be received on the when-
issued 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
thereby become so committed.
If the Portfolio purchases a when-issued or delayed delivery security,
the Company 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.
The segregated assets will be valued at market for the purpose of determining
the adequacy of the segregated securities. If the market value of such
securities declines, additional cash or securities will be segregated on a daily
basis so that the market value 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 investment or to meet redemptions.
Securities purchased on a when-issued or delayed delivery basis and
the other securities held in the Portfolio are subject to changes in market
value based upon the public's perception of the creditworthiness of the issuer
and changes in the level of interest rates (which will generally result in all
of those securities changing in value in the same way, i.e., experiencing
appreciation when interest rates fall). Therefore, if in order to achieve
higher interest income the Portfolio remains substantially fully invested at the
same time that it has purchased securities on a when-issued or delayed delivery
basis, there is a possibility that the Portfolio will experience greater
fluctuation in the market value of its assets.
Furthermore, when the time comes for the Portfolio to meet its
obligations under when-issued or delayed delivery commitments, the Portfolio
will do so by use of its then available cash, by the sale of segregated
securities, by the sale of other securities or, although it would not normally
expect to do so, by directing the sale of the when-issued or delayed delivery
securities themselves (which may have a market value greater or less than the
Portfolio's payment
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obligation thereunder). The sale of securities to meet such obligations carries
with it a greater potential for the realization of net short-term capital gains,
which are not exempt from federal income taxes. The value of when-issued or
delayed delivery securities on the settlement date may be more or less than the
purchase price.
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.
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. All variable or floating
rate instruments will meet the quality standards of the Portfolio. AIM will
monitor the pricing, quality and liquidity of the variable or floating rate
Municipal Securities held by the Portfolio.
SYNTHETIC MUNICIPAL INSTRUMENTS
The Portfolio may invest in synthetic municipal instruments the value
of and return on which are derived from underlying securities. The types of
synthetic municipal instruments in which the Portfolio may invest include tender
option bonds and variable rate trust certificates. Both types of instruments
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. A "tender
option bond" provides a certificate holder with the conditional right to sell
(put) its certificate to the Sponsor or some designated third party at specified
intervals and receive the par value of the certificate plus accrued interest. A
"variable rate trust certificate" evidences an interest in a trust entitling the
certificate holder to receive variable rate interest based on prevailing short-
term interest rates and also typically providing the certificate holder with the
conditional right to put its certificate at par value plus accrued interest.
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. For further information regarding certain risks associated with
investing in synthetic municipal instruments see the Prospectus under the
caption "Investment Program--Synthetic Municipal Instruments."
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PARTICIPATION INTERESTS AND MUNICIPAL LEASES
The Portfolio reserves the right to purchase participation interests
from financial institutions. These participation interests give the purchaser
an undivided interest in one or more underlying Municipal Securities. The
Portfolio also reserves the right to invest in municipal leases and
participation interests therein. Such obligations, which may take the form of a
lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying municipal leases are exempt from
federal income taxes.
INVESTMENT RESTRICTIONS
The most significant investment restrictions applicable to the
Portfolio's investment program are set forth in the Prospectus. Additionally,
as a matter of fundamental policy which may not be changed without a vote of all
classes of shareholders of the Portfolio, the Portfolio will not:
(1) purchase any industrial development bond, if, as a result of such
purchase, more than 5% of the Portfolio's total assets would be invested in
securities of issuers, which, together with their predecessors, have been in
business for less than three years;
(2) borrow money or pledge, mortgage or hypothecate the assets of the
Portfolio except for temporary or emergency purposes and then only in an amount
not exceeding 10% of the value of the Portfolio's total assets, except that the
Portfolio may purchase when-issued securities consistent with the Portfolio's
investment objective and policies; provided that the Portfolio will repay all
borrowings (other than when-issued purchases) before making additional
investments;
(3) lend money or securities except to the extent that the Portfolio's
investments may be considered loans;
(4) purchase or sell puts, calls, straddles, spreads or combinations
thereof, except that the Portfolio may purchase Stand-by Commitments;
(5) invest in shares of any other investment company, other than in
connection with the merger, consolidation, reorganization or acquisition of
assets, except that the Portfolio may invest up to 10% of its assets in
securities of other investment companies and then only for temporary purposes in
those investment companies whose dividends are tax-exempt; provided that the
Portfolio will not invest more than 5% of its assets in securities of any
investment company nor purchase more than 3% of the outstanding voting stock of
any investment company;
(6) invest more than 10% of the value of its total assets in illiquid
securities, including repurchase agreements with remaining maturities in excess
of seven days;
(7) invest in companies for the purpose of exercising control;
(8) underwrite any issue of securities, except to the extent that the
purchase of securities, either directly from the issuer or from an underwriter
for an issuer, and the later disposition of such securities in accordance with
the Portfolio's investment program, may be deemed an underwriting;
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(9) purchase or sell real estate, but this shall not prevent
investments in securities secured by real estate or interests therein;
(10) sell, securities short or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions;
(11) purchase or retain securities of an issuer if, to the knowledge
of the Company, the directors and officers of the Company, and the directors and
officers of AIM, each of whom owns more than 1/2 of 1% of such securities,
together own more than 5% of the securities of such issuer; or
(12) purchase or sell commodities or commodity futures contracts or
interests in oil, gas or other mineral exploration or development programs.
The Company may, from time to time in order to qualify shares of the
Portfolio for sale in a particular state, agree to certain investment
restrictions in addition to or more stringent than those set forth above. Such
restrictions are not fundamental and may be changed without the approval of
shareholders.
Pursuant to an undertaking made to the Ohio Department of Commerce,
Division of Securities, the Portfolio will not purchase the securities of any
issuer if, as to 75% of the total assets of the Portfolio, more than 10% of the
voting securities of such issuer would be held by the Portfolio at the time of
purchase.
PORTFOLIO TRANSACTIONS
AIM is responsible for decisions to buy and sell securities for the
Company, for selection of broker-dealers and for negotiation of commission
rates. Since purchases and sales of portfolio securities by the Company 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 Company may also purchase securities from underwriters at prices
which include a commission 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 executions 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
beneficial by AIM. Such research services supplement AIM's own research.
Research services may include the following: statistical and background
information on U.S. and foreign economies, industry groups and individual
companies; forecasts and interpretations with respect to U.S. and foreign
economies, money market fixed income markets, equity markets, specific industry
groups and individual companies; information on federal, state, local and
foreign political developments; portfolio management strategies; performance
information on securities, indices and investment accounts; information
concerning prices of securities; the providing of equipment used to communicate
research information; the arranging of meetings with management of companies;
and the providing of access to consultants who supply research information.
Certain research
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services furnished by dealers may be useful to AIM with clients other than the
Company. Similarly, any 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 Company. AIM is of the opinion that the material received is
beneficial in supplementing AIM's research and analysis; and therefore, such
material may benefit the Company by improving the quality of AIM's investment
advice. The advisory fee paid by the Portfolio is not reduced because AIM
receives such services; however, because AIM must evaluate information received
as a result of such services, receipt of such services does not reduce AIM's
workload.
Under the 1940 Act, persons affiliated with the Company are prohibited
from dealing with the Company as principal in any purchase or sale of securities
unless an exemptive order allowing such transactions is obtained from the SEC.
Furthermore, the 1940 Act prohibits the Company from purchasing a security being
publicly underwritten by a syndicate of which persons affiliated with the
Company are a member except in accordance with certain conditions. These
conditions may restrict the ability of the Portfolio to purchase Municipal
Securities being publicly underwritten by such a syndicate, and the Portfolio
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 Company
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 Portfolio
may purchase such Municipal Securities directly from the issuer, provided that
the purchase is reviewed by the Company's Board of Directors and a determination
is made that the placement fee or other remuneration paid by the issuer to the
person affiliated with the Company is fair and reasonable in relation to the
fees charged by others performing similar services. During the fiscal years
ended March 31, 1995, 1994 and 1993 no securities or instruments were purchased
by the Portfolio from issuers who paid placement fees or other compensation to a
broker affiliated with the Portfolio.
From time to time, an identical security may be sold by an AIM Fund or
another investment account advised by AIM or A I M Capital Management, Inc.
("AIM Capital") and simultaneously purchased by another AIM Fund or another
investment account advised by AIM or AIM Capital, when such transactions comply
with applicable rules and regulations and are deemed consistent with the
investment objective(s) and policies of the investment accounts advised by AIM
or AIM Capital. Procedures pursuant to Rule 17a-7 under the 1940 Act regarding
transactions between investment accounts advised by AIM or AIM Capital have been
adopted by the Boards of Directors/Trustees of the various AIM Funds, including
the Company. Although such transactions may result in custodian, tax or other
related expenses, no brokerage commissions or other direct transaction costs are
generated by transactions among the investment accounts advised by AIM or AIM
Capital.
Provisions of the 1940 Act and rules and regulations thereunder have
also been construed to prohibit the Company from purchasing securities or
instruments from, or selling securities or instruments to, any holder of 5% or
more of the voting securities of any investment company managed or advised by
AIM. The Company has obtained an order of exemption from the SEC which permits
the Company to engage in certain transactions with such 5% holder, if the
Company complies with conditions and procedures designed to ensure that such
transactions are executed at fair market value and present no conflicts of
interest.
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Some of the AIM Funds may have objectives similar to those of the
Portfolio. It is possible that at times, identical securities will be acceptable
for one or more of such investment companies. However, the position of each
account in the securities of the same issue may vary and the length of time that
each account may choose to hold its investment in the securities of the same
issue may likewise 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
consistent with the investment policies of the Portfolio and one or more of
these accounts is considered at or about the same time, transactions in such
securities will be allocated in good faith among the Portfolio and such accounts
in a manner deemed equitable by AIM. AIM may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution. Simultaneous transactions could adversely
affect the ability of the Portfolio to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Net investment income for the Portfolio is declared as a dividend to
the shareholders of record of the Company on each business day of the Company.
The dividend declared on any day preceding a non-business day will include the
income accrued on such non-business day. Dividends will be paid monthly. Net
realized capital gains, if any, are normally distributed annually. The Company
may distribute realized capital gains of the Portfolio more often if deemed
necessary in order to maintain the net asset value of the Portfolio at $1.00 per
share. However, the Company does not expect the Portfolio to realize net long-
term capital gains. Dividends and distributions are paid in cash unless the
shareholder has elected to reinvest such dividends and distributions in
additional full and fractional shares at the net asset value thereof.
The dividend accrued and paid for each class will consist of: (a)
income for the Portfolio, the allocation of which is based upon each such
class's pro rata share of the total shares outstanding which relate to the
Portfolio, less (b) Company expenses accrued for the applicable dividend period
attributable to the Portfolio, such as custodian fees, directors' fees,
accounting and legal expenses, allocated based upon each class's pro rata share
of the net assets of the Portfolio, less (c) expenses directly attributable to
each class which are accrued for the applicable dividend period, such as
distribution expenses, if any, transfer agent fees or registration fees which
may be unique to such class. Dividends are accrued for the Private Investment
Class of the Portfolio as follows: dividends are declared to shareholders of
record immediately following the determination of the net asset value of the
Portfolio. Accordingly, dividends accrue on the first day that a purchase order
for Shares is effective, but not on the day that a redemption order is
effective. Thus, if a purchase order is accepted prior to 12:00 noon Eastern
Time, the shareholder will receive its pro rata share of dividends beginning
with those declared on that day.
Should the Company incur or anticipate any unusual expense, loss or
depreciation, which would adversely affect the net asset value per share of the
Portfolio or the net income per share of a class of the Portfolio for a
particular period, the 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 then prevailing circumstances. For example, if the net asset value per share
of the Portfolio were reduced, or were anticipated to be reduced, below $1.00,
the Board of Directors might suspend further dividend payments on shares of the
Portfolio until the net asset value returns to $1.00. Thus, such expense or
loss or depreciation might result in a shareholder receiving no dividends
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for the period during which it held shares of the Portfolio and/or in 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 Portfolio and its shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolio 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
The Portfolio has elected to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Portfolio 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 at least (a)
90% of its investment company taxable income (i.e., net investment income and
the excess of net short-term capital gain over net long-term capital loss) and
(b) 90% of its tax-exempt income (net of allocable expenses and amortized bond
premium) for the taxable year (the "Distribution Requirement"), and satisfies
certain other requirements of the Code that are described below. Distributions
by the Portfolio made during the taxable year or, under specified circumstances,
within twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and can therefore satisfy
the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income from the sale or other disposition of stock,
securities or foreign currencies (or options, futures or forward contracts
thereon) held for less than three months (the "Short-Short Gain Test"). Because
of the Short-Short Gain Test, the Portfolio may have to limit the sale of
appreciated securities that it has held for less than three months. However,
the Short-Short Gain Test will not prevent the Portfolio from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded. Interest (including original
issue discount) received by the Portfolio at maturity or upon the disposition of
a security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In addition to satisfying the requirements described above, the
Portfolio must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each quarter of
the Portfolio's taxable year, at least 50% of the value of the Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of
33
<PAGE>
other regulated investment companies, and securities of other issuers (as to
which the Portfolio has not invested more than 5% of the value of the
Portfolio's total assets in securities of such issuer and as to which the
Portfolio does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Portfolio controls and which are engaged in the same or
similar trades or businesses.
If for any taxable year the Portfolio 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 the Portfolio's current and accumulated
earnings and profits.
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
for the one-year period ended on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. Undistributed
tax-exempt interest on Municipal Securities is not subject to the excise tax.
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.
The Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Portfolio may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability.
COMPANY DISTRIBUTIONS
The Portfolio intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Portfolio's
taxable year at least 50% of the Portfolio's total assets consists of Municipal
Securities. Distributions from the Portfolio will constitute exempt-interest
dividends to the extent of the Portfolio's tax-exempt interest income (net of
allocable expenses and amortized bond premium). Exempt-interest dividends
distributed to shareholders of the Portfolio are excluded from gross income for
federal income tax purposes. However, shareholders required to file a federal
income tax return will be required to report the receipt of exempt-interest
dividends on their returns. Moreover, while exempt-interest dividends are
excluded from gross income for federal income tax purposes, they may be subject
to alternative minimum tax ("AMT") in certain circumstances and may have other
collateral tax consequences as discussed below. Distributions by the Portfolio
of any investment company taxable income or of any net capital gain will be
taxable to shareholders as discussed below.
AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed a maximum rate of 28% for noncorporate taxpayers and
20% for corporate taxpayers on the excess of the taxpayer's alternative minimum
taxable income ("AMTI") over an exemption amount. In addition, under the
Superfund Amendments and Reauthorization Act of 1986, a tax is imposed for
taxable years beginning after 1986 and before 1996 at the rate of 0.12% on the
34
<PAGE>
excess of a corporate taxpayer's AMTI (determined without regard to the
deduction for this tax and the AMT net operating loss deduction) over $2
million. Exempt-interest dividends derived from certain "private activity"
Municipal Securities issued after August 7, 1986 will generally constitute an
item of tax preference includable in AMTI for both corporate and noncorporate
taxpayers. In addition, exempt-interest dividends derived from all Municipal
Securities, regardless of the date of issue, must be included in 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 AMT net
operating loss deduction)) includable in AMTI.
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must be
included in an individual shareholder's gross income subject to federal income
tax. Further, a shareholder of the Portfolio is denied a deduction for interest
on indebtedness incurred or continued to purchase or carry shares of the
Portfolio. Moreover, a shareholder who is (or is related to) a "substantial
user" of a facility financed by industrial development bonds held by the
Portfolio will likely be subject to tax on dividends paid by the Portfolio which
are derived from interest on such bonds. Receipt of exempt-interest dividends
may result in other collateral federal income tax consequences to certain
taxpayers, including financial institutions, property and casualty insurance
companies and foreign corporations engaged in a trade or business in the United
States. Prospective investors should consult their own tax advisers as to such
consequences.
The Portfolio anticipates distributing substantially all of its
investment company taxable income, if any, 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 not qualify for the
dividends-received deduction for corporations.
The Portfolio may either retain or distribute to shareholders its net
capital gain, if any, for each taxable year. The Portfolio 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, regardless of the length of time the shareholder has held his
shares or whether such gain was recognized by the Portfolio prior to the date on
which the shareholder acquired his shares. Realized market discount on
Municipal Securities purchased after April 30, 1993, will be treated as ordinary
income and not as capital gain.
Distributions by the Portfolio that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain dividends 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 the Portfolio will be treated in the manner described
above regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Portfolio (or of another portfolio). Shareholders
electing to reinvest a distribution in additional shares will be treated as
receiving a distribution in an amount equal to the net asset value of the shares
acquired, determined as of the reinvestment date.
Ordinarily, shareholders are required to take distributions by the
Portfolio 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
35
<PAGE>
month will be deemed to have been received by the shareholders (and made by the
Portfolio) 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.
The Portfolio will be required in certain cases to withhold and remit
to the U.S. Treasury 31% of ordinary income dividends and capital gain
dividends, if any, and the proceeds of redemption of shares, paid to any
shareholder (1) who has provided either an incorrect tax identification number
or no number at all, (2) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend income
properly, or (3) who has failed to certify to a Portfolio that it is not subject
to backup withholding or that it is a corporation or other "exempt recipient."
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
the Portfolio is "effectively connected" with a U.S. trade or business carried
on by such shareholder.
If the income from the Portfolio is not effectively connected with a
U.S. trade or business carried on by a foreign shareholder, ordinary income
dividends and return of capital distributions will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount
of the dividend. Such a foreign shareholder would generally be exempt from U.S.
federal income tax on gains realized on the sale of shares of the Portfolio,
capital gain dividends (if any) and exempt-interest dividends.
If the income from the Portfolio is effectively connected with a U.S.
trade or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends (if any) and any gains realized upon the sale
of shares of the Portfolio 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 noncorporate shareholders, the Portfolio may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
(other than exempt-interest dividends) that are otherwise exempt from
withholding tax (or taxable at a reduced treaty rate) unless such shareholders
furnish the Portfolio with proper notification of their foreign status.
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 the
Portfolio, including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated
herein.
36
<PAGE>
Rules of state and local taxation of ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
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 Portfolio.
37
<PAGE>
FINANCIAL STATEMENTS
FS
<PAGE>
INDEPENDENT To the Board of Directors and Shareholders
AUDITORS' Tax-Free Investments Co.
REPORT
We have audited the accompanying statement of assets and
liabilities of the Cash Reserve Portfolio (a Portfolio of
Tax-Free Investments Co.), including the schedule of
investments, as of March 31, 1995, and the related statement
of operations for the year then ended, the statement of
changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of
the years in the three-year period then ended. These
financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 March 31,
1995, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of the Cash Reserve
Portfolio as of March 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the three-year
period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
May 5, 1995
FS-1
<PAGE>
SCHEDULE OF INVESTMENTS
March 31, 1995
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
ALABAMA - 1.07%
- ---------------------------------------------------------------------------
Birmingham (City of); General
Obligation Series 1994-A Warrants
4.20% 06/01/18(b)(c) A-1+ VMIG-1 $ 3,000 $ 3,000,000
- ---------------------------------------------------------------------------
Industrial Development Board of the
City of McIntosh (CIBA-GEIGY Corp.
Project); Variable Rate Series 1986
PCR
4.50% 07/01/04(b)(c) A-1+ -- 1,200 1,200,000
- ---------------------------------------------------------------------------
Marshall (County of); Special
Obligation School Refunding
Series 1994 Warrants
4.25% 02/01/12(b)(c) A-1+ -- 2,925 2,925,000
- ---------------------------------------------------------------------------
Medical Clinic Board of the City of
Birmingham; Medical Clinic UAHSF
Series 1991 RB
4.50% 12/01/26(b)(c) A-1+ - 4,000 4,000,000
- ---------------------------------------------------------------------------
11,125,000
- ---------------------------------------------------------------------------
ALASKA - 2.81%
Alaska (State of) Finance Corp.;
Government Purpose Series
1994 A RB
4.25% 12/01/24(b)(c) A-1+ VMIG-1 5,000 5,000,000
- ---------------------------------------------------------------------------
Alaska Housing Finance Corp.; General
Mortgage RB
4.20% Series 1991 A 06/01/26(b) A-1+ VMIG-1 6,000 6,000,000
- ---------------------------------------------------------------------------
4.15% Series 1991 C 06/01/26(b) A-1+ VMIG-1 18,200 18,200,000
- ---------------------------------------------------------------------------
29,200,000
- ---------------------------------------------------------------------------
ARIZONA - 5.42%
Apache (County of) (Tucson Electric
Co.); Series 1981 B PCR
4.25% 10/01/21(b)(c) A-1+ VMIG-1 8,000 8,000,000
- ---------------------------------------------------------------------------
Industrial Development Authority of the
County of Pinal (Magma Copper Co.
Project); Refunding PCR
4.55% Series 1984 12/01/09(b)(c) A-1+ P-1 2,600 2,600,000
- ---------------------------------------------------------------------------
4.25% Series 1992 12/01/11(b)(c) A-1+ VMIG-1 2,500 2,500,000
- ---------------------------------------------------------------------------
Maricopa County Pollution Control Corp.
(Arizona Public Service Co.); PCR
4.50% Series 1994 A 05/01/29(b)(c) A-1+ P-1 700 700,000
- ---------------------------------------------------------------------------
4.50% Series 1994 C 05/01/29(b)(c) A-1+ P-1 5,900 5,900,000
- ---------------------------------------------------------------------------
Peoria Unified School District No. 11
of Maricopa County; School Improvement
Refunding Series 1994 RB
3.75% 07/01/95(d) AAA Aaa 1,830 1,830,000
- ---------------------------------------------------------------------------
</TABLE>
FS-2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
Arizona - (continued)
Pima County Industrial Development
Authority (Tucson Electric Power Co.-
Irvington Project); Series 1982-A IDR
4.20% 10/01/22(b)(c) A-1+ VMIG-1 $ 6,200 $ 6,200,000
- ---------------------------------------------------------------------------
Pima County Industrial Development
Authority (Tucson Electric Power Co.
General Project); Series 1982 A IDR
4.20% 07/01/22(b)(c) A-1 VMIG-1 2,000 2,000,000
- ---------------------------------------------------------------------------
Pima County Industrial Development
Authority (Tucson Retirement Center
Project); Refunding Series 1988 IDR
4.00% 01/01/09(b)(c) -- VMIG-1 3,000 3,000,000
- ---------------------------------------------------------------------------
4.00% 06/15/22(b)(c) A-1+ VMIG-1 22,100 22,100,000
- ---------------------------------------------------------------------------
Tempe Union High School District No.
213; Series 1994 TAN
4.70% 07/28/95 SP-1+ -- 1,500 1,502,338
- ---------------------------------------------------------------------------
56,332,338
- ---------------------------------------------------------------------------
ARKANSAS - 0.46%
Arkansas Hospital Equipment Finance
Authority; Equipment Lease Series
1985 RB
4.10% 12/01/05(b)(c) A-1+ -- 1,800 1,800,000
- ---------------------------------------------------------------------------
University of Arkansas Board of
Trustees (UAMS Campus): Various
Facility Series 1994 RB
4.20% 12/01/19(b)(c) -- VMIG-1 3,000 3,000,000
- ---------------------------------------------------------------------------
4,800,000
- ---------------------------------------------------------------------------
CALIFORNIA - 3.45%
Alameda (County of); 1994-95 TRAN
4.75% 08/11/95 SP-1+ MIG-1 5,000 5,009,490
- ---------------------------------------------------------------------------
California School Cash Reserve Program
Authority; Series 1994 A RAN
4.50% 07/05/95 -- MIG-1 4,000 4,007,518
- ---------------------------------------------------------------------------
California Statewide Community
Development Authority;
Series 1994 A TRAN
4.50% 07/17/95(c) SP-1+ MIG-1 6,000 6,013,558
- ---------------------------------------------------------------------------
Los Angeles County Local Educational
Agencies; Series 1994-95 A TRAN
4.50% 07/06/95(c)(d) SP-1+ MIG-1 3,000 3,004,791
- ---------------------------------------------------------------------------
Riverside (County of); Series 1994-95
TRAN
4.25% 06/30/95 SP-1+ MIG-1 2,800 2,804,326
- ---------------------------------------------------------------------------
Sacramento (City of); 1994 TRAN
4.50% 07/28/95 SP-1+ MIG-1 5,000 5,004,964
- ---------------------------------------------------------------------------
San Diego Area Local Governments; 1994
TRAN
4.50% 06/30/95 SP-1+ -- 10,000 10,021,410
- ---------------------------------------------------------------------------
35,866,057
- ---------------------------------------------------------------------------
</TABLE>
FS-3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
COLORADO - 2.26%
Colorado (State of); Series 1994 TRAN
4.50% 06/27/95 -- MIG-1 $ 4,000 $ 4,006,433
- --------------------------------------------------------------------------
Colorado Health Facilities Authority
(Boulder Community Hospital Project);
Variable Rate Demand Hospital Series
1989 B RB
4.00% 10/01/14(b)(c) A-1+ VMIG-1 4,795 4,795,000
- --------------------------------------------------------------------------
Colorado Health Facilities Finance
Authority (Sisters of Charity Health
Facility); RB
4.05% Series 1992 A 05/15/22(b) A-1+ VMIG-1 2,000 2,000,000
- --------------------------------------------------------------------------
4.05% Series 1992 B 05/15/22(b) A-1+ VMIG-1 1,000 1,000,000
- --------------------------------------------------------------------------
Pitkin (County of) (Centennial-Aspen
Project); Multifamily Housing Series
1984 RB
3.95% 04/01/07(b)(d) -- VMIG-1 7,700 7,700,000
- --------------------------------------------------------------------------
Regional Transportation District;
Weekly Adjustable/Fixed Rate Special
Passenger Fare Series 1989 A RB
4.25% 06/01/99(b)(d) A-1+ -- 4,005 4,005,000
- --------------------------------------------------------------------------
23,506,433
- --------------------------------------------------------------------------
CONNECTICUT - 1.92%
Connecticut (State of); Special
Assessment Unemployment Compensation
Advance Refunding Series 1993 C RB
3.85% 07/01/95(c)(e) A-1+ VMIG-1 20,000 19,984,773
- --------------------------------------------------------------------------
DISTRICT OF COLUMBIA - 0.37%
District of Columbia (The American
University Issue); Variable Rate
Weekly Demand Series 1985 RB
4.30% 10/01/15(b)(d) -- VMIG-1 3,800 3,800,000
- --------------------------------------------------------------------------
DELAWARE - 0.47%
Delaware Health Facilities Authority
(Pooled Loan Program); Variable Rate
Weekly Demand/Fixed Rate Series 1988
RB
4.10% 03/01/00(b)(d) A-1+ VMIG-1 4,900 4,900,000
- --------------------------------------------------------------------------
FLORIDA - 2.69%
Florida Housing Finance Authority
(Cypress Lake Project); Multi-Family
Housing Series WW RB
4.05% 12/01/07(b)(c) A-1 -- 5,300 5,300,000
- --------------------------------------------------------------------------
Florida Local Government Finance
Authority; Governmental Unit Loan
Series 1987 A RB
4.15% 09/01/16(b)(d) - VMIG-1 4,000 4,000,000
- --------------------------------------------------------------------------
Hillsborough County Industrial
Development Authority (Tampa Electric
Co. Gannon Coal Conversion Project);
Series 1992 PCR
4.55% 05/15/18(b) A-1+ VMIG-1 1,000 1,000,000
- --------------------------------------------------------------------------
</TABLE>
FS-4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
Florida - (continued)
Jacksonville (City of) Health Facility
Authority (Baptist Medical Center);
Hospital RB
4.45% 06/01/08(b)(d) A-1+ VMIG-1 $ 2,900 $ 2,900,000
- --------------------------------------------------------------------------
Orange (County of); School District
Series A RAN
3.75% 04/06/95 -- MIG-1 7,940 7,939,402
- --------------------------------------------------------------------------
Pineallas Florida Housing Authority
(Foxbridge Apartments); Multifamily
Mortgage Refunding Series 1993 A RB
4.05% 03/01/23(b)(c) A-1 -- 1,000 1,000,000
- --------------------------------------------------------------------------
Putnam County Development Authority
(Seminole Electric Cooperative, Inc.
Project); National Rural Utilities
Cooperative Finance Corp. Guaranteed
Floating/Fixed Rate PCR
4.30% Pooled Series 1984H-1
03/15/14(b)(c) A-1+ P-1 4,065 4,065,000
- --------------------------------------------------------------------------
4.30% Pooled Series 1984H-2
03/15/14(b)(c) A-1+ P-1 1,700 1,700,000
- --------------------------------------------------------------------------
27,904,402
- --------------------------------------------------------------------------
GEORGIA - 1.79%
College Park Business & Industrial
Development Authority (Marriott Corp.
Project); Adjustable Tender Series
1985 IDR
4.60% 08/01/15(b)(c) -- P-1 2,700 2,700,000
- --------------------------------------------------------------------------
Decatur County Bianbridge Industrial
Development Authority (Kaiser
Agriculture Chemical Inc. Project);
Series 1985 IDR
4.05% 12/01/02(b)(c) A-1+ -- 3,500 3,500,000
- --------------------------------------------------------------------------
DeKalb County Housing Authority
(Columbia on Claremont Project);
Multifamily Housing Series 1985H RB
4.05% 08/01/05(b)(c) -- VMIG-1 1,100 1,100,000
- --------------------------------------------------------------------------
DeKalb Private Hospital Authority
(Egleston Children's Hospital at
Emory University); Variable Rate
Demand Series 1994 A Revenue
Anticipation Certificates
4.10% 03/01/24(b)(c) A-1+ VMIG-1 1,000 1,000,000
- --------------------------------------------------------------------------
Development Authority of Burke County
(Oglethorpe Power Corp.); Adjustable
Tender Series 1994A PCR
4.10% 01/01/19(b)(d) A-1+ VMIG-1 3,100 3,100,000
- --------------------------------------------------------------------------
Development Authority of DeKalb County
(Joyce International, Inc. Project);
Monthly Floating Rate Issued 1984 IDR
4.00% 01/01/00(b)(c) A-1 -- 500 500,000
- --------------------------------------------------------------------------
Development Authority of DeKalb County
(Radiation Sterilizers, Inc.
Project); Variable Rate Demand Series
1985 IDR
4.00% 03/01/05(b)(c) A-1 -- 4,600 4,600,000
- --------------------------------------------------------------------------
</TABLE>
FS-5
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
Georgia - (continued)
Housing Authority of Clayton County
(Kimberly Forest Apartments Project);
Multifamily Housing Refunding Series 1990
B RB
4.25% 01/01/21(b)(d) A-1+ VMIG-1 $ 2,055 $ 2,055,000
- -------------------------------------------------------------------------------
18,555,000
- -------------------------------------------------------------------------------
IDAHO - 1.88%
Idaho (State of); Series 1994 TAN
4.50% 06/29/95 SP-1 MIG-1 1,000 1,001,596
- -------------------------------------------------------------------------------
Idaho Health Facilities Authority (Holy
Cross Health System Corp.); Variable Rate
Series 1995 RB
4.15% 12/01/23(b) A-1+ VMIG-1 18,500 18,500,000
- -------------------------------------------------------------------------------
19,501,596
- -------------------------------------------------------------------------------
ILLINOIS - 7.75%
Burbank (City of) (Service Merchandise Co.
Inc. Project); Floating Rate Monthly
Demand Industrial Building Series 1984 RB
3.90% 09/15/24(b)(c) A-1+ -- 3,600 3,600,000
- -------------------------------------------------------------------------------
Chicago (City of) O'Hare International
Airport (American Airlines, Inc.
Project); Special Facility RB
4.55% Series 1983 C 12/01/17(b)(c) -- P-1 400 400,000
- -------------------------------------------------------------------------------
4.55% Series 1983 D 12/01/17(b)(c) -- P-1 1,700 1,700,000
- -------------------------------------------------------------------------------
Cook (County of) (Catholic Charities
Housing Development Corp. Project);
Adjustable Demand Series 1988 A-1 RB
4.20% 01/01/28(b)(c) -- VMIG-1 1,700 1,700,000
- -------------------------------------------------------------------------------
East Peoria (City of) (Radnor/East Peoria
Partnership Project); Multifamily Housing
Series 1983 RB
4.375% 06/01/08(b)(c) -- Aa3 6,690 6,690,000
- -------------------------------------------------------------------------------
Elmhurst (City of) (Joint Commission on
Accreditation of Healthcare
Organizations); Adjustable Demand Series
1988 RB
4.20% 07/01/18(b)(c) A-1+ VMIG-1 1,275 1,275,000
- -------------------------------------------------------------------------------
Illinois (State of); Series 1994 General
Obligation Certificates
4.75% 05/15/95 SP-1+ MIG-1 5,000 5,005,196
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(A.E. Staley Manufacturing Co. Project);
Adjustable Tender Series 1985 PCR
4.10% 12/01/05(b)(c) -- P-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Institutional Gas Technology Project);
Variable Rate Series 1993 RB
4.15% 09/01/18(b)(c) A-1+ -- 2,800 2,800,000
- -------------------------------------------------------------------------------
</TABLE>
FS-6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
Illinois - (continued)
Illinois Development Finance Authority
(Jewish Charities
Revenue Anticipation Note Program);
Variable Rate Demand Series 1994-1995 B
RAN
4.25% 06/30/95(b)(c) A-1+ -- $ 7,000 $ 7,000,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Marriott Corp.
Deerfield Project); Adjustable Tender
Series 1984 IDR
4.20% 11/01/14(b)(c) -- P-1 1,300 1,300,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Aurora University Project);
Variable/Fixed Rate Refunding Series 1989
RB
4.25% 01/01/09(b)(c) A-1+ -- 800 800,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Franciscan Sisters Health Care Corp.
Project); Adjustable Rate Series 1985-B RB
4.10% 09/01/15(b)(c) -- VMIG-1 900 900,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Hospital Sister Services, Inc. Obligated
Group Project); Unit Priced Demand
Adjustable Series 1985 E RB
4.00% 12/01/14(b)(d) A-1+ VMIG-1 3,200 3,200,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority (South
Suburban Hospital Project); Variable Rate
Demand Series 1994 RB
4.20% 02/15/14(b)(c) A-1+ -- 12,500 12,500,000
- -------------------------------------------------------------------------------
Illinois State Toll Highway Authority; Toll
Highway Refunding Series 1993 B RB
4.25% 01/01/10(b)(d) A-1+ VMIG-1 18,200 18,200,000
- -------------------------------------------------------------------------------
Marseilles (City of) (Kaiser Agricultural
Chemicals Inc. Project); Variable Rate
Demand Series 1985 IDR
4.05% 01/01/98(b)(c) A-1+ -- 4,650 4,650,000
- -------------------------------------------------------------------------------
Northwest Suburban Municipal Joint Action
Water Agency (Cook, Dupage, and Kane
Counties, Illinois); Water Supply System
Series 1985 RB
9.875% 05/01/95(e)(f) -- Aaa 1,805 1,832,226
- -------------------------------------------------------------------------------
Village of Lisle (The Ponds of Pembroke
Project); Multi-Family Housing 1985 Issue
RB
4.10% 12/15/25(b)(c) A-1+ -- 1,300 1,300,000
- -------------------------------------------------------------------------------
Village of Northbrook (Euromarket Designs,
Inc. Project); Variable Rate Demand Series
1993 IDR
4.15% 07/01/02(b)(c) A-1+ -- 3,700 3,700,000
- -------------------------------------------------------------------------------
80,552,422
- -------------------------------------------------------------------------------
</TABLE>
FS-7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
INDIANA - 0.12%
Auburn (City of) (Sealed Power Corp.
Project); Variable Rate Demand Economic
Development Series 1985 RB
4.00% 07/01/10(b)(c) -- VMIG-1 $ 1,200 $ 1,200,000
- -----------------------------------------------------------------------------
IOWA - 1.08%
Chariton (City of) (Hy-Vee Food Stores,
Inc. Project); Refunding Series 1984
IDR
3.90% 11/01/04(b)(c) A-1+ -- 1,162 1,162,000
- -----------------------------------------------------------------------------
Iowa (State of) School Corporations;
Warrant Certificates Series 1994 A TRAN
4.25% 07/17/95(d) SP-1+ MIG-1 10,000 10,018,355
- -----------------------------------------------------------------------------
11,180,355
- -----------------------------------------------------------------------------
KANSAS - 0.70%
Kansas City (City of); Temporary Notes
Series 1994 GO
4.35% 07/31/95(g) -- -- 5,403 5,405,179
- -----------------------------------------------------------------------------
Lawrence (County of) Industrial
Development Authority (Homestake Mining
Co.); Series 1983 PCR
4.25% 04/01/03(b)(c) A-1+ P-1 1,900 1,900,000
- -----------------------------------------------------------------------------
7,305,179
- -----------------------------------------------------------------------------
KENTUCKY - 2.36%
Kentucky Development Finance Authority
(FHA-Baptist Hospital Southeast Inc.);
Hospital Series 1985 RB
9.75% 08/01/95(e)(f) AAA Aaa 2,000 2,076,071
- -----------------------------------------------------------------------------
Mason County (East Kentucky Power
Cooperative, Inc. Project); National
Rural Utilities Cooperative Finance
Corp. Guaranteed Floating/Fixed Rate
PCR
4.30% Pooled Series 1984 B-1
10/15/14(b)(c) A-1+ Aa3 12,950 12,950,000
- -----------------------------------------------------------------------------
4.30% Pooled Series 1984 B-2
10/15/14(b)(c) A-1+ Aa3 9,450 9,450,000
- -----------------------------------------------------------------------------
24,476,071
- -----------------------------------------------------------------------------
LOUISIANA - 2.20%
East Baton Rouge (Parish of) (Georgia-
Pacific Corp. Project); 7 & 7 Series
1984 PCR
4.05% 10/01/99(b)(c) AA Aa2 2,000 2,000,000
- -----------------------------------------------------------------------------
Lake Charles Harbor & Terminal District
(Reynolds Metals Co. Project); Series
1990 IDR
4.00% 05/01/06(b)(c) A-1+ -- 9,900 9,900,000
- -----------------------------------------------------------------------------
</TABLE>
FS-8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
Louisiana - (continued)
Louisiana Offshore Terminal Authority
(LOOP Inc. Project); Deepwater Port
Refunding RB
4.55% First Stage Series 1986
09/01/06(b)(c) -- VMIG-1 $ 1,000 $ 1,000,000
- ----------------------------------------------------------------------------
4.05% First Stage Series 1991A
09/01/08(b)(c) A-1+ VMIG-1 3,500 3,500,000
- ----------------------------------------------------------------------------
Louisiana Public Facilities Authority
(Sisters of Charity of the Incarnate
Word); SCH Health Care System Unit
Priced Demand Adjustable Series 1993
RB
3.70% 04/03/95(e) A-1+ VMIG-1 4,000 4,000,000
- ----------------------------------------------------------------------------
New Orleans Exhibition Hall Authority;
Special Tax Series 1989 B Bonds
4.25% 07/01/18(b)(c) A-1+ VMIG-1 2,500 2,500,000
- ----------------------------------------------------------------------------
22,900,000
- ----------------------------------------------------------------------------
MAINE - 0.39%
Maine (State of); General Obligation
TAN
4.50% 06/30/95 SP-1+ MIG-1 4,000 4,007,604
- ----------------------------------------------------------------------------
MICHIGAN - 3.22%
Detroit (City of); Limited Tax General
Obligation Series 1994 B TAN
4.25% 05/01/95(c) SP-1+ MIG-1 8,250 8,254,072
- ----------------------------------------------------------------------------
Grand Rapids (City of); Water Supply
System Improvement Variable Rate
Demand Series 1993 Refunding RB
4.50% 01/01/20(b)(d) A-1+ VMIG-1 7,400 7,400,000
- ----------------------------------------------------------------------------
Jackson County Economic Development
Corp. (Sealed Power Corp.); Economic
Development Variable Refunding RB
4.00% 10/01/19(b)(c) -- VMIG-1 1,000 1,000,000
- ----------------------------------------------------------------------------
Michigan State Hospital Finance
Authority (Edward Sparrow Hospital);
Series 1985 RB
8.75% 06/01/95(d)(e) AAA Aaa 3,900 4,008,224
- ----------------------------------------------------------------------------
Michigan State Hospital Finance
Authority; Series 1991 RB
4.05% 12/01/11(b)(c) -- VMIG-1 1,400 1,400,000
- ----------------------------------------------------------------------------
Michigan State Housing Development
Authority; Rental Housing Series 1994
C RB
4.15% 04/01/19(b)(c) A-1+ -- 6,700 6,700,000
- ----------------------------------------------------------------------------
Michigan Strategic Fund (260 Brown St.
Associates Project); Convertible
Variable Rate Demand Limited
Obligation Series 1985 RB
3.75% 10/01/15(b)(c) -- VMIG-1 3,750 3,750,000
- ----------------------------------------------------------------------------
Michigan Strategic Fund (Norcor Corp.
Project); IDR
4.00% 12/01/00(b)(c) -- P-1 1,000 1,000,000
- ----------------------------------------------------------------------------
33,512,296
- ----------------------------------------------------------------------------
</TABLE>
FS-9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
MINNESOTA - 0.47%
Austin (City of) (Hy-Vee Foodstores Inc.
Project); Commercial Development Series
1984 RB
3.90% 12/01/04(b)(c) A-1+ -- $ 900 $ 900,000
- -------------------------------------------------------------------------------
Mankato (City of) (Northern States Power
Co. Project); Floating Collateralized
Series 1985 PCR
4.15% 03/01/11(b) AA- A1 2,900 2,900,000
- -------------------------------------------------------------------------------
St. Paul (City of); Capital Improvement
Series A GO
3.50% 04/01/95 AA+ Aa 1,100 1,099,952
- -------------------------------------------------------------------------------
4,899,952
- -------------------------------------------------------------------------------
MISSOURI - 3.19%
Columbia (City of); Special Obligation
Insurance Reserve Series 1988 A Bonds
4.20% 06/01/08(b)(c) -- VMIG-1 5,700 5,700,000
- -------------------------------------------------------------------------------
Health and Educational Facilities
Authority of the State of Missouri
(Washington University); Health and
Educational Facilities Multi Modal
Interchangeable Rate Series 1989 A RB
4.50% 03/01/17(b) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Higher Education Facilities Authority of
the State of Missouri
(The Washington University Project);
Educational Facilities
Series 1985 B RB
4.15% 09/01/10(b) A-1+ VMIG-1 1,200 1,200,000
- -------------------------------------------------------------------------------
Independence Industrial Development
Authority (Resthaven Project); Series
1995 IDR
4.15% 02/01/25(b)(c) A-1+ -- 5,200 5,200,000
- -------------------------------------------------------------------------------
Land Clearance for Redevelopment Authority
of Kansas City (East-West Bryant Limited
Partnership); Series 1984 IDR
4.50% 12/01/14(b)(c) -- Aa2 4,000 4,000,000
- -------------------------------------------------------------------------------
Missouri State Environmental Improvement &
Energy Resource Authority (Associated
Electric Cooperative, Inc. Project);
Pooled Series 1993-M RB
4.30% 12/15/03(b)(c) AA- VMIG-1 3,080 3,080,000
- -------------------------------------------------------------------------------
Saint Louis County Industrial Development
Authority (Bonhomme Village Apartments
Association Project); Variable Rate
Demand Housing Series 1985 RB
4.10% 10/01/07(b)(c) -- VMIG-1 7,000 7,000,000
- -------------------------------------------------------------------------------
Saint Louis County Industrial Development
Authority (Westport Station Project);
Multifamily Housing Series 1991 A RB
4.05% 07/01/06(b)(c) A-1 -- 2,000 2,000,000
- -------------------------------------------------------------------------------
33,180,000
- -------------------------------------------------------------------------------
</TABLE>
FS-10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
NEBRASKA - 0.12%
Buffalo (County of) (Franciscan Healthcare
Corp. - Kearny Hospital); Hospital Series
1985 Bonds
4.10% 01/01/16(b)(c) -- VMIG-1 $ 1,200 $ 1,200,000
- -------------------------------------------------------------------------------
NEVADA - 0.54%
Clark (County of); Adjustable Rate Airport
System Series 1995 A-1 RB
4.10% 07/01/25(b)(c) A-1+ -- 5,600 5,600,000
- -------------------------------------------------------------------------------
NEW HAMPSHIRE - 0.04%
New Hampshire Industrial Development
Authority (Bangor Hydro-Electric Co.
Project); Variable Rate Demand Series 1983
PCR
4.10% 01/01/09(b)(c) A-1+ -- 400 400,000
- -------------------------------------------------------------------------------
NEW JERSEY - 0.47%
New Jersey Economic Development Authority
(Trailer Marine Transport Corp. Project);
Adjustable Rate Port Facility Series 1983 RB
3.85% 02/01/02(b)(c) A-1 -- 4,900 4,900,000
- -------------------------------------------------------------------------------
NEW MEXICO - 1.50%
Albuquerque (City of); Gross Receipts Ledgers
Tax Series 1991 A RB
4.15% 07/01/22(b)(c) -- VMIG-1 8,000 8,000,000
- -------------------------------------------------------------------------------
Farm City of Farmington (Arizona Public
Service); Refunding Series 1994 B PCR
4.55% 09/01/24(b)(c) A-1+ P-1 7,600 7,600,000
- -------------------------------------------------------------------------------
15,600,000
- -------------------------------------------------------------------------------
NEW YORK - 20.06%
Eagle Tax Exempt Trust; Class A COP(h)
4.35% Series 1994 B 01/01/04(b)(d) A-1c -- 22,400 22,400,000
- -------------------------------------------------------------------------------
4.35% Series 1993 E 08/01/06(b) A-1c -- 15,000 15,000,000
- -------------------------------------------------------------------------------
4.35% Series 943802 05/01/07(b)(d) A-1c -- 17,800 17,800,000
- -------------------------------------------------------------------------------
4.35% Series 1992 A 06/15/07(b)(d) A-1c -- 14,500 14,500,000
- -------------------------------------------------------------------------------
4.35% Series 1993 F 08/01/07(b) A-1c -- 20,500 20,500,000
- -------------------------------------------------------------------------------
4.35% Series 94C2102 06/01/14(b)(d) A-1c -- 12,600 12,600,000
- -------------------------------------------------------------------------------
4.35% Series 1994 C-1 06/15/18(b)(f) A-1c -- 18,000 18,000,000
- -------------------------------------------------------------------------------
4.35% Series 1994 C-2 06/15/18(b)(d) A-1c -- 10,200 10,200,000
- -------------------------------------------------------------------------------
4.35% Series 950901 06/01/21(b) A-1c -- 12,700 12,700,000
- -------------------------------------------------------------------------------
4.30% Series 943207 07/01/29(b)(d) A-1c -- 14,200 14,200,000
- -------------------------------------------------------------------------------
</TABLE>
FS-11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
New York - (continued)
New York (City of); Variable Rate Demand
GO
4.60% Series 1995 B 08/15/04(b)(d) A-1+ VMIG-1 $ 1,800 $ 1,800,000
- -----------------------------------------------------------------------------
4.50% Series 1994-1995 B 08/15/05(b)(d) A-1+ VMIG-1 2,500 2,500,000
- -----------------------------------------------------------------------------
4.25% Series 1995 F 02/15/16(b)(c) A-1+ VMIG-1 19,000 19,000,000
- -----------------------------------------------------------------------------
4.55% Series D 02/01/20(b)(d) A-1+ VMIG-1 5,600 5,600,000
- -----------------------------------------------------------------------------
4.55% Series 1992 D 02/01/21(b)(d) A-1+ VMIG-1 800 800,000
- -----------------------------------------------------------------------------
4.55% Series D 02/01/22(b)(d) A-1+ VMIG-1 4,700 4,700,000
- -----------------------------------------------------------------------------
4.50% Series 1994 08/15/22(b)(c) A-1+ VMIG-1 4,400 4,400,000
- -----------------------------------------------------------------------------
New York City Housing Development Corp.
(James Tower Development); Multifamily
Housing Series 1994 A RB
3.95% 07/01/05(b)(c) A-1 -- 1,000 1,000,000
- -----------------------------------------------------------------------------
New York State Thruway Authority;
Variable Rate Series B RB
4.60% 01/01/24(b)(c) -- VMIG-1 10,800 10,800,000
- -----------------------------------------------------------------------------
208,500,000
- -----------------------------------------------------------------------------
NORTH CAROLINA - 1.17%
New Hanover County Industrial Facilities
and Pollution Control Financing
Authority (Gang-Nail Systems, Inc.
Project); Series 1984 IDR
4.15% 12/01/99(b)(c) -- P-1 1,000 1,000,000
- -----------------------------------------------------------------------------
North Carolina Educational Facilities
Finance Agency (The Bowman Gray School
of Medicine Project); Series 1990 RB
4.10% 09/01/20(b)(c) -- VMIG-1 2,700 2,700,000
- -----------------------------------------------------------------------------
North Carolina Medical Care Commission
(Moses H. Cone Memorial Hospital
Project); Hospital Series 1993 RB
4.10% 10/01/23(b) A-1+ -- 3,500 3,500,000
- -----------------------------------------------------------------------------
North Carolina Medical Care Commission
(North Carolina Baptist Hospital
Project); Hospital Series 1992 B RB
4.10% 06/01/22(b) A-1+ VMIG-1 1,000 1,000,000
- -----------------------------------------------------------------------------
Wake (County of) Pollution Control
Financing Authority (Carolina Power and
Light Co.); Series 1985 A RB
4.00% 05/01/15(b)(c) A-1+ P-1 4,000 4,000,000
- -----------------------------------------------------------------------------
12,200,000
- -----------------------------------------------------------------------------
OHIO - 2.49%
Cuyahoga (County of) (S&R Playhouse
Realty Co.); Adjustable Rate Demand
Series 1984 IDR
4.15% 12/01/09(b)(c) -- MIG-1 670 670,000
- -----------------------------------------------------------------------------
</TABLE>
FS-12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
Ohio - (continued)
Franklin (County of) (Bricker & Eckler
Building Co. Project); Variable Rate
Demand Series 1984 IDR
4.375% 11/01/14(b)(c) -- P-1 $ 9,200 $ 9,200,000
- -------------------------------------------------------------------------------
Franklin (County of) (Holy Cross Health
System); Variable Rate Series Hospital
1995 RB
4.15% 06/01/16(b) A-1+ VMIG-1 15,000 15,000,000
- -------------------------------------------------------------------------------
Ohio Housing Finance Agency (Kenwood
Congregate Retirement Community
Project); Variable Rate Demand
Multifamily Housing Series 1985 RB
4.00% 12/01/15(b)(c) -- VMIG-1 980 980,000
- -------------------------------------------------------------------------------
25,850,000
- -------------------------------------------------------------------------------
OREGON - 1.43%
Hospital Facility Authority of Clackamus
County (Kaiser Permanente Medical Care
Program); Semiannual Tender Series 1984
RB
3.85% 04/01/95(e) A-1+ -- 1,800 1,800,000
- -------------------------------------------------------------------------------
Klamath Falls (City of) (Salt Caves
Hydroelectric Project); Fixed Adjustable
Rate Electric RB
3.75% Series 1986 B 05/02/95(e)(f) SP-1+ -- 4,500 4,497,420
- -------------------------------------------------------------------------------
3.75% Series E 05/02/95(e)(f) SP-1+ -- 750 749,780
- -------------------------------------------------------------------------------
Multnoma County School District #1J; TAN
3.75% 06/29/95 SP-1+ MIG-1 3,000 2,997,633
- -------------------------------------------------------------------------------
Portland (City of) (South Park Block
Project); Multifamily Housing Refunding
Series 1988 A RB
4.05% 12/01/11(b)(c) A-1+ -- 4,800 4,800,000
- -------------------------------------------------------------------------------
14,844,833
- -------------------------------------------------------------------------------
PENNSYLVANIA - 3.24%
Allegheny County Hospital Development
Authority; Hospital RB
4.15% Series 1988 B 03/01/07(b)(c) A-1 VMIG-1 2,300 2,300,000
- -------------------------------------------------------------------------------
4.15% Series 1988 D 03/01/18(b)(c) A-1 VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Allentown (City of); Series 1985 GO
8.875% 05/15/95(e)(f) -- Aaa 1,620 1,630,244
- -------------------------------------------------------------------------------
Beaver County Industrial Development
Authority (Duquesne Light Co. Project);
Series Refunding 1994 PCR
4.50% 10/10/95(c) -- VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Beaver County Industrial Development
Authority (Ohio Edison Co.); Series A
PCR
3.45% 10/01/95(c)(e) A-1+ P-1 1,500 1,490,727
- -------------------------------------------------------------------------------
</TABLE>
FS-13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
Pennsylvania - (continued)
Delaware County Industrial
Development Authority (Henderson-
Radnor Joint Venture Project);
Limited Obligation Series 1985 RB
4.375% 04/01/15(b)(c) -- Aa3 $ 1,000 $ 1,000,000
- -----------------------------------------------------------------------------
Delaware County Industrial
Development Authority (Scott Paper
Co. Project); Variable Rate Demand
Solid Waste Series 1984 D RB
4.25% 12/01/18(b)(c) A-1+ Aa2 400 400,000
- -----------------------------------------------------------------------------
Pennsylvania Higher Education
Facilities Authority (Trustees of
the University of Pennsylvania);
Health Services Series 1994 B RB
4.20% 01/01/24(b) A-1+ VMIG-1 2,300 2,300,000
- -----------------------------------------------------------------------------
Philadelphia (City of); TRAN
4.75% Series 1994-1995A 06/15/95(c) SP-1+ MIG-1 2,000 2,003,367
- -----------------------------------------------------------------------------
4.75% Series D 06/15/95(c) SP-1+ MIG-1 7,000 7,012,490
- -----------------------------------------------------------------------------
4.75% Series 1994-1995 06/30/95 SP-1 MIG-1 3,000 3,003,912
- -----------------------------------------------------------------------------
Schuykill County Industrial
Development Authority (Gilberton
Power Project); Variable Rate
Resource Recovery Series 1985 RB
4.25% 12/01/02(b)(c) A-1 -- 6,200 6,200,000
- -----------------------------------------------------------------------------
Wilkes-Barre (City of) Industrial
Development Authority (Toys "R"
Us/Penn Inc. Project); Economic
Development Series 1984 RB
4.125% 07/01/14(b)(c) -- Aa2 2,300 2,300,000
- -----------------------------------------------------------------------------
33,640,740
- -----------------------------------------------------------------------------
SOUTH CAROLINA - 3.79%
Charleston (County of) (Massey Coal
Terminal Corp. Project); Series 1982
Industrial Refunding Series 1982 RB
4.55% 01/01/07(b)(c) -- P-1 3,600 3,600,000
- -----------------------------------------------------------------------------
Florence (County of) (Stone Container
Corp.); Variable Rate Series 1984
IDR
4.00% 02/01/07(b)(c) A-1+ -- 33,400 33,400,000
- -----------------------------------------------------------------------------
Horry (County of) (Carolina Treatment
Center); Variable Rate Demand Series
1984 RB
4.05% 12/01/14(b)(c) -- Aa2 600 600,000
- -----------------------------------------------------------------------------
York (County of) (North Carolina
Electric Membership Corp.); PCR
4.30% Pooled Series 1984 N-2
09/15/14(b)(c) A-1+ P-1 1,800 1,800,000
- -----------------------------------------------------------------------------
39,400,000
- -----------------------------------------------------------------------------
</TABLE>
FS-14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
TENNESSEE - 5.51%
Health, Educational and Housing Facility
Board of Shelby County (Rhodes College);
Variable Rate Demand Educational
Facilities Series 1985 RB
4.05% 08/01/10(b)(c) A-1+ -- $ 2,300 $ 2,300,000
- -------------------------------------------------------------------------------
Industrial Development Board of the City
of Franklin (The Landings Project);
Variable Rate Demand Multifamily Housing
Series 1985 Class A RB
4.05% 12/01/06(b)(c) A-1 -- 2,000 2,000,000
- -------------------------------------------------------------------------------
Industrial Development Board of the City
of Knoxville (Toys "R" Us Inc., Project);
Series 1984 IDR
4.375% 05/01/14(b)(c) -- Aa2 1,150 1,150,000
- -------------------------------------------------------------------------------
Industrial Development Board of the County
of Bradley (Olin Corp.); Refunding Series
1993 C RB
4.80% 11/01/17(b)(c) A-1+ -- 1,800 1,800,000
- -------------------------------------------------------------------------------
Industrial Development Board of the
Metropolitan Government of Nashville and
Davidson County (Amberwood Ltd. Project);
Multifamily Housing Refunding Series 1993
A RB
4.00% 07/01/95(c)(e) -- VMIG-1 1,500 1,500,000
- -------------------------------------------------------------------------------
Knox County Industrial Development
Authority (Center Square); Variable Rate
Demand RB
3.95% 12/01/14(b)(c) A-1+ -- 5,400 5,400,000
- -------------------------------------------------------------------------------
Knox County Industrial Development
Authority (Old Kingston Properties);
Floating Rate Industrial Series 1984 RB
3.95% 12/01/14(b)(c) A-1+ -- 3,500 3,500,000
- -------------------------------------------------------------------------------
Knox County Industrial Development
Authority (Professional Plaza); Variable
Rate Demand RB
3.95% 12/01/14(b)(c) A-1+ -- 2,900 2,900,000
- -------------------------------------------------------------------------------
Knox County Industrial Development Board
(Weisgarber Partners); Floating Rate
Series 1984 IDR
3.95% 12/01/14(b)(c) A-1+ -- 700 700,000
- -------------------------------------------------------------------------------
Metro Nashville Airport Authority;
Adjustable Rate Refunding
Series 1993 RB
4.25% 07/01/19(b)(d) A-1+ VMIG-1 12,900 12,900,000
- -------------------------------------------------------------------------------
Public Building Authority of the City of
Clarksville (Tennessee Municipal Bond
Fund); Adjustable Rate Pooled Financing
Series 1990 RB
4.10% 07/01/13(b)(d) A-1+ VMIG-1 1,585 1,585,000
- -------------------------------------------------------------------------------
Tennessee (State of); General Obligation
Series 1994 A BAN
4.10% 05/01/96(b) A-1+ VMIG-1 11,000 11,000,000
- -------------------------------------------------------------------------------
Tennessee Higher Educational Facilities;
Variable Rate Series 1993 B BAN
4.10% 03/01/98(b) A-1+ VMIG-1 1,400 1,400,000
- -------------------------------------------------------------------------------
</TABLE>
FS-15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
Tennessee - (continued)
Tennessee State School Bond Authority;
Higher Educational Facilities
Series 1994 B BAN
4.10% 03/01/98(b) A-1+ -- $ 9,150 $ 9,150,000
- -------------------------------------------------------------------------------
57,285,000
- -------------------------------------------------------------------------------
TEXAS - 7.49%
Austin County Industrial Development Corp.
(Justin Industries); Adjustable Tender IDR
4.25% 12/01/14(b)(c) -- P-1 2,150 2,150,000
- -------------------------------------------------------------------------------
Bexar County Health Facilities Development
Corp. (Air Force Village II Project);
Retirement Community Series 1985-B RB
4.125% 03/01/12(b)(c) A-1+ -- 5,305 5,305,000
- -------------------------------------------------------------------------------
Brazos River Harbor Navigation District of
Brazoria County (Hoffman-La Roche Inc.
Project); Series 1985 RB
4.25% 04/01/02(b)(c) -- Aa2 2,750 2,750,000
- -------------------------------------------------------------------------------
Dallas (City of) School District; Series
1994 TRAN
4.875% 08/30/95 -- MIG-1 5,000 5,015,460
- -------------------------------------------------------------------------------
Grapevine Industrial Development Corp.
(Southern Air Transport Inc.-Simuflite
Training Project); Variable Rate Demand
Airport Improvement Refunding Series 1993
RB
4.10% 03/01/10(b)(c) A-1+ -- 5,700 5,700,000
- -------------------------------------------------------------------------------
Harris County Health Development Corp. (The
Methodist Hospital); Hospital Series 1994
RB
4.50% 12/01/25(b) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Harris County Health Facilities Authority
(Sisters of Charity of the Incarnate Word-
Houston); Unit Priced Adjustable Tax
Exempt Securities Series 1985 RB
3.75% 04/03/95 AA VMIG-1 4,000 4,000,000
- -------------------------------------------------------------------------------
Harris County Health Facilities Development
Corp. (Gulf Coast Regional Blood Center
Project); Series 1992 RB
4.40% 04/01/17(b)(c) A-1 -- 3,650 3,650,000
- -------------------------------------------------------------------------------
Harris County Health Facilities Development
Corp. (St. Luke's Episcopal Hospital
Project); Hospital RB
4.50% Series 1985 D 02/15/16(b) A-1+ -- 2,250 2,250,000
- -------------------------------------------------------------------------------
4.50% Series 1992 A 02/15/21(b) A-1+ -- 14,700 14,700,000
- -------------------------------------------------------------------------------
Harris County Health Facilities Development
Corp. (Texas Childrens Hospital); Hospital
Series 1989 B-2 RB
4.15% 10/01/19(b) AA VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Harris County Industrial Development Corp.
(Exxon Project); Series 1984-A PCR
4.60% 03/01/24(b) A-1+ Aaa 1,000 1,000,000
- -------------------------------------------------------------------------------
</TABLE>
FS-16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
Texas - (continued)
Harris County Industrial Development Corp.
(The Lubrizol Corp. Project); Marine
Terminal Refunding Series 1991 RB
4.10% 07/01/00(b) A-1+ P-1 $ 1,100 $ 1,100,000
- -------------------------------------------------------------------------------
Houston (City of); Variable Rate Demand
Series 1992 B Certificates of Obligation
4.15% 04/01/98(b) A-1+ VMIG-1 600 600,000
- -------------------------------------------------------------------------------
Nueces County Health Facilities
Development Corp. (Driscoll Childrens
Hospital); Floating Rate Demand Hospital
Series 1985 RB
4.30% 07/01/15(b)(c) -- VMIG-1 2,570 2,570,000
- -------------------------------------------------------------------------------
Nueces River Authority (Reynolds Metals
Co. Project); Refunding
Series 1985 PCR
4.60% 12/01/99(b)(c) -- P-1 1,300 1,300,000
- -------------------------------------------------------------------------------
Red River Authority of Texas (Southwestern
Public Service Co. Project); Refunding
Series 1991 PCR
4.00% 07/01/11(b) A-1+ VMIG-1 3,000 3,000,000
- -------------------------------------------------------------------------------
Texas Association of School Boards (Tax
Anticipation Notes Program); Series 1994
A TAN
4.75% 08/31/95(c) -- MIG-1 8,500 8,520,460
- -------------------------------------------------------------------------------
Texas Water Development Board (State
Revolving Fund); Multi-Modal
Interchangable Rate Series 1992 A RB
4.50% 03/01/15(b)(c) A-1+ -- 2,100 2,100,000
- -------------------------------------------------------------------------------
Trinity River Industrial Development
Authority (Radiation Sterilizers, Inc.
Project); Variable Rate Demand IDR
4.00% Series 1985 A 11/01/05(b)(c) A-1 -- 500 500,000
- -------------------------------------------------------------------------------
4.00% Series 1985 B 11/01/05(b)(c) A-1 -- 1,650 1,650,000
- -------------------------------------------------------------------------------
77,860,920
- -------------------------------------------------------------------------------
UTAH - 2.60%
Bountiful (City of) (Bountiful Gateway
Park Project); Adjustable Rate Refunding
Series 1987 IDR
4.20% 12/01/97(b)(c) A-1+ -- 3,885 3,885,000
- -------------------------------------------------------------------------------
Salt Lake County Housing Authority (Sandy
Retirement Center Project); Series 1988
RB
4.00% 01/01/09(b)(c) -- VMIG-1 1,000 1,000,000
- -------------------------------------------------------------------------------
State Board of Regents of the State of
Utah; Variable Rate Demand
Series 1988 B RB
4.10% 11/01/00(b)(d) A-1+ VMIG-1 5,400 5,400,000
- -------------------------------------------------------------------------------
State Board of Regents of the State of
Utah (University Inn Project); Variable
Rate Demand Series 1985 IDR
4.50% 12/01/15(b)(c) -- P-1 8,935 8,935,000
- -------------------------------------------------------------------------------
</TABLE>
FS-17
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
Utah - (continued)
Utah State Housing Finance Agency; Single
Family Mortgage Variable Rate Issue 1993 D
RB
4.25% 07/01/16(b) -- VMIG-1 $ 7,800 $ 7,800,000
- -------------------------------------------------------------------------------
27,020,000
- -------------------------------------------------------------------------------
VIRGINIA - 2.10%
Fairfax County Redevelopment and Housing
Authority (Chase Commons Project);
Variable Rate Demand Series 1984 A RB
4.25% 12/01/06(b)(c) -- VMIG-1 3,330 3,330,000
- -------------------------------------------------------------------------------
Industrial Development Authority of Fairfax
County (Fairfax Hospital Systems, Inc.);
Variable Rate Demand Obligation Refunding
Series 1985 A RB
4.10% 10/01/16(b) A-1+ VMIG-1 2,400 2,400,000
- -------------------------------------------------------------------------------
Peninsula Ports Authority of Virginia
(Dominion Terminal Associates); Coal
Terminal Refunding Series 1987 C RB
4.60% 07/01/16(b)(c) -- P-1 3,300 3,300,000
- -------------------------------------------------------------------------------
Virginia Housing Development Authority (AHC
Service Corp.); Variable Rate Demand
Housing Series 1987 A RB
4.15% 09/01/17(b)(c) -- P-1 7,780 7,780,000
- -------------------------------------------------------------------------------
Virginia Housing Development Authority
(Commonwealth Mortgage); Series 1992 C RB
4.25% 07/12/95(e) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
21,810,000
- -------------------------------------------------------------------------------
WASHINGTON - 0.66%
Industrial Development Corp. of the Port of
Port Townsend (Port Townsend Paper Corp.
Project); Variable Rate Refunding
Series 1988 A RB
4.20% 03/01/09(b)(c) -- VMIG-1 5,100 5,100,000
- -------------------------------------------------------------------------------
Student Loan Finance Association
(Guaranteed Student Loan Program);
Variable Rate Demand Second Series 1985 RB
4.00% 01/01/01(b)(c) -- VMIG-1 1,800 1,800,000
- -------------------------------------------------------------------------------
6,900,000
- -------------------------------------------------------------------------------
WEST VIRGINIA - 0.06%
West Virginia Hospital Finance Authority
(VHA Mid-Atlantic States, Inc. Capital
Asset Financing Program); Variable Rate
Demand Hospital Series 1985 A RB
4.10% 12/01/25(b)(d) A-1 Aaa 600 600,000
- -------------------------------------------------------------------------------
</TABLE>
FS-18
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(A) PAR
S&P MOODY'S (000) VALUE
WISCONSIN - 0.92%
Milwaukee Metropolitan Sewer District;
Unlimited Tax Metro Sewer Series 1985
GO
8.80% 05/01/95 AA Aa $ 2,535 $ 2,544,598
- -------------------------------------------------------------------------------
Racine County Unified School District;
Series 1994 TRAN
4.75% 08/23/95 SP-1+ -- 7,000 7,017,215
- -------------------------------------------------------------------------------
9,561,813
- -------------------------------------------------------------------------------
WYOMING - 1.55%
Kemmerer (City of) (Exxon Project);
Series 1984 PCR
4.55% 11/01/14(b) A-1+ P-1 15,600 15,600,000
- -------------------------------------------------------------------------------
Lincoln (County of) (Exxon Project);
Series 1984 C PCR
4.60% 11/01/14(b) A-1+ Aaa 500 500,000
- -------------------------------------------------------------------------------
16,100,000
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 101.81% 1,057,962,784(i)
- -------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -
(1.81%) (18,785,546)
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $1,039,177,238
===============================================================================
</TABLE>
<TABLE>
INVESTMENT ABBREVIATIONS:
<C> <S> <C> <S>
BAN Bond Anticipation Notes RAN Revenue Anticipation Notes
COP Certificates of Participation RB Revenue Bonds
GO General Obligation Bonds TAN Tax Anticipation Notes
IDR Industrial Development Revenue Bonds TRAN Tax and Revenue Anticipation
PCR Pollution Control Revenue Bonds Notes
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"). Ratings are not covered by
Independent Auditors' Report.
(b) Demand security; payable upon demand by the Fund at specified time
intervals no greater than thirteen months. Interest rates are redetermined
periodically. Rates shown are the rates in effect on March 31, 1995.
(c) Security is secured by a letter of credit.
(d) Security is secured by bond insurance.
(e) Security has an outstanding call or mandatory put by the issuer. Par value
and maturity date reflect such call or put.
(f) Security is secured by an escrow fund.
(g) 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 Directors and followed by the
investment advisor.
(h) The Fund may invest in synthetic municipal instruments the value of and
return on which are derived from underlying securities. The types of
synthetic municipal instruments in which the Fund may invest include
variable rate instruments. These instruments 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 Fund.
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. A
"variable rate trust certificate" evidences an interest in a trust
entitling the certificate holder to receive variable rate interest based on
prevailing short-term interest rates and also typically providing the
certificate holder with the conditional right to put its certificate at par
value plus accrued interest. 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.
(i) Cost for federal income tax purposes is $1,057,999,138.
See Notes to Financial Statements.
FS-19
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $ 1,057,962,784
- -------------------------------------------------------------------------
Cash 98,532
- -------------------------------------------------------------------------
Receivables for:
Investments sold 5,574,206
- -------------------------------------------------------------------------
Interest 8,638,051
- -------------------------------------------------------------------------
Investment for deferred compensation plan 10,031
- -------------------------------------------------------------------------
Other assets 71,459
- -------------------------------------------------------------------------
Total assets 1,072,355,063
- -------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 29,555,313
- -------------------------------------------------------------------------
Dividends 3,350,160
- -------------------------------------------------------------------------
Deferred compensation 10,031
- -------------------------------------------------------------------------
Accrued advisory fees 141,628
- -------------------------------------------------------------------------
Accrued directors' fees 2,417
- -------------------------------------------------------------------------
Accrued administrative service fees 7,234
- -------------------------------------------------------------------------
Accrued transfer agent fees 15,901
- -------------------------------------------------------------------------
Accrued distribution fees 6,078
- -------------------------------------------------------------------------
Accrued operating expenses 89,063
- -------------------------------------------------------------------------
Total liabilities 33,177,825
- -------------------------------------------------------------------------
NET ASSETS $ 1,039,177,238
=========================================================================
NET ASSETS:
Institutional Shares $ 1,009,890,739
=========================================================================
Private Investment Class $ 29,286,499
=========================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Institutional Shares:
Authorized 3,000,000,000
- -------------------------------------------------------------------------
Outstanding 1,010,228,635
=========================================================================
Private Investment Class:
Authorized 1,000,000,000
- -------------------------------------------------------------------------
Outstanding 29,296,298
=========================================================================
NET ASSET VALUE PER SHARE:
Net asset value, offering and redemption price per share $1.00
=========================================================================
</TABLE>
See Notes to Financial Statements.
FS-20
<PAGE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1995
<TABLE>
<CAPTION>
PRIVATE
INSTITUTIONAL INVESTMENT
SHARES CLASS FUND
------------- ---------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 35,037,716 $824,460 $35,862,176
- -----------------------------------------------------------------------
EXPENSES:
Advisory fees 1,783,634 40,819 1,824,453
- -----------------------------------------------------------------------
Custodian fees 158,286 7,283 165,569
- -----------------------------------------------------------------------
Transfer agent fees 29,774 2,364 32,138
- -----------------------------------------------------------------------
Registration and filing fees 19,314 46,725 66,039
- -----------------------------------------------------------------------
Administrative service fees 76,484 1,700 78,184
- -----------------------------------------------------------------------
Directors' fees 14,056 216 14,272
- -----------------------------------------------------------------------
Distribution fees -- 60,489 60,489
- -----------------------------------------------------------------------
Printing 21,939 42,801 64,740
- -----------------------------------------------------------------------
Other expenses 100,865 9,326 110,191
- -----------------------------------------------------------------------
Total expenses 2,204,352 211,723 2,416,075
- -----------------------------------------------------------------------
Less expenses assumed by advisor -- (100,000) (100,000)
- -----------------------------------------------------------------------
Net expenses 2,204,352 111,723 2,316,075
- -----------------------------------------------------------------------
NET INVESTMENT INCOME $ 32,833,364 $712,737 33,546,101
- -----------------------------------------------------------------------
Net realized gain (loss) on sales of investments (430,985)
- -----------------------------------------------------------------------
Net unrealized appreciation of investments 33,165
- -----------------------------------------------------------------------
Net increase in net assets resulting from operations $33,148,281
=======================================================================
</TABLE>
See Notes to Financial Statements.
FS-21
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 33,546,101 $ 23,857,366
- -----------------------------------------------------------------------------
Net realized gain (loss) on sales of
investments (430,985) (35,815)
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 33,165 (1,994)
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 33,148,281 23,819,557
- -----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Shares (32,833,365) (23,575,716)
- -----------------------------------------------------------------------------
Private Investment Class (712,736) (281,650)
- -----------------------------------------------------------------------------
Share transactions - net:
Institutional Shares (30,316,694) 45,804,111
- -----------------------------------------------------------------------------
Private Investment Class 12,695,756 7,008,670
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets (18,018,758) 52,774,972
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,057,195,996 1,004,421,024
- -----------------------------------------------------------------------------
End of period $1,039,177,238 $1,057,195,996
=============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest:
Institutional Shares $1,010,228,635 $1,040,545,329
- -----------------------------------------------------------------------------
Private Investment Class 29,296,298 16,600,542
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investments (384,049) 46,936
- -----------------------------------------------------------------------------
Unrealized appreciation of investments 36,354 3,189
- -----------------------------------------------------------------------------
$1,039,177,238 $1,057,195,996
=============================================================================
</TABLE>
See Notes to Financial Statements.
FS-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Tax-Free Investments Co. (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. The Company is organized as a Maryland
corporation consisting of one portfolio, the Cash Reserve Portfolio (the
"Fund"). The Fund consists of two different classes of shares, the
Institutional Cash Reserve Shares ("Institutional Shares") and the Private
Investment Class.
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements.
A. Securities Valuations - The Fund uses the amortized cost method of valuing
investment portfolio securities which has been determined by the Board of
Directors of the Company to represent the fair value of the Fund's
investments.
B. Securities Transactions and Investment Income - Securities transactions are
recorded on a trade date basis. Interest income, adjusted for amortization
of premiums and, when appropriate, discounts on investments, is earned from
settlement date and is recorded on the accrual basis. Interest income is
allocated to each class daily, based upon each class' pro rata share of the
total shares of the Fund outstanding. Discounts, other than original issue,
on short-term obligations are amortized to unrealized appreciation for
financial reporting purposes. Realized gains and losses from securities
transactions are computed on the basis of specific identification of the
securities sold.
C. Dividends and Distributions to Shareholders - It is the policy of the Fund
to declare daily dividends from net investment income. Such dividends are
paid monthly. Distributions from net realized capital gains, if any, are
declared and paid annually. Net capital gains cannot be distributed to the
extent they can be offset by any capital loss carryovers of the Fund.
D. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward of $97,086 (which may be carried forward to offset future
taxable gains, if any) which expires, if not previously utilized, through
the year 2003. The Fund cannot distribute capital gains to shareholders
until the tax loss carryforwards have been utilized. In addition, the Fund
intends to invest in sufficient municipal securities to allow it to qualify
to pay "exempt interest dividends," as defined in the Internal Revenue Code,
to shareholders.
E. Expenses - Operating expenses directly attributable to a class are charged
to that class' operations. Expenses which are applicable to both classes,
e.g., advisory fees, are allocated between them.
FS-23
<PAGE>
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company 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 the annual rate of 0.25% of
the first $500 million of the Fund's average daily net assets plus 0.20% of the
Fund's average daily net assets in excess of $500 million. AIM will, if
necessary, reduce its fees for any fiscal year to the extent required so that
the amount of ordinary expenses of each class (excluding interest, taxes,
brokerage commissions and extraordinary expenses) paid or incurred by each
class for such fiscal year does not exceed the applicable expense limitations
imposed by securities regulations in any state or jurisdiction in which the
Company's shares are qualified for sale.
AIM has voluntarily agreed to reduce its fee from the Fund to the extent
necessary so that the amount of ordinary expenses of the Institutional Shares
(excluding interest, taxes, brokerage commissions, directors' fees,
extraordinary expenses and federal registration fees) paid or incurred by the
Institutional Shares does not exceed 0.20% of the Institutional Shares' average
daily net assets. As a result, AIM's advisory fee on the Private Investment
Class is reduced in the same proportion as the Institutional Shares. For the
year ended March 31, 1995, AIM reduced its fees from the Fund by $659,533. AIM
also assumed expenses of $100,000 on the Private Investment Class during the
same period.
The Company has entered into a master distribution agreement with Fund
Management Company ("FMC") for the distribution of shares of the Institutional
Shares and the Private Investment Class. The Company has also adopted a
distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act with
respect to the Private Investment Class. The Plan provides that the Private
Investment Class may pay up to a 0.50% maximum annual rate of the Private
Investment Class' average daily net assets. Of this amount, the Fund may pay an
asset-based sales charge to FMC and the Fund may pay a service fee of 0.25% of
the average daily net assets of the Private Investment Class to selected
broker-dealers and other financial institutions who offer continuing personal
shareholder services to their customers who purchase and own shares of the
Private Investment Class. Any amounts not paid as a service fee under such Plan
would constitute an asset-based sales charge. The Plan also imposes a cap on
the total amount of sales charges, including asset-based sales charges, that
may be paid by the Fund with respect to the Private Investment Class. During
the year ended March 31, 1995, the Private Investment Class accrued $60,489 as
compensation under the Plan.
The Fund, pursuant to the Company's master investment advisory agreement with
AIM, has agreed to reimburse AIM for certain costs incurred in providing
accounting services to the Fund. During the year ended March 31, 1995, the Fund
reimbursed AIM $78,184 for such services. Effective September 16, 1994, A I M
Institutional Fund Services, Inc. ("AIFS") became a transfer agent for the
Fund. Certain officers and directors of the Company are directors or officers
of AIM, AIFS and FMC.
The Fund paid legal fees of $4,475 for services rendered by Reid & Priest as
counsel to the Board of Directors. In September 1994, Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel was appointed as counsel to the Board of Directors. The
Fund paid legal fees of $1,296 for services rendered by that firm as counsel. A
member of that firm is a director of the Company and, prior to September 1994,
was a member of Reid & Priest.
FS-24
<PAGE>
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of the Company. The Company may invest directors'
fees, if so elected by a director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 4 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended March 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Sold:
Institutional Shares 5,223,878,446 $ 5,223,878,446 5,038,828,273 $5,038,828,273
- ----------------------------------------------------------------------------------------
Private Investment
Class 147,139,503 147,139,503 53,255,784 53,255,784
- ----------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Shares 74,376 74,376 78,543 78,543
- ----------------------------------------------------------------------------------------
Private Investment
Class 600,786 600,786 269,437 269,437
- ----------------------------------------------------------------------------------------
Redeemed:
Institutional Shares (5,254,269,516) (5,254,269,516) (4,993,102,705) (4,993,102,705)
- ----------------------------------------------------------------------------------------
Private Investment
Class (135,044,533) (135,044,533) (46,516,551) (46,516,551)
- ----------------------------------------------------------------------------------------
Net increase
(decrease) (17,620,938) $ (17,620,938) 52,812,781 $ 52,812,781
========================================================================================
</TABLE>
FS-25
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share of the Private
Investment Class outstanding during each of the years in the three-year period
ended March 31, 1995.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00
- --------------------------------------------- ------- ------- ------
Income from investment operations:
Net investment income 0.03 0.02 0.02
- --------------------------------------------- ------- ------- ------
Less distributions:
Dividends from net investment income (0.03) (0.02) (0.02)
- --------------------------------------------- ------- ------- ------
Net asset value, end of period $1.00 $1.00 $1.00
============================================= ======= ======= ======
Total return 2.80% 2.07% 2.43%
============================================= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,286 $16,601 $9,593
============================================= ======= ======= ======
Ratio of expenses to average net assets(a) 0.45%(b) 0.45% 0.45%
============================================= ======= ======= ======
Ratio of net investment income to average net
assets(a) 2.89%(b) 2.05% 2.22%
============================================= ======= ======= ======
</TABLE>
(a) After waiver of advisory fees and expense reimbursements.
(b) Ratios are based on average net assets of $24,685,681. Ratios of expenses
and net investment income to average net assets prior to waiver of advisory
fees and expense reimbursements are 0.92% and 2.42%, respectively.
FS-26
